As criminals get ever smarter at cleaning their dirty cash, global anti-money laundering rules get stricter. For companies, this means the challenge of identifying ultimate beneficial owners also gets harder - and good data management is at the heart of this struggle.
Criminals often use complex corporate structures that enable them to launder money without detection. Ultimate beneficial owners (UBOs) are people who ultimately control a company - typically benefiting from it, though they are not its formal owner, which leads to suspicion of laundering.
An effective UBO detection process, backed up by good data management, is essential in helping compliance professionals identify the criminals behind suspicious activities.
In the EU, the fourth, fifth and sixth anti-money-laundering directives have built progressively stronger laws around identifying UBOs - and harsher penalties for companies who fail to comply. Much of this regulation has revolved around mandating companies to enter UBO information in beneficial ownership registers.
This means gathering and reporting data such as the UBO’s name, birth date, nationality, residence and nature and size of beneficial interest.
There have been similar moves in other parts of the world. For example, Singapore and Hong Kong have required companies to maintain a register since 2017 and 2018 respectively. The US regulator has required large financial institutions to identify and monitor beneficial owners since 2018 - and they will need to report UBO information from 2024.
In March 2022, global watchdog the Financial Action Task Force (FATF) amended its guidelines on beneficial ownership in response to compliance inadequacies highlighted by Transparency International.
The 200 jurisdictions committed to FATF recommendations will now have to maintain UBO lists - essentially expanding the EU arrangement to the rest of the world - and support international sharing of UBO data. Jurisdictions must also mandate an approach that weighs the impact of each risk and responds appropriately. But risk-based approaches are difficult to implement as there is no single solution, so companies will rely more on data and technology.
The publication of millions of secret documents in the Panama and Pandora Papers have highlighted the secretive and potentially criminal financial dealings of major figures worldwide - from politicians to celebrities and Russian oligarchs.
Money launderers often conceal asset ownership using shell corporations, offshore accounts, nominees, and other sophisticated tactics. Failure to identify and report this ownership could result in companies processing criminal transactions, and potentially facing large fines and reputational damage.
Comprehensive UBO screening and data management are essential to avoid these risks.
UBO discovery has become arduous for compliance teams because the data is hard to find and monitor for real-time accuracy.
Complex corporate structures make it hard to identify all relevant parties, especially as the information varies by jurisdiction. To report complete data, companies should show all the links and structures in an organization – including shareholders; corporate hierarchies; executive-director relationships; parents, subsidiaries and other connected parties; and UBOs. Many compliance teams struggle to find and organize all this information.
While the Financial Action Task Force’s actions should help drive harmonization, there is still huge divergence of beneficial ownership rules between countries. This fragmentation means there are no standardized know your customer (KYC) and know your business (KYB) data sets. Technology can gather and analyze the data, but pinning down what information you need to meet requirements across jurisdictions is challenging.
Another problem is the sheer size and complexity of the data you need. Best practice in identifying UBOs involves thorough KYC and KYB due diligence - gathering customer names, addresses and incorporation information; and using traditional and digital ID techniques.
Companies should then screen this information against:
Firms also need to check for adverse media linked to the entity; and compare beneficial ownership versus perceived ownership. As bad actors like to use aliases, you also need as much information about aliases as possible.
Good practice also involves identifying shell companies by monitoring transactions for unusual and high-risk patterns.
Gathering all this information is very difficult - but it also needs to be consistent, accurate, valid and timely. So, firms also face a huge task in ensuring data quality. It requires regular deep scrutiny of your datasets, internally and by third-party auditors; and passing international data quality standards.
The best datasets remove language barriers and include images to help confirm matches. Plus, you need perpetual KYC and KYB, which means maintaining the data constantly. The ideal is a dedicated team constantly monitoring for data updates and changes in rules and guidelines globally.
Some screening providers’ criteria are not yet up to speed in all these areas. For example, politically exposed persons and adverse media screening are often overlooked, or not reputable, verified or credible. Firms should scrutinize their data providers’ commitments in these areas.
A partner who can help you solve these challenges is critical.
Moody’s Analytics is a leading source of beneficial ownership information. Our tools help you gather and visualize complex control and influence data from comprehensive sources, across jurisdictions, and without language barriers.
We have a full range of KYC solutions - from finding and identifying UBOs to checking adverse media.
Moody’s Analytics are recognized as a leader for completeness of offering. Our Orbis database has information on over 425 million companies. You can filter results by beneficial ownership threshold and jurisdiction; identify circular and indirect ownership; and quickly screen for PEPs and sanctions.
Screening variables such as linguistic culture, spelling alternatives and word order help reduce false positives and find more relevant results. We can also analyze control and influence data intelligently; and present findings clearly. Over 15 years of analyst decisions underpin our artificial intelligence model.
Contact our sales team for a demonstration and explore how Moody’s Analytics can support your UBO investigations.