Johannesburg, 03 Aug 2023
The design of anti-money laundering (AML) and combating the financing of terrorism (CFT) controls aims to frustrate bad actors such as rogue states, criminals and terrorists in their attempt to gain access to finance.
Companies must precisely know the parties they conduct business with to mitigate risks associated with financial misconduct and terrorist activities.
According to Dalbir Sahota, senior director, payments, at LexisNexis Risk Solutions, companies of all types must identify the beneficial owners of customers, suppliers and other third parties as part of their business partner check, which is known as the ultimate beneficial owner (UBO).
“A UBO is the individual or entity that ultimately owns or controls a company or organisation, regardless of who is listed as the legal owner,” said Sahota. “It is vital to know the UBO in terms of anti-money laundering and combating the financing of terrorism efforts, as well as being critical for corporate governance and risk management.
“Under the existing AML/CTF rules, financial institutions such as banks, insurance companies, accountants and real estate agents are obliged to conduct UBO scans for better flow and clarity.”
Understanding an organisation's UBO is crucial for various reasons. In addition to concerns about financing terrorism, Sahota highlights the risks associated with frequent financial criminal activities and UBOs being listed on sanctions lists.
"It's important to remember that a business can have a completely legitimate appearance, with no issues found in terms of their C-level executives and products, and even pass a compliance check without any red flags. However, the check remains incomplete until the organisation identifies the UBO.
“Businesses need to ask: Who are the owners behind the business and where are they based?" added Sahota. “Are they connected to politically exposed individuals and have they faced any adverse sanctions or negative publicity? Only by obtaining these answers can you ensure the necessary levels of transparency.”
Identifying a UBO can reveal specific reasons for concern. Organisations must then determine whether these issues will have an impact on the business and decide whether the associated risk is worth taking.
"The question of whether I can or should do business with them largely depends on the information you gather. While such data is widely available, it can be fragmented. Bringing together the various data points, harnessing and leveraging them correctly, can be challenging," he says.
Tools are available to assist organisations in prioritising payment efficiency and ensuring data validation throughout fraud and UBO checks. A solution that offers a comprehensive data and feature set can help ensure safe and efficient transactions, even with cross-border payments.
Such tools should be complemented by analysts who can directly gather information from primary sources and proactively maintain the solution's intelligence up to date.
"A risk-based approach is the most effective approach. There are multiple factors beyond the identity of the UBO that determine the risk level of a transaction, such as the payment value, the recipient country and the nature of your business.
“Businesses need to strike a balance between complying with Financial Action Task Force (FATF) regulations and ensuring seamless and efficient transactions that are safe and secure for their customers," concludes Sahota.