A UBO does not stop at the national border

Reading Time 4 minutes | Written by Michiel Scheepens | June 1, 2019

Perhaps the biggest challenge within your KYC process is determining the ultimate stakeholder - or Ultimate Beneficial Owner (UBO). Especially at a time when companies are setting up the structure of their organization in a way that will benefit them most financially. For example, to create a favorable tax environment. That this creates a large cross-border spider web is more the rule than the exception. But how do you gain insight into an organization's entire family tree without slowing down your KYC process?

A UBO does not stop at the national border

The UBO: Know who you're really dealing with

Everything starts with determining the UBO. As a general rule, natural persons are considered UBOs if they have a direct or indirect interest of more than 25% in an entity through shares or voting rights or otherwise exercise direct control. If this is not the case, senior management or executives are designated as UBOs. This is then referred to as the Pseudo-UBO.

Because an organization often consists of different layers, subsidiaries, and parent companies, it is complex to figure out who is actually the stakeholder of the company.

Your risk if you don't know who the UBOs are? You could be doing business with a company that is indirectly linked to, for example, illegal arms trade, terrorist financing, child slavery or money laundering. Of course you want to avoid that.

Can a UBO be determined with certainty?

It is very likely that the stakeholder(s) of an entity has not settled in the country of the organization at all. For example, almost 70% of Bv's in the Netherlands are directly linked to another company in the Netherlands or another country through shares. In a number of countries there is already something like a UBO register, in which all UBOs are recorded. These countries currently have no legal obligation to check the accuracy of this information. This means that for the time being it is not easy to establish with certainty the UBOs and thus to know with whom you are actually doing business.

How data can unravel the mystery

The lack of transparency is the biggest challenge for most organizations. In addition, meeting the minimum legal requirements is not enough to protect yourself as a company. International companies must take all necessary measures to mitigate risks.

An external source can help map all this out. Dun & Bradstreet's datacloud is an example of such an external source. This datacloud is the most complete and reliable source for gaining insight into the Dutch and foreign relationships of your business partners, ranging from small lesser-known companies to the largest multinationals with thousands of branches.

Get answers to your questions

With external data, you will get answers to the following questions: 

  • What are your customer's real (official) name and address? 
  • Exactly what activities does your (potential) client perform? It may be that the actual activities do not correspond to the activities they have indicated. This manifests itself as a "red flag" that you should pay attention to before engaging with this party. 
  • Does your client belong to a larger corporate structure? For example, does your client have a parent company? Or a subsidiary company? If so, who are these other companies in the same family tree? Corporate structure can extend beyond national borders. Even if your customer is local, you will need access to global data. 
  • Who are the beneficial owners of your client's pedigree? Perhaps more importantly, who are the beneficiary owners of your client's entire family tree? 
  • What is the identity of the principal directors? Who are the key directors within their parent company? Do these directors also hold positions in other companies? If so, are these companies legitimate? 

By drawing the above insights from a single source, you accelerate the KYC process and are assured of a complete, global view of your customers and suppliers. 

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Michiel Scheepens

Marketing Team Coordinator

White paper

UBO monitoring

The Challenges and Practicalities

Understanding UBOs is a fundamental regulatory requirement in the EU Money Laundering Directive, which forms part of a risk-based approach to Anti-Money Laundering (AML), Know Your Client (KYC) and Client Due Diligence (CDD) efforts. In this whitepaper, we explore ways to overcome the challenges of UBO verification and monitoring.

Pdf of 28 pages, 0.3 MB
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