As ultimate beneficial ownership (UBO) regulations take effect globally, compliance with national and trans-national regulatory frameworks is increasingly becoming a priority for legal entity management and corporate secretarial professionals. The below list of 12 key terms is designed to help you keep up with this rapidly evolving regulatory landscape.
Global ultimate owner (GUO)
A global ultimate owner (GUO) is the individual or entity at the top of the corporate ownership structure. A GUO identification is increasingly important with the tightening of trans-national regulations and other compliance frameworks. It may also be useful to identify domestic ultimate owners (DUOs) — the highest owning entity in a country.
Association of Certified Anti-Money Laundering Specialists (ACAMS)
ACAMS is an international membership organization dedicated to enhancing the knowledge and expertise of anti-money laundering (AML), counter-terrorism financing (CTF) and financial crime detection. It provides education and certification for AML professionals.
The European Union’s Fourth Anti-Money Laundering Directive (AML 4 for short) took effect in all 28 EU member states on June 26th, 2017. AML 4 is designed to harmonize anti-money laundering laws in the EU with those in the USA. On enactment, businesses with EU entities became legally required to hold ultimate beneficial ownership (UBO) records. People with significant control (PSC) are sometimes included in the definition of beneficial owners. A common lower limit for beneficial ownership is 25% at any hierarchical level in a corporate ownership structure.
A series of 2017 amendments to AML 4 specify that EU citizens will have access to ownership records on companies operating in the EU, even without having to demonstrate “legitimate interest”.
The upcoming sixth Directive will focus on criminal offences and penalties. It will also increase the accountability of companies when it comes to compliance.
The concept of control has many meanings, ranging from voting rights, to decision-making and general influence. However, controlling ownership of an entity by an individual or other entity is determined by that individual’s or entity’s total direct ownership percentage share of the entity. 50% is the usual lower limit, however it can often be 50% plus one share in some jurisdictions. Determining if an individual or entity exceeds the limit can be difficult for complex structures. The total integrated ownership isn’t usually relevant for determining control. What matters is control at each level in a corporate structure.
According to the Financial Action Task Force (FATF), a beneficial owner is a “natural person(s) [individual(s)] who ultimately owns or controls a company 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.
Customer Due Diligence (CDD) Final Rule
The US Treasury Department’s CDD Rule targets improved financial transparency to prevent criminals from using entities to conceal illegal activities and money-laundering in the US. The Rule clarifies customer due diligence requirements for US banks, mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities. These financial institutions must verify the identity of the beneficial owners of legal entity customers who own, control and profit from companies when they open accounts.
Financial Action Task Force (FATF)
The Financial Action Task Force on Money Laundering is a highly influential trans-national body that was set up by the G7 countries to counter money laundering.
Sanctioned by extension
Sanctioned by extension, sometimes called “sanctioned by association”, relates to the general issue of controlling ownership and is referenced in the US Treasury Department Office of Foreign Assets Control’s (OFAC) guidance notes on the 50% rule. Relying on the cascade-down effect, the rule states that a company is sanctioned by extension if: an unbroken chain of ownership links leads to full or part-ownership by a sanctioned individual or entity; AND in none of the chains is the ownership share less than 50%. A stake in a lower company of a sanctioned individual or entity can be small but still have the effect of sanctioning that company by extension; by crossing just seven levels, each at 50%, reduces one’s share to less than 1%.
Specially Designated National (SDN)
The US Department of the Treasury defines an SDN as an individual acting on behalf of a country targeted by sanctions, or engaged in prohibited activities such as terrorism or drug trafficking. Their assets are blocked and US persons are generally prohibited from dealing with them.
People with significant control (PSC)
AML 4 has expanded the EU’s definition of beneficial owners to include people with significant control. Examples of PSC include CEOs, CFOs and company chairpersons, so people who don’t necessarily own any shares in a company. AML4 requires national governments to maintain PSC registers and people performing compliance checks on companies must consult with this information.
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