Regulators Continue to Raise the Stakes for Beneficial Ownership Due Diligence

In early 2020, the U.S. Treasury Department had made it clear that “increasing transparency and closing gaps” in financial crime regulation was a top priority. Chief among the priorities are expanding regulatory obligations beyond traditional financial institutions and introducing legislation to address beneficial ownership visibility. This year started off with legislative action  on that front—and not just in the U.S. As we’ve noted in previous posts, beneficial ownership is in regulators’ crosshairs in the EU  and the UK as well. What does guidance tell us and how can organisations gain better visibility into the ultimate beneficial owners of customers, suppliers and other third parties they rely on?

Clarifying enforcement: Who is subject to financial crime laws AND how can regulators respond?

The need to mitigate financial crime and corruption goes beyond the financial services industry, and the growth in laws only emphasizes the fact. In addition to the latest US requirements from the Corporate Transparency Act passed in January 2021, the following countries or regions have implemented laws to create more transparency:

• The European Union continues to strengthen beneficial ownership disclosure requirements, including public access to beneficial ownership registries.
• The UK has central registers for beneficial ownership of companies, properties and land, and trusts.
• Mexico requires companies with UBOs with at least 50% of shares or voting rights to be reported to the Public Registry of Commerce.
• India requires companies to file a Significant Beneficial Owner declaration with the government registrar.

Even Panama—the country that featured so prominently in the Panama Papers leak that highlighted the corrupt activities facilitated by beneficial ownership—is in the process of passing regulations to address the issue.

As a result, any organisation that operates internationally needs to stay alert to changing requirements and adapt their third-party due diligence accordingly. Here are some good first steps:

• Analyse corporate structures. Corporate families can be very complex, so understanding the hierarchy, including shell companies, can help determine the scope of due diligence required.
• Identify beneficial owners: Confirming which individuals fall within the threshold of beneficial owners in the jurisdiction.
• Report changes to the appropriate government agencies and local registers as needed. This isn’t a one-and-done process.
• Conduct an annual review to ensure that activities of a parent company, such as a restructuring, results in changes in the beneficial owners involved with the organisation, so it can be reported.
• Maintain an audit trail of the UBO due diligence you undertake.

Establishing a solid risk management process to address regulatory expectations

As we’ve seen with FCPA enforcement actions in recent years, organisations that establish strong due diligence and third-party monitoring programs to mitigate regulatory risk tend to fare better in the event of a compliance failure. The same holds true with laws related to beneficial ownership disclosures. Regulators around the world indicate that in the event of a compliance failure, they will consider:

• The quality of the program
• Prompt, effective action if a violation is discovered
• Voluntarily disclosure of the suspect issue and
• Cooperation with any subsequent investigation

A key component of risk-aligned due diligence centers on identifying Ultimate Beneficial Ownership (UBO). As we’ve witnessed from negative headlines in recent years, beneficial ownership can be used to hide a wide range of criminal activities, from tax evasion to terrorist financing. In the absence of a global beneficial ownership registry, organisations must rely on due diligence to uncover these hard-to-spot connections.

We’re here to help. Nexis Diligence™ puts the power of a world-leading source universe at your fingertips, including Dun & Bradstreet® Ultimate Beneficial Ownership data and Corporate Family Tree data. With details on the ownership of hundreds of millions of businesses and other commercial entities worldwide and corporate hierarchies from Headquarters all the way up to Global Ultimate, you gain critical insights into who owns whom and relationships within a corporate family to identify potential risks.

See for yourself with a personalized demo.

Keep exploring:

1. Take a closer look at how Nexis Diligence™ helps you uncover beneficial ownership quickly.
2. Download our eBook on Beneficial Ownership to read at your convenience.

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