How Ultimate Beneficial Ownership is Hidden

Ultimate beneficial ownership can be hidden through various means but some of the most common are: owning beneath 25%, acting through an intermediary, shell companies, and the use of proxies.

Ultimate beneficial ownership (UBO) of a company or asset is the individual, or individuals, who ultimately receive the benefit through its operation. Often this benefit is cash but it can also be the outcome of any services obtained through third party providers e.g. legal or accounting services.

UBO structures can be complicated, especially when a business is part of a medium to large sized corporate group, for completely legitimate reasons but those engaged in money laundering and other crimes will create purposely complicated and convoluted ownership structures with the aim of hiding their involvement.

Knowing who you are really dealing with is vital in modern business, and for those companies covered by the UK’s AML regulations, it is mandatory to record owners of 25% and above. With those companies that do not sufficiently investigate and record clients or partners UBO data being at risk of fines, reputational damage, and exploitation by financial criminals.

But identifying UBO’s is not always straightforward and criminals employ many techniques to hide their influence. See who is the UBO of a company in our previous blog. Here are some of the most common ways that UBO is concealed. 

Common ways UBO's are concealed:

Owning below 25%

One of the easiest method of concealing ownership is to own below the standard 25% threshold for UBO reporting used by most of the world. Often criminal enterprises will split the ownership of a company so that no one person owns above the reporting threshold but the company in question is still fully owned by the gang.

This 25% threshold is criticized by experts as being too high and making it too easy to conceal UBO. This is especially true most data platforms only provide UBO data from 25% and above.

At Red Flag Alert, we understand this is not fit for purpose and provide ownership data from as little as 0.1%. Meaning you will always know who it is you’re dealing with.

Use of legitimate intermediaries

It is common practice for high net worth individuals and corporations to employ the services of and act through the professional services; especially lawyers and accountants. However, this is also an attractive option for those wishing to conceal their identify.

Whenever you are dealing with a member of the professional services, you should ask them if they are acting on behalf of a third party and for their details if so. You must then perform your own UBO and AML investigations on their client.

If you are advised that the client wishes to remain anonymous then you should terminate your dealings and submit a suspicious activity report.

Use of proxies

In the context of UBO concealment, a proxy is an individual who has been granted proxy voting rights by the UBO to vote on their behalf concerning the running and operation of a company or entity. This allows the UBO to remain in the background and hide their presence whilst still influencing the running of a company.

Outside of financial crime, the use of proxies can be completely legitimate and it is not uncommon for an investor to grant a trusted advisor their voting rights.

When dealing with a proxy you should ask yourself if the company appears to be legitimate and if it is of sufficient size that a UBO using a proxy makes sense. The identity of the UBO should also be freely given when asked for.

Use of trusts (especially offshore trusts)

At its simplest a trust is a legal arrangement where assets are granted to a trustee which they then hold for the UBO. It can also be agreed in the arrangement that the trustee can operate and/or invest the asset held.

Some foreign jurisdictions that practice banking secrecy do not require that the owner of an asset held in trust be listed as a beneficiary of that trust. This effectively makes the UBO invisible to cursory checks.

Whilst most trusts are legitimate, it is a common enough tactic amongst money launderers to be considered a red flag. When encountered with a trust, you should confirm which country’s jurisdiction the trust is held in, why the asset is being held in trust, and who the UBO is.

There is no reason that this information should not be freely given and any undue secrecy should be considered a red flag. At this stage, you should terminate dealings and submit a suspicious activity report.

Overly complicated corporate structures

This is an incredibly common and popular method of concealing the UBO of a business or asset. Financial criminals will create incredibly complicated corporate structures with the aim of making it almost impossible to trace who the owner is.

Often these structures will feature some international companies, usually based in countries with lax AML regulations.

If you come across a client who is part of such a corporate structure you should consider it a red flag. Always ask yourself if it makes sense that the company you are dealing with is part of an intricate group structure and if the structure itself makes sense.

Offshore businesses and accounts

A tried and tested method of concealing UBO, money laundering, and tax evasion; taking advantage of loose AML regulations and banking secrecy in certain foreign economies is often used to give legal protection to those who wish to hide their links to businesses, assets, or accounts.

Often these countries are tax havens, such at the Cayman Island, whose economies are built around providing anonymity to those who can afford it. The UK has close links to many such havens, which has allowed us to become one of the countries worst affected by financial crime.

In these jurisdictions, a UBO’s identity is protected by law and so long as they are acting through a third party there is no way to link them to business, asset, or account.

This is obviously a major red flag and if whomever you are dealing with is not willing to provide the UBO’s identity you should cease your dealings and submit a suspicious activity report.

Watch our webinar on:

The importance of customer due diligence and the positive impact of robust AML processes

Watch our webinar

What to do if in doubt?

AML processes are a fact of life in the modern world and no legitimate client should be surprised by or resistant to the need to provide UBO data, along with everything else you need to complete you AML processes.

Should your client seek undue secrecy or refuse to comply with AML requirements then the best thing you can do is stop all dealings and submit a suspicious activity report. Under UK law you are permitted to refuse service on the basis of AML concerns and the cost of any lost revenue will be nothing compared to the fines and reputational damage non-compliance brings.

We offer the most complete UBO data on the market, with ownership listed from as little as 0.1% in an easy to understand manner, along with all the digital AML and enhanced due diligence checks you need to maintain robust and compliant processes.