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What Is an Ultimate Beneficial Owner (UBO)?

16 January 2025
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To ensure a fair and transparent legal system, law firms conduct several rigorous checks at the start of a new business relationship, one of which is identifying the Ultimate Beneficial Owner (UBO). Identifying UBOs is important for firms when unravelling or unveiling hidden layers of corporate ownership, which has been a persistent issue for many solicitors up and down the country. From ensuring fair business practices to combating financial crimes like money laundering and tax evasion, UBOs are the key to unlocking more transparent client relationships.

In this article, we’ll explore what a UBO is, why it matters, and how businesses can navigate the process of identifying them effectively.

What Is an Ultimate Beneficial Owner (UBO)

An Ultimate Beneficial Owner is an individual(s) who owns, controls, or benefits from a business, legal entity, or asset, even if the ownership or control is exercised through a chain of intermediaries, making them an important individual to identify during Anti-Money Laundering (AML) checks. It is helpful to consider someone to be a UBO when they:

  • Benefit from a company’s earnings or assets, holding over 10% of shares, and certainly when they hold 25% or more.
  • Possess 10% or more of the voting rights, significantly influencing decisions. 
  • Can exert influence directly by owning shares, or indirectly from trusts.
  • May have the right to remove the majority of the businesses’ board directors. 
  • Must be a physical person, not a company or legal entity. 

There can be direct and indirect UBOs.

Not all UBOs pose the same level of risk; they can be classified based on their influence, background, and the nature of their involvement in the company. Solicitors need to distinguish the level of risk once a UBO has been identified, helping the firm allocate compliance resources appropriately to mitigate the threat of financial crime. 

Let’s take a look at who typically falls into each category:

Low-Risk UBOs

Individuals are considered “low-risk” when they have no history of any fraudulent or criminal activities, or they do not reside in any nations sanctioned by the UK government. Low-risk UBOs are associated with legitimate business operations and transparent dealings, making them easier to verify through standard customer due diligence (CDD) checks

Typical examples include: 

  • Founders of small family-run businesses
  • Businesses that are regulated by the UK government

High-Risk UBOs

High-risk UBOs, on the other hand, require enhanced due diligence (EDD) checks; these individuals may be linked to industries or nations prone to corruption, money laundering, or other financial crimes. If a UBO is identified as being high-risk, solicitors will be required to mandate detailed investigations into their financial history, affiliations, and their source of funds. 

Common high-risk indicators include:

  • UBOs who hold prominent public roles or are connected to individuals in such positions, often known as Politically Exposed Persons (PEPs)
  • UBOs from countries with weak regulatory frameworks or notable high levels of corruption.
  • UBOs involved in sectors such as real estate, gambling, or arms dealing, which are often targeted for money laundering schemes.

Ultimate Beneficial Owner vs Persons of Significant Control

A Person of Significant Control (PSC) is an individual who exerts significant control over a business, including the appointment or removal of company directors. In many instances, they are also an Ultimate Beneficial Owner, particularly in straightforward ownership structures, but this is not always the case. 

To qualify as a PSC, an individual must meet at least one of several criteria, such as:

  • Owning more than 25% of a business’s shares.
  • Holding over 25% of a business's voting rights.
  • Holding the ability to remove or appoint directors.
  • Having the right to exercise significant control over business decisions.

Ultimate Beneficial Owner vs Legal Ownership

A legal owner of a business or asset is the name that appears on official documentation such as property deeds or company registries, which, in many cases, is the same person as the UBO. However, in some more complex business structures, they can differ; for instance, a trust may be the legal owner of shares in a company, while the beneficiary of the trust is the UBO.

Why Identifying UBOs Is Important

Identifying an Ultimate Beneficial Owner is a crucial part of a firm’s adherence to regulations such as the Money Laundering Regulations 2017 (MLR 2017), which requires firms to establish rigorous due diligence processes that uncover the individuals who profit from a business’s activities. By doing so, solicitors can:

  • Assess the risks associated with clients.
  • Ensure compliance with AML regulations. 
  • Avoid hefty fines and reputational damage. 

Risks When UBOs Are Not Identified

By failing to identify UBOs, law firms could be exposed to significant financial, reputational, and legal risks. Examples include:

  • Money Laundering: Undisclosed UBOs can use complex ownership structures to launder illicit funds through legitimate businesses.
  • Terrorism Financing: Hidden UBOs may divert company assets to fund terrorist activities.
  • Sanctions Violations: Businesses risk unknowingly engaging in business with UBOs subject to international sanctions.
  • Tax Evasion: UBOs can manipulate corporate structures to hide taxable income or evade financial scrutiny.

