The US Corporate Transparency Act (CTA) comes into effect in January 2024. Once enforced, almost every private company in the United States will have to file a beneficial ownership report that meets specific data requirements.
But how do ultimate beneficial owner (UBO) disclosure requirements differ across the world? How is an ultimate beneficial owner defined? What information, if any, needs be collected, and where does that data live?
It’s time to take stock of the world of UBO definitions, disclosures, and data.
The Financial Action Task Force (FATF) is a global money laundering and terrorist financing watchdog. It is responsible for setting global standards and recommendations for the anti-financial crime priorities of countries around the world. As a result of this designation, FATF’s definition of a UBO is a good place to start.
FATF defines a UBO as “the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.”
While jurisdictions may interpret the specifics of this definition differently, it is commonly agreed that an ultimate beneficial owner or UBO owns more than 25% of a company’s shares, or controls more than 25% of the voting rights. However, determining the UBO of a company is not always a straightforward task.
This is what has allowed legal business structures to act as vehicles for money laundering and terrorist financing over the years. For example, the registered legal owner of a property in the United Kingdom may be a company registered overseas, which is then owned by a different company in another jurisdiction. This different jurisdiction may be the Cayman Islands, the British Virgin Islands, or another “offshore” destination -commonly defined by a lack of UBO disclosure requirements.
Individuals looking to hide criminal behaviors or sanctions status may leverage the loose or lack of UBO requirements in certain jurisdictions, winding ownership through several layers of different companies that operate in different countries. Employing this strategy can be a useful tactic in obscuring ownership as regulators and legitimate businesses working with or in partnership with the UBO, such as a bank or corporate entity, will face serious challenges in following the trail around the world. Tracing ownership is especially hard once it passes through an offshore jurisdiction where there may be little to no information on these layers of ownership.
In response to the issue of anonymous shell companies being used to evade sanctions, hide the proceeds to organized crime, and perpetrate corruption, in March 2023 FATF issued updated guidance that agreed on “…tougher global beneficial ownership standards in its Recommendation 24 by requiring countries to ensure that competent authorities have access to adequate, accurate and up-to-date information on the true owners of companies.”
FATF also suggests a range of additional supplementary measures necessary to determine information about the ultimate beneficial owner of a company. These additional measures include holding beneficial ownership information obtained by regulated financial institutions and professionals in a public register or held by regulators or in stock exchanges.
Despite FATF’s guidance, jurisdictions do still differ on what type of UBO information they require to be collected and how UBOs should be defined. It is this difference in interpretation, and legislation, that can cause challenges for legitimate organizations and their partners.
So how do laws around UBO disclosure differ between jurisdictions?
In the United Kingdom, there are beneficial ownership registers for companies, properties, land, and trusts. In February 2022, the UK Government sought to increase the accuracy of some of these registers and in March 2022 introduced new legislation around overseas entities owning property in the UK. According to the UK Government, “The new Register of Overseas Entities is held by Companies House and requires overseas entities that own land or property in the UK to declare their beneficial owners and/or managing officers. There will be severe sanctions for those who do not comply, including restrictions on buying, selling, transferring, leasing or charging their land or property in the UK.”
A non-public register for UBO of trusts was also introduced in the UK in 2017 and plans to expand this were tabled last year.
In the European Union, member states were required to introduce public company beneficial ownership registers by January 2020. Some member states have yet to comply with provision of a register, but most have, and they contain information such as the beneficial owner’s name, birth date, nationality, country of residence and nature and size of beneficial interest.
Following a ruling by the European Court of Justice in November 2022, public access to these UBO registers was removed. The European Commission continues to work with “competent authorities and obliged entities” to access the registers i.e., those authorized to access UBO information due to legitimate interest in preventing anti-money laundering and counter-terrorist financing.
Another significant change within the EU relates to UBO thresholds, which look set to be significantly reduced as part of the new AML Package currently being finalized. The latest proposals from the European Parliament, which may be further negotiated, would revise 25% thresholds down to:
Timelines aren’t certain given the scale of the AML Package being negotiated in Brussels, but most commentators expect new standards from 2024 onwards.
In the US, a reporting company will be required to provide information about itself and each of its beneficial owners: name, birthdate, address, and a unique identifying number and issuing jurisdiction from an ID.
The US CTA defines a beneficial owner as any individual who, directly or indirectly, either
The US’ Financial Crimes Enforcement Network (FinCEN) is creating a database to house beneficial ownership information as called for in the CTA. Access, as authorized in the CTA, would be limited to Federal agencies; state, local, tribal, and foreign governments; and financial institutions. According to FinCEN, the target date for the database to be up and running to accept beneficial ownership information is January 1, 2024, the day the reporting rule takes effect.
In the UAE, a resolution (Cabinet Resolution No. [58] of 2020) regulating UBO procedures took effect in 2020. All entities in the UAE were required to provide data on ultimate beneficial owners by June 2021.
In Australia, there is currently no law or regulation requiring legal entities – other than those with existing anti-money laundering (AML) obligations – to maintain information on UBOs.
Singapore-registered companies have been required to maintain a Register of Registrable Controllers (RORC) since 2017. This is made available to the Accounting and Corporate Regulatory Authority (ACRA) on request.
Anti-money laundering laws and cross-border controls continue to be stepped up worldwide. The EU, for instance, plans to introduce AMLA – an anti-money laundering authority that would also oversee crypto transactions. It’s hoped that this authority, due to be enforced in 2024, and other cross-border regulation will make a significant difference in the fight against financial crime.
One of the key criticisms of a fragmented approach to UBO and AML is the lack of harmonized know your business (KYB) datasets. Moreover, definitions around concepts, such as what makes a beneficial owner, that differ worldwide and are still evolving can compound the issue. While technology is available to gather and analyze relevant UBO and AML data, pinning down what this data should be in order to meet KYB requirements is a challenge.
Moody’s Analytics offers extensive company information and detailed corporate structures, and we are a leading source for understanding beneficial ownership. Our tools to help create transparency and visualize complex control and influence mapping using AI and multiple datasets that cross jurisdictions.
Conducting a perpetual KYB process is also helpful to understanding new and changing risk levels within a customer and third-party network.
Moody’s Analytics customers build their own unique KYB eco-system using our workflow orchestration platform, award-winning datasets, analytical insights, and integrations with global providers, creating powerful, digital risk management solutions.
Harnessing our innovative technology and industry expertise, we can automate accurate screening and swift onboarding of entities and third-party suppliers. Then we support perpetual monitoring of counterparty risk across any business network in near real-time.
Our configurable solutions empower organizations to understand risk and make decisions with confidence about whom to work with.
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