Ultimate beneficial owner verification helps to meet compliance regulations and prevent fraud.Discover how a UBO check is necessary for risk assessment. 

In the corporate sector, businesses must avoid money launderers, fraudsters, and criminals. The corporation needs in-depth knowledge of how to onboarding companies to mitigate third-party risks. For risk mitigation, it is crucial to identify and verify the ultimate beneficial owner (UBO). UBO check must apply to onboarding companies to evaluate their legitimacy. UBO involvement in money laundering, terrorist financing, corruption, and tax evasion causes severe legal consequences. In this article, let us explore the insights to verify the ultimate beneficial owner of the business in question.

UBO Identification

The ultimate beneficial owner of the company plays a leading role in setting the legitimacy and financial status. UBO is an entity that holds a minimum of 25% of the company’s assets directly or indirectly. He has 25% of voting rights in the decision-making of the company. A UBO can be a director, beneficiary, or shareholder in the company that is taking benefits according to his share’s percentage. FATF recommends that UBO comply with AML regulations regarding anti-money laundering. Non-compliance with recommended laws and regulations results in legal consequences and penalties. 

UBO Check Requirements 

For the UBO identification, the relevant data and documents are required. Identifying the UBO in multi-layered companies is quite challenging; therefore, corporations must ask the business in question to submit the UBO details. The required UBO details include: 

  • Name
  • Physical address
  • Contact number
  • Photocopies of passport ID and driving license 

The documents required to check the financial status of the UBO involve the following:

  • Proof of residential address 
  • Register of Directors and Shareholders
  • Shareholder agreements
  • Financial statements
  • Bank statements
  • Tax returns

Additionally, the UBO requirements vary from business to business, depending on the industry in which it operates. The UBO requirements also depend on the region to which companies belong. 

UBO Verification

The UBO verification involves collecting the above-mentioned documents and their analysis. The documents of UBO are screened against the registered databases of government and legal bodies. Whether a business is online or physical, it must have a UBO record registered in the government’s central databases. This verification process helps to evaluate the legal status of the UBO, which builds trust that the company is legitimate. In applying the UBO check, criminals, fraudsters, money launderers, and other red flags are detected. 

Furthermore, UBO verification in shell companies is more challenging as these companies have policies that allow them to hide their details. Ultimate beneficial owners of shell companies are prone to be involved in money laundering, terrorist financing, tax evasion, and corruption. For this reason, a detailed inspection of the ultimate beneficial owner is required when the corporation is onboarding a shell company. The corporation has to apply UBO checks to verify the legal status of the UBO, which helps in risk mitigation. 

Conduct AML checks

Money laundering is a severe threat to a company’s finances and reputation in the market. Third parties may be involved in money laundering, which may affect the partner corporation. Therefore, it is necessary to apply anti-money laundering AML checks over UBO when hiring companies. AML checks ensure that UBO is in compliance with regulations and that the company will not face non-compliance penalties.

Importance of UBO Check

Applying the UBO check over the ultimate beneficial owner is a crucial step of the verification process. This helps identify the fraudsters, criminals, and politically exposed persons (PEPs) acting as UBOs. UBO checks reduce the risk of money laundering, terrorist financing, and other financial crimes. 

Additionally, the UBO check not only reduces the company’s financing but also saves its reputation. When an organization onboards a company involved in money laundering, it leads to legal consequences. For example, the partner company may face sanctions, hefty fines, and fraud. However, UBO verification minimizes financial risks and prevents company reputations. Ultimately, more companies are encouraged to build healthy financial relations with that. 

Final Thoughts 

Ultimate beneficial owner UBO verification is necessary to determine the legal status of the company. All industry-specific UBO information is collected and screened for verification purposes. UBO check is essential in evaluating the financial status and detecting red flags. The background checks are applied over UBO to detect risks associated with its entity and whether it is legitimate. During onboarding, applying the UBO check helps to reduce the risk of a fraudster and build long-term financial bonds. Hence, UBO verification is integral in establishing legitimate corporate relations.