Perhaps one of the most famous cases, the Pandora Papers leak in 2021 exposed close to 12 million documents, detailing how offshore tax havens were used to hide wealth and obscure ownership of assets. Within this, hidden UBOs included the family of the Kenyan President, Azerbaijan's leading family, the King of Jordan, and the Qatari ruling family, all of which used secretly-owned offshore companies to hide their sources of wealth. 

Obligations for UBO Records

To comply with MLR 2017, law firms must obtain and maintain accurate UBO information which needs to include:

  • Full legal name and contact information.
  • Ownership percentage or control rights.
  • Details of indirect ownership via trusts or holding companies.

Many firms now include specific fields within their client matter risk assessment forms for this purpose. Indeed, section 2e of the SRA's own CMRA template includes a field for the fee earner to describe the owners and controllers of the entities, and a separate field for the fee earner to describe the steps that they have taken to do so.

How to Identify a UBO

To identify the individual(s) who ultimately own or control a business, there are several steps that solicitors must take: 

  1. Examine Ownership Structure: Start by reviewing official company documents, such as shareholder agreements and partnership contracts. Trace ownership chains to uncover indirect ownership through subsidiaries, trusts, or holding companies. 
  2. Assess Voting Rights and Decision-Making Power: Investigate who has the authority to make key business decisions, even if they hold less than the ownership threshold. This can be achieved by looking for individuals with roles that grant them effective control, such as directors.
  3. Investigate Indirect Ownership: Check for individuals who benefit from shares owned by intermediaries, like trusts. You should request full disclosure from any entities that hold shares on behalf of others. 
  4. Conduct Enhanced Due Diligence: Use EDD checks to verify the identity of UBOs, cross-checking this with official registries or government databases where available. Your obligations for proper due diligence checks should be outlined in your firm’s AML policy.
  5. Request UBO Information: Request that the entity you’re dealing with provides you with a signed declaration listing all UBOs. The form should clearly state full names, ownership percentages, control rights, and the UBO's relationship to the business. 
  6. Verify Information: Validate the provided information through independent checks, such as accessing public records. These checks must be thorough and accurate to meet legal and regulatory requirements
  7. Monitor and Update Records: Regularly review and update UBO information to reflect changes in ownership or control, as and when they occur. Automated tools, such as electronic Know Your Customer (eKYC) or electronic Identification / Verification (EID/V) can be used over time to track compliance and flag potential risks. This aspect is especially relevant where EDD has already been put in place for the matter or client.

How Is Technology Improving UBO Identification?

As previously mentioned, advances in technology have allowed firms to streamline their processes further, identifying and tracking the activities of Ultimate Beneficial Owners over time. Digital compliance tools (such as eKYC), blockchains, and online databases are all successful examples that have changed the way legal professionals can support compliance regarding UBOs. 

The benefits of utilising this technology to identify and monitor UBOs can include: 

  • Automated systems reduce human error, increasing accuracy
  • Large datasets can be analysed quickly, creating a faster and more efficient process.
  • Legal firms can support their compliance with AML obligations. 
  • Continuous updates regarding changes in ownership and control are provided.
  • Time and effort are saved since there is a reduced need for manual checks. 
  • The most high-risk UBOs are identified quickly, reducing potential exposure to crime. 
  • Improves overall business transparency by providing clear, traceable UBO data.

International UBO Declarations

The Register of Overseas Entities came into force in August 2022 through the Economic Crime (Transparency and Enforcement) Act 2022, requiring any overseas entities to register with Companies House and state who the registrable owners are when buying, selling, or transferring property or land in the UK. By doing so, international businesses will receive a unique Overseas Entity ID which must be given to the land registry when property or land is purchased, sold, transferred, or leased. 

Although this act has led to greater transparency amongst firms and their business relationships, there have been some concerns amongst solicitors. Law firms have an obligation for records to be kept up-to-date, but it has been argued that there is a fine line between updating the register, which solicitors are happy to do, and “policing” the register, which solicitors do not want to do. 

Notifying Companies House About Discrepancies

It is not unheard of for inconsistencies or discrepancies to be identified during due diligence activity conducted by law firms.

Lawyers are not expected to act like police officers in this respect, but where such situations arise the law firm should make a report to Companies House to inform them of the discrepancy.

It is also worth bearing in mind that the SRA expects law firms to have up to date procedures in this respect.

Our Expert Team Provide UBO Support for Your Firm

At PDA Legal, we understand that identifying and monitoring Ultimate Beneficial Owners can be a complex task, and you may be feeling lost within the wider process. 

Our in-depth AML training services are designed to help you understand your obligations inside out, improving confidence in what is expected of you and how you can achieve this on a day-to-day basis. For further questions, or to register your interest, please contact a member of our team today at 01372 879 343.

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