Personify Sherlock Holmes –The crucial importance of discerning the Ultimate Beneficial Owner
By Alia Noor, FCMA, CIMA, MBA, Oxford fintech programme, GCC VAT Comp Dip,COSO Framework.
Associate Partner Ahmad Alagbari Chartered Accountants, UAE
One of the big challenges in discerning whether Money Laundering is taking place,
Is finding who the Ultimate Beneficial Owner is within often complicated company structures.
Investigators frequently find ‘ghost firms’ when delving into bankruptcy fraud, VAT fraud and other mala fide practices
As a Compliance professional or you need to personify Sherlock Holmes
and trace back all possible structures and transactions.
It is good to know that there are tools to enlighten you in this important quest.
Compliance requirements are continuously evolving, with new anti-money laundering acts being passed every year.The onus is on businesses of all sizes to keep pace with the ever changing regulatory landscape.
Who is Ultimate Beneficial Owner (UBO)
“Ultimate Beneficial Owner” (UBO), term originated from the Securities Act of 1933 and has taken on an increasingly important role in the fight against terrorism and money laundering.
Ultimate Beneficial Ownership (UBO) refers to the persons or entities that are the ultimate beneficiary of a company. UBO also refers to situations in which ownership or controls are exercised through a chain of ownership, and by means other than direct control.
The reason why UBO has grown in importance is because malicious actors, like terrorists, narcotics dealers and others increasingly try to obfuscate their identity through the use of legal entities and even other individuals.
In the case of legal entities, the Ultimate Beneficial Owner:
- Holds at least 25% of the entity’s capital OR
- Holds at least 25% of entity’s voting rights at the AGM of stakeholders OR
- Is the beneficiary of at least 25% of the entity’s capital
A Brief History of Ultimate Beneficial Ownership (UBO)
Ultimate Beneficial Owners and Financial Crime have been connected since the late 1980s. The connection between the two was first flagged in 1988 by the Bank for International Settlements. The bank created the first international instrument to focus specifically on Anti-Money Laundering (AML).
1990s Financial Action Task Force (FATF), poposed 40 recommendations to combat the ability to disguise beneficial owners. This prime focus on Ultimate Beneficial Owners and AML continued to the turn of the millennium with the major G7 economies developing initiatives to combat the growing abuse of corporate AML.
UBO Registers in the European Union
Full Implementation date of latest 5MLD and Ultimate Beneficial Ownership (UBO) Registers was initially set by 10 January 2020,for all EU/EEA countries which nowe delayed until 2021. As of June, 2020, 23 out of 27 EU Member States have UBO Registers that store information about natural persons who are owners or managers of companies.
UBO Regulations in the United Arab Emirates
Objective & Scope of Ultimate Beneficial Owner
- Maintain UAE’s economic position with International requirements
- To regulate minimum obligations in disclosure of Beneficial Owners, Shareholders, Partners & Nominee Board Members
- To have effective & enduring regulatory mechanism & procedures for the beneficial owner data
The requirement to submit the UBO Register has been in place before for some free zones and was sometimes required e.g. upon issuance of the trade license of a new entity in the UAE. However, latest UBO regime UAE entities are required to maintain a UBO Register and update the Regulators accordingly for any changes. Under the new UBO regime, businesses in the UAE are subject to more strict compliance obligations.
By way of Cabinet Decision No. 58 of 2020, the UAE has implemented a new UBO regime applicable to businesses established in the UAE, except for ADGM and DIFC businesses. The latter are subject to their own regulations. Government owned businesses are also excluded.
The new UBO regime requires businesses in the UAE to maintain beneficial ownership and shareholder registers at their registered office, and to submit information from these registers to their regulatory authority(e.g. DED or Free Zone Authority). Any changes in the information previously provided, need to be disclosed as well.
Recently introduced laws in the UAE such as the Economic Substance Regulations (ESR), Country-by-Country Reporting (CBCR) and Common Reporting Standards (CRS) also require UAE businesses to provide a certain level of information regarding the UBO.
The new UBO regime stems from the Anti Money Laundering legislation in the UAE, more in particular Federal Decree-Law No. 20/2018 and its Implementing Regulation. It is suspected to targets amongst others disclosures of nominee structures.
Following the recent changes and revamps on the Economic Substance Regulations (“ECR”), the UAE Ministry of Finance has now published the new template for the ES Notification and the ES Reporting.Interestingly, the new templates now incorporate VAT registration details, company ownership information and require more details of the Parent Company, Ultimate Parent Company, and Ultimate Beneficial Owner.
Role & Responsibilities of Legal Person
- Legal Person should provide all the required details at the time of licensing & registration.
- It should clearly mention its trade name & address in the UAE in all correspondence and documents
- Issue notices to Beneficial Owners where there is doubt on the real beneficiary
- Maintain and provide the details on Beneficial Owner in the Register and shall update the same within 15days of becoming aware of any changes
- It shall keep and maintain Register of Partners or Shareholders and must update the same within 15days of becoming aware of any changes
- Furnish the Registrar with the data contained in the Register of Beneficial Owner and Register of Partners or Shareholders within 60days from the date of enactment of Decision (by 26th October 2020) or date of licensing or registration of Legal Person.
- Provide the data or documents as requested by the registrar and disclose the same with personnel or authorized agents
- Cases, where the Legal Person has made any amendment or change in data or information filed with Registrar, shall notify the Registrar within (15) fifteen days of the date of making the amendment or changes.
Contents of UBO Register
The UBO Register needs to contain the following information on the UBO:
- Name, nationality, date and place of birth
- Place of residence or address
- Number of travel document/ID card, country, date of issuance and expiry
- Basis on which the UBO is the UBO
- Date of acquiring capacity as UBO
- Date on which UBO ceased to be UBO
Contents of Shareholder or Partner Register
Businesses are further required to hold a Shareholder or Partners Register. Holding a Shareholder or Partners Register constitutes good practice anyways, and is part of good governance for any company. That Shareholder or Partner Register will now need to be submitted as well. Changes to the Register are to be notified within 15 days as well of being aware of a change in the Register.
The Shareholder Register needs to contain:
- Number of quotas or shares owned by each of them and the category thereof, as well as the voting rights associated thereto
- Date of acquisition as capacity as partner or shareholder
- ID’s of natural persons, or corporate information
Consistency In Information Submission and Meeting Deadlines
Businessess should be ensure that the information provided to the relevant Regulatory Authorities is consistent and under no circumstances incorrect as the information will be further exchanged with other jurisdictions.Incorrect or misleading information may lead to significant penalties being imposed by the Authorities.
The penalty for providing inaccurate/incomplete information under different laws are:
- ESR: AED 50,000
- CBCR: AED 50,000
- CRS: AED 20,000
– ESR Notification (resubmission) – 31 December 2020
- ESR Reporting – 31 December 2020
- UBO Declaration – 27 October 2020
- CbCR Notification – 31 December 2020
As a Compliance professional you need to Perform a Beneficial Ownership Risk Assessment and Keep your information up to date. Increasing regulations demand that you know who really controls company and companies need to ensure to achieve that transparency .
“It is a serious mistake to formulate theories before the facts are known. Without meaning to, we started to distort the facts to adapt to the theories, instead of formulating theories that fit the facts ”
– Sir Arthur Conan Doyle, Sherlock Holmes
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