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UBO in KYC: Unfolding the ID Verification Landscape for AML Program

Anti-Money Laundering is imperatively required today in almost every industry. Regulating the financial cycle with compliance with KYC and AML makes the system trustworthy and seamless. Evidently, Money Launderers and criminals will keep finding ways to outwit the system for illicit activities. Mostly, money trails are found connected to some powerful owner of a business who leads the Money Laundering activity. So, in this article, we will unfold the mystery of UBO in KYC. 

UBO in KYC: The Ultimate Owner 

Basically, UBO stands for Ultimate Beneficial Owner who is a real person or entity owning another legal entity. This ownership belongs to a powerful and influential person or a company. Outrightly, the UBO in KYC must stay compliant with the AML regulations to ensure their contribution against Money Laundering. Otherwise, they may be subjected to sanctions, fines, and other punishments if found guilty of facilitating Money Laundering and other crime.

Main Requirements for a UBO in KYC

Mainly, a UBO needs to relate to the legal compliance, and accountability of a company. As mentioned earlier, a UBO in KYC can be an individual or a firm. So, this ownership has the following three requirements to fall under the category of UBO:

  • 25% or more of the shares of the said company. It means that the UBO must own 25% of shares as this is an influential profit that the UBO earns from this firm.
  • Also, a UBO must be powerful enough to influence or control the company’s Board’s decisions. This is to ensure that the UBO is a powerful personality like a PEP (Politically Exposed Person) or a SIP (Special Interest Person). 
  • A UBO must be economically beneficial to the company when he influences the Board’s decisions. It means that the UBO’s control over the Board’s decision is in the best interests of the company.

Importance of UBO in KYC

Indeed, the UBO in KYC is vitally important to find the true source of funds. The following are the main points that prove the importance of a UBO in AML:

  • To verify the exact transaction trail i.e. where the money is going.
  • To verify the actual source of funds.
  • To know the full Money Laundering involved parties and who is actually leading it.

Negative Impact of UBO on AML Compliance

Firstly, if a UBO is identified as a Money Launderer then it will negatively impact the firm’s reputation. Customers’ trust will be reduced to none if the Money Laundering activity is proven. Furthermore, there are other negatives of a UBO identification listed below:

  • Increased Compliance Cost
  • Privacy Concerns
  • Identity Theft

Certainly, the negatives of identification of a UBO in KYC can be mitigated by a seamless AML program. Accordingly, it is the responsibility of the state and regulatory authorities to direct firms with a two-way strategy toward AML compliance. KYC AML guide is a premium knowledge source to understand the importance of the Ultimate Beneficial Owner. Moreover, the two-way strategy ensures both rewards and penalties for the firms for AML compliance. 

Final Thoughts

A UBO in KYC plays a key role in identifying Money Laundering. To build a strong fence around the financial system against criminals, KYC and AML regulatory compliance is necessary. In addition, the regulatory authorities and firms must join hands and come up with an error-free and fool-proof system to identify and catch Money Laundering and Terrorism funding. Finally, the system shall exercise all the necessary policies to safeguard the system’s integrity and customer trust. UBOs can play a key role in mitigating Fin Crime by staying compliant and reporting any illegal activity in the company.

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