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KYC

Ultimate Beneficial Owner (UBO)

An Ultimate Beneficial Owner (UBO) is a natural person who ultimately gains financial or other benefits from a legal entity or arrangement, even if there is a complex ownership structure in place.

The UBO is not merely the nominal owner but the individual who effectively controls or profits from the entity’s activities. Identifying the UBO is crucial for transparency and regulatory compliance, particularly in the context of anti-money laundering (AML) and counter-terrorist financing (CTF) measures.

A UBO typically holds a significant stake in the legal entity, which can be defined in various ways depending on the jurisdiction. Commonly, a UBO is someone who possesses at least a 25% ownership interest in the legal entity’s capital, holds at least 25% of the voting rights in the general assembly, or is a beneficiary of at least 25% of the legal entity’s capital. These thresholds are used to ascertain substantial influence or control over the entity’s operations and financial outcomes.

The definition of a UBO can vary between jurisdictions, but the core principle remains the same: to identify the individual or individuals who ultimately benefit from or control a business, regardless of the layers of intermediaries or the complexity of the corporate structure. For instance, an individual who holds 25% or more of the share capital, exercises 25% or more of the voting rights, or is a beneficiary of 25% or more of the legal entity’s capital would typically be considered a UBO.

In some cases, mechanisms such as nominee directors, corporate directors, or other entities may be employed to mask the identity of the UBO. These practices complicate the process of identifying the true beneficial owner, making it essential for financial institutions and regulatory bodies to employ rigorous due diligence and verification processes.

Understanding who the UBO is a key part of Know Your Customer (KYC), Know Your Business (KYB), Know Your Supplier (KYS) and Know Your Customers' Customer (KYCC) processes and can provide risk analysts and compliance officers with vital information about potential conflicts of interest, hidden links between entities, and the overall risk profile of a business relationship. By uncovering the UBO, organizations can ensure they comply with regulatory requirements, prevent financial crimes, and maintain the integrity of the financial system.

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