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UBO Verification: All You Need to Know

Understanding Ultimate Beneficial Ownership (UBO) is essential for financial transparency and regulatory compliance. UBO verification has become a key aspect of due diligence for businesses around the world. It's because companies need to know who they’re doing business with and if these customers are worth the trust. How to identify and verify UBOs? What's the proof of UBO identity? What are the common misconceptions? Let’s explore the topic of UBO verification.

Posted :

January 9, 2024

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KYB

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What is UBO verification?

At its core, UBO verification is the process of confirming and validating the identity of business owners. These are the individuals holding significant ownership or control over a company. This verification is fundamental to ensuring transparency in financial transactions. It plays a key role in preventing illicit activities and adhering to regulatory requirements. Some of the components of UBO verification include reviewing legal documents and understanding the ownership structure. Yet the key is verifying individuals identified as owners or holding control over the business.

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What is UBO identification?

UBO identification is the process of pinpointing the persons who ultimately own or control a company. They might have significant influence over its operations, decision-making, or financial activities.

Key elements of UBO identification:

  • Direct Ownership: These are the individuals who directly own a significant part of the company's shares or voting rights and are considered UBOs.
  • Indirect Ownership: These are the owners who indirectly control the company through intermediary structures like trusts or holding companies.
  • Control Mechanisms: Analyzing control mechanisms, such as veto rights or the ability to appoint key personnel, helps to identify those with effective control over the business.
  • Ultimate Beneficiary: The ultimate beneficiary is the person for whom the business is ultimately operated. The identification process aims to ensure that this person is identified and documented.

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Is a UBO always a person?

To find out who can be identified as a UBO, let’s take a look at the differences between a UBO and a beneficial owner. These two terms are often used interchangeably, even though they refer to different types of ownership. The UBO, or ultimate beneficial owner, is always a person who holds significant control over the business. They gain the most from the company's operations. A beneficial owner is someone who owns part of an asset. Contrary to common misconceptions, a beneficial owner isn’t always an individual or a shareholder.

While individuals with significant ownership stakes are often UBOs, businesses can qualify as beneficial owners. Entities like trusts, foundations, or corporations can be beneficial owners if they exercise substantial control or ownership. We commonly see that those with 25% of ownership rights are considered UBOs. However, this differs based on region.

  • Shareholder vs. Controller: It's essential to differentiate between mere shareholders and those with effective control. UBO identification focuses on people who have the ultimate say in decision-making, even if they don’t hold a majority of shares.

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How do you verify UBO?

UBO verification is key to preventing money laundering and other illicit activities. Several steps are typically involved in this process:

  • Documentation Review: Checking legal documents helps to identify individuals with significant control or ownership. Documents like articles of incorporation, partnership agreements, or trust deeds include this information.
  • Ownership Structure Analysis: It helps to understand the ownership structure of the business to trace ultimate ownership. It may also involve scrutinizing shareholding patterns, voting rights, and decision-making powers.
  • KYC (Know Your Customer) Procedures: Implementing robust KYC procedures aims to gather information about the individuals behind the business. KYC verifies their IDs, addresses, and other relevant details.
  • Use Beneficial Ownership Registers: Some jurisdictions require companies to maintain registers of their beneficial owners. Accessing these registers can streamline the verification process.
  • Third-Party Services: Use third-party UBO verification services that leverage advanced technologies and databases to identify and verify beneficial owners.

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What is proof of UBO's identity?

Proof of UBO identity is the documentation that states the individual is identified beneficial owner of a company. This proof is essential for regulatory compliance and building trust among stakeholders. It may take the form of:

  • Identification Documents: These cover the official identification documents like passports, national ID cards, or driver's licenses of the identified UBOs.
  • Ownership Records: These are the records from the company's share register or other ownership documents that clearly state the beneficial owners.
  • Declaration of UBOs: UBOs may need to sign a declaration confirming their status as beneficial owners, acknowledging their responsibilities and potential liabilities.
  • Notarized Agreements: Legal agreements, such as shareholder agreements or trust deeds, may need to be notarized. It validates the roles and responsibilities of the beneficial owners.

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How Dotfile can help to verify UBO?

Dotfile provides an end-to-end business verification solution for compliance teams. It allows for discovering the ownership structure, identifying and verifying UBOs. You can easily pinpoint non-individual beneficial owners and the important people behind these entities. Automating the identification and verification processes speeds up the onboarding journey. Dotfile offers a whole suite of services thanks to which businesses can automate KYB and UBO verification. KYB checks, document and video verification, AML monitoring, risk assessment, and more, can be done within minutes.

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Conclusion

Understanding UBO structure, and verifying individuals and non-individuals holding control over an entity is not only a regulatory requirement, it is a necessity that helps minimize the risk of fraud and reputational damage. Dotfile helps to verify businesses and the people behind them to ensure you only enter a business relationship with a company you can trust. Book a demo to see how we can help you.

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