Do You Know Your UBO? How US Law is Changing KYC for Businesses

In today's complex financial landscape, it becomes problematic for businesses as anonymity with digital platforms threatens the capabilities of tracking finance criminals. Criminal proceeds laundered annually range from between 2 and 5 percent of GDP and therefore stand at 1.6 to $4 trillion a year, stated by the International Monetary Fund (IMF). With the emergence of cryptocurrencies, this figure is probably much higher now, and it is also becoming more challenging to track illicit financial activities.

As technology enables businesses to conduct relationships from a distance, firms must implement efficient procedures and tools to authenticate the identity of third parties. The U.S. government has reacted to this increased challenge by implementing new regulations that will touch businesses worldwide, requiring greater Know Your Customer (KYC) practices.

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Effect of AMLA and Corporate Transparency Act (CTA)

The Anti-Money Laundering Act of 2020 (AMLA), passed on January 1, 2021, represents the most significant reform to U.S. anti-money laundering laws in over 20 years. It applies to all businesses operating in the U.S. and foreign companies doing business within U.S. borders. A key component of AMLA is the Corporate Transparency Act (CTA), which mandates that companies disclose their Ultimate Beneficial Owners (UBO)—those individuals who ultimately control or benefit from a company’s operations.

All businesses in the U.S. must adapt to these new regulations that would implement a risk-based approach for onboarding a customer and verification of his identity by 2023. This should increase the transparency level and reduce financial crime risks when there is an identification of who ultimately controls a business.

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Why UBO Transparency Is Critical

UBO disclosure is gradually becoming the core of the KYC process. An UBO is defined as an individual holding at least 10-25% of the capital or voting rights of a company or who benefits from the company's financial transactions. AMLA makes it a mandatory requirement to disclose a business's UBO under the AML/CFT regulatory regime.

Firms that do not adhere to these UBO regulations face very severe penalties. Non-compliant businesses can be fined up to $500 per day and criminal fines of up to $10,000. In addition, the individuals providing false or incomplete UBO information may face imprisonment of up to two years.

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UBO Data Collection Process

To comply with the AMLA, U.S. and foreign businesses operating in the U.S. shall collect, verify, and report a variety of information about their ownership to the Financial Crimes Enforcement Network (FinCEN). These include:

• Full name of the UBO(s)

• Date of birth

• Residential and business addresses

• Government-issued identification number (e.g., passport, ID card, driver's license)

Although this data will not be publicly available, it will be accessible to U.S. authorities and international law enforcement agencies investigating money laundering and terrorism financing.

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The Process for Identifying a UBO

The process of identifying UBOs is detailed and requires thorough due diligence:

1. Retrieve the organization’s credentials: Companies must provide accurate and up-to-date information about the firm’s registration, address, management, and ownership structure.

2. Ownership chain research: Companies should identify direct and indirect ownership interests, thus finding the natural or legal persons who own shares or interests in the business.

3. UBO Identification: Businesses must identify individuals who are considered to meet the threshold of ownership or control of the business, usually over 10-25% of the shares, and thus who benefits from the business's financial activities.

4. Conduct AML/KYC checks: Companies should then conduct appropriate AML and KYC checks to ensure that the UBOs do not have any connections with illegal activities.

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The Cost of Non-Compliance

Failure to comply with the new UBO regulations will be costly in many ways, not only legally, but also reputational loss. Companies that are found to have submitted false or incomplete UBO information will have substantial penalties imposed on them, including fines of $500 per day and criminal fines that go up to $10,000. The people responsible for the submission of fraudulent information may receive up to two years' imprisonment.

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How OPO Can Help

Such a journey through new requirements can be overwhelming, especially for companies that have not yet deployed robust KYC and UBO processes. OPO is here to help companies simplify their compliance process through full lifecycle Know Your Customer (KYC) and Know Your Business (KYB) protocol solutions. Our advanced technology ensures that your UBO identification, verification, and data collection processes are efficient, accurate, and fully compliant with the latest regulations.

And when in the hands of OPO experts you enjoy:

• Process automatization of UBO, resulting in reduced error and fraudulent schemes.

• Remain compliant with the evolving U.S. and International AML/CFT Standards to avoid expensive fines.

• Be one step ahead of regulatory deadlines by keeping pace in streamlined workflows and efficient solutions data on compliance.

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Act Now End

Do not let the complexity of regulatory changes expose your business to risks. With solid and reliable solutions from OPO, you can enjoy a smooth process of satisfying the latest UBO requirements and KYC requirements.

Contact OPO today and find out how we can assist you in ensuring your UBO regulations compliance. Let us help navigate through the complexities of AML/CFT regulations so we can protect your business from financial crime risks.

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