Identifying the UBO of your business partners has many strategic advantages. These range from complying with AML regulations through to better identifying potential credit risks or upsell opportunities.
The ultimate beneficial ownership of companies and assets is something that the government and regulators are becoming increasingly interested in. Because of this, more and more companies are becoming required to records UBO data on their clients and business partners.
However, the majority of UK companies are still not legally bound to do so, and because of this do not do any investigation into who they are really dealing with. However, knowing who you are really dealing with provides many advantages to a business, both bringing opportunities and avoiding risks. As such, it should be an integral part of any company’s due diligence process.
This has never been more true, as business structures, both legitimate and fraudulent, are becoming increasingly complex and hard to decipher.
Below we will look at some of the most important advantages provided by identifying the UBO of those you do business with.
Take advantage of UBO information down to 0.01%
What is an Ultimate Beneficial Owner (UBO)?
UBO stands for ultimate beneficial owner, and means the individual or individuals who actually benefit from a company or asset. The 'Ultimate Beneficial Owner' refers to the person who is responsible for, ultimately owns or controls an institution, business or legal entity.
For example, many business are subsidiaries of other companies, and as such are not owned by a person. In these cases the UBO is the person/s who own the ultimate parent company of the corporate structure and receive financial gain from any profits that it generates.
In the case of an asset, an example would be that a property is owned by Business A, which is itself owned by Person A. The UBO of that property is Person A, even though Business A is listed as its owner on all paperwork.
Whilst in most cases the UBO is not deliberately obscured and businesses or assets are part of a legitimate corporate structure, financial criminals and tax evaders exploit ownership systems in an attempt to hide their connect.
Avoid AML compliance fines
For companies in the regulated sector, those companies under UK AML regulation, it is actually a legal requirement to investigate and record the UBO data above 25% ownership of all their clients. Those companies that are found to be non-compliant with these regulations can expect a steep fine or even legal action against their directors in the case of repeat offences or particularly egregious breaches.
In an attempt to combat soaring financial crime levels, the government has instructed regulators to increase the number of AML process inspections at their members and the severity of any punishments that they pass out.
Identify sanctioned individuals
The use of sanctions skyrocketed following Russia’s invasion of Ukraine and formed the West’s primary response. This was a strategy led by the United States of America, with the Biden Administration adding thousands of individuals and entities to the sanctioned list, and was followed by the UK and EU who maintain over 1,700 and 2,200 respectively.
Whilst Russia subject to the largest amount of sanctions by far, it is by no means the only country to be so; many countries such as Iran, Syria, North Korea, Belarus, and Afghanistan also have a high number of sanctions held against them.
It is a serious crime for any company to do business with a sanctioned individual or entity and charges can be brought against the companies and individuals alike who are found to do so.
These sanctions pose two major problems to UK business, the first is that they are not just levelled against governments but companies and individuals, and also that many of them actively seek to do business in the UK. Further complication is added by the fact that many of those sanctioned that are involved in financial crime have traditionally laundered their money in the UK and will not be of a mind to stop.
Your best defence against accidentally doing business with a sanctioned individual or entity is to perform thorough UBO due diligence with all of your business partners and clients. Whilst many businesspeople will think it overkill to clear domestic companies, often from a similar geographical location, for foreign sanctions it must be recognised that those seeking to break them are skilled in doing so and will approach you in a way you would least expect. Learn your legal requirements under UBO Law in the UK.
Red Flag Alert provide the best protection available for identifying sanctions against individuals and businesses. We show UBO from 0.1% (as opposed to 25%), so bad actors can’t hide below the reporting threshold, and offer fully digital, AI powered sanctions checks that take less than 30 seconds of staff time to send out.
Avoid reputational damage
Being found to do business with a sanctioned individual or being in breach of AML compliance doesn’t just leave you open to fines and prosecution, it also causes irreparable reputational damage to your business.
Even though most breaches of sanctions or AML compliance are accidental in the case of the vendor or service provider the public and business community are quick to judge and will most likely choose a competitor if given the choice.
Generally this is because any AML compliance or sanctions breaches speak of a culture of poor processes that suggests a lower quality of work; but some will take a more alarmist view of willing criminality on your part.
Avoid fraud
Fraud is by far the most common crime in the UK. Last year it made up 40% of all crimes reported by the police and it is estimated that less than 10% of frauds that took place were actually reported to the police.
With very little being done by the government and police about this epidemic of criminality, it is up to individual businesses to protect themselves.
Conducting proper UBO checks into your prospective clients’ businesses is an effective way of doing this. Often fraudsters will approach you as a fake or shell company. Red Flag Alerts UBO data and business reports let you quickly identify if this is the case.
The more layers you can add to your fraud defenses, the better and we offer a range of checks to allow you to be truly fraud-safe; including digital, AI powered IDV checks, business checks, mobile phone checks, and bank account checks.
Uncover additional sale opportunities
UBO data doesn’t just help your company avoid negative effects, it can also help you uncover a huge amount of opportunity that already exists in your client book and identify which prospects have the most scope for upselling.
By researching your clients and business partners group structures and owners you are able to find similar businesses that likely will need your services and who you are able to get a warm introduction to.
Performing this research as part of your financial due diligence reveals which prospects might lead to further opportunities and are worth going the extra mile to secure the deal.
Better identify risk
Whether your company performs proper UBO due diligence due to AML requirements or not, this practice contributes to a culture of performing robust financial due diligence and risk mitigation that is your best defence against bad debt, supply chain failures, losses to fraud, and compliance breaches.
Red Flag Alert provides the business, credit, and compliance data that you need to do smarter, safer, and faster business. From our revolutionary business reports to our innovative digital tools that automate and improve your processes.
Speak to one of our experts today about our industry leading UBO offering and everything else we do that will make you safer without slowing you down. Or see how AML and UBO connect the dots in financial transparency.
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