How to identify ultimate beneficial owners – and why they matter

July 25, 2022

Unravelling complex company structures to identify ultimate beneficial owners can be difficult, owing to complex and sometimes opaque business structures. But it is an important step in protecting a firm from risk and complying with regulations.

Customer due diligence is critical for managing an organization’s risks and protecting it against financial crimes. The process includes understanding who you are doing business with, and your partners’ business structures – which you must also understand to comply with financial crime regulation.

An especially important part of your partners’ business structure is the ultimate beneficial owner. This person ultimately owns the company or exercises de facto control. A beneficial owner owns more than 25% of the company’s shares, or controls more than 25% of the voting rights.

The importance of transparency

Regulators recognize the importance of screening ultimate beneficial owners, and require companies to comply with stringent regulations as part of business partner checks. The US Financial Action Task Force (FATF) mandates companies to identify the beneficial owners of all their customers, partners, suppliers, and third parties. The European Union’s anti-money laundering directive requires verification of customer data through a “trusted and independent” source.

Regulations vary by jurisdiction on the type of information that should be collected on ultimate beneficial owners, and on how they should be identified and verified. In Singapore, for example, companies are required to hold a register of their own beneficial owners, to be made available when required for checks. The variation in regulations puts the onus on each company to adopt its own risk-based approach.

In October 2021, the International Consortium of Investigative Journalists leaked 11.9 million files containing names of politicians, businessmen and celebrities suspected of being involved in money laundering. The ICIJ highlighted how offshore companies and shell companies can be misused. The anonymity provided by offshore centers makes it much easier to hide illegal activity, and can help to conceal illicit funds. Eliminating anonymity makes it harder for bad actors to conceal their wrongdoings, and so transparency is crucial in the fight against money laundering and terrorism financing.

Check and monitor

Due diligence checks can help to achieve transparency. Such checks show a firm who it is doing business with, and the associated risks. The complex structures and legal forms that a company can take can make it hard to identify all the relevant parties, and unravelling these structures depends on information that varies by jurisdiction. Furthermore, the beneficial owner may want to make the structure complex to avoid detection. As a result, many compliance teams struggle to screen comprehensively.

Complete, verifiable, and up-to-date data shows all the links and relationship structure of an organization – parent, subsidiary, and connected parties, as well as the ultimate beneficial owner. Figure 1 shows how a company can be linked to its owners.

Figure 1        An example of a complex company structure

An accurate depiction of shareholding structures can also help with monitoring. A firm can see changes, even small ones, such as a change in ownership percentage, or the addition of a shareholding company. This perpetual monitoring helps a firm to assess the impact of changes in its entire client network in near-real time. Perpetual monitoring also allows alerts to be pushed out when required, rather than periodically refreshing all information on every client.

How Moody’s Analytics can help

Moody’s Analytics tools enable perpetual monitoring of all relevant stakeholders in near-real time. Through monitoring ownership calculations from an entity to its ultimate beneficial owner, as well as adverse media related to all relevant parties (shareholders, directors, and owners), our suite of KYC solutions helps organizations to monitor and assess the impact of changes.

Moody’s Analytics Orbis database has information about more than 425 million companies. Orbis gives you accurate entity name matches at the beginning of your research. You can define your thresholds for beneficial ownership, filter results by jurisdiction, decipher circular and indirect ownership, and quickly assess a group linked to politically exposed persons and sanctions. A searched name is matched with consideration given to variables including linguistic culture, spelling alternatives and word order, resulting in fewer false positives and more relevant screening results. More than 15 years of analyst decisions underpin our AI-enabled model, which can be trained to consistently replicate your organization’s decision-making.

Moody’s Analytics Grid is the world’s largest curated risk-relevant database, comprising sanctions lists, politically exposed persons, watchlists, and more than 50 risk types. Risk intelligence is curated into detailed, entity-resolved profiles so you can see all risk-relevant data on an organization or individuals in structured, easy-to-consume reports. Grid combines comprehensive data and categorization to allow filtering by risk type, risk stage and risk age, based on relevance and your own risk appetite, resulting in fewer false positive results, more efficiency and greater speed for your customers.

Moody’s Analytics PassFort enables financial services companies to rapidly onboard customers, then manage risk and compliance standards throughout the customer lifecycle. You can dynamically orchestrate customer due diligence, enhanced due diligence, KYC, know your business, and anti-money laundering workflows. These are designed according to your risk policies and the regulations you need to follow.

For more information about Moody’s Analytics KYC solutions, please contact us to schedule a demo.

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