What is an Ultimate Beneficial Owner?
The natural person who ultimately owns or controls the Legal Person, whether directly or through a chain of ownership or control or any-other indirect means, and also the natural person on whose behalf the transactions are being conducted or who exercises ultimate control over a legal person.
How do you identify the UBO?
- The natural person who owns 25% or more of the shares
- The natural person who has the right to appoint or dismiss the majority of its directors.
- Where no natural person is identified as a UBO then the natural person who holds the position of a higher management official shall be deemed as the UBO.
The ultimate beneficial owner (UBO) is the natural person who ultimately owns or manages a company. This person does not have to be known directly as the owner. Such structures are not illegal but are often used for covert criminal activities and frauds.
What is the difference between a Beneficial Owner and an Ultimate Beneficial Owner?
A UBO is a person who has ultimate control over a business and owns at least 25% of its shares. A Beneficial Owner is anybody who holds shares in a company.
What is Ultimate parent company?
In addition to the Ultimate Beneficial Owner or UBO, there is something referred to as the Ultimate Parent Company (UPC). That is the company on the very top of the organization structure.
Why is UBO Check important?
Companies of all types are required to identify beneficial owners of customers, suppliers and other third parties as part of their business partner check. In order to prevent them from doing business with criminal parties, financial service providers, all companies operating internationally, are obliged to draw up a UBO declaration establishing the identity of a UBO or the Ultimate beneficiary, depending on the country they are doing business in.
In doing so, these companies comply with national and international laws on money laundering (AML), bribery and corruption and regulations relating to Know Your Customer (KYC) and the WWFT. This is becoming increasingly important for companies in order to avoid frauds, high fines, reputational damages and possibly imprisonment
What regulations govern the UBO requirements in UAE?
The Cabinet Resolution No. (58) of 2020 Regulating the Beneficial Owner Procedures is the key regulation for UBO in UAE. It replaces the Cabinet Decision No. (34) of 2020 concerning Regulating the Beneficial Owner Procedures.
This regulation is in line with Cabinet Decision No. (10) of 2019 on the Executive Regulations of Federal Decree-Law No. (20) of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organizations, as well as Federal Decree-Law No. (20) of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organizations.
Who is required to comply with UBO regulations in UAE?
A legal person registered or licensed in UAE to conduct operations, excluding the ones exempted by the Cabinet Resolution No. 58 of 2020, is required to comply with UBO requirements in UAE.
What are the obligations of companies in the UAE as per the UBO legislation?
As per the Cabinet Resolution No. 58 of 2020 Regulating Beneficial Owner Procedures, entities licensed in UAE (excluding exempted entities) must prepare and file the following:
- Beneficial Owner register
- Nominee Director register
- Partners or Shareholders Register
How to perform UBO screening of an entity?
These are the general steps to take for UBO screening:
Step 1. Find the identity acquire the firm’s credentials
To verify their legitimacy and the accuracy of their records companies have to supply full and up-to-date information regarding register number, firm’s name, address, official status, and top management employees. The exact specifications might vary depending on the jurisdiction and fraud regulation standards.
Step 2. Research ownership chain
Identify natural or legal persons who have a percentage in shares or interests and determine if the ownership is direct or indirect.
Step 3. single out the ultimate beneficiary
Identify UBO by determining the entity or natural person’s ownership interest or management control – total percentage of shares, ownership stake, management control, and verify if any of it falls under the ambit of UBO UAE.
Step 4. perform an AML/KYC check
All of those who were deemed UBOs have to go through the full AML/KYC check.
Once you have detected the identity, you should screen the UBO to estimate the risk. For example, is the UBO in PEP lists, inspection lists or sanction lists, or does it have negative publicity?
Step 5. Prepare a risk estimate
You have to understand the risk categories UBOs fall into. Ranging from low to high, they demand different approaches:
- Low risk
UBOs that fall under the low risk category can confirm their identity by signing a statement listing their details. It is also sufficient to perform a visual check against identification documents.
- Mid to High risk
If the person is a PEP or if there are any signs related to terrorism or money laundering, further investigation is required. All business interaction before the case is settled is unsafe for you/your company, posing a risk of being involved in criminal activities. In such cases, according to the FATF recommendations, enhanced due diligence measures may include the following:
- Additional searches to collect information to assess the customer’s risk profile including political exposure, adverse media coverage and legal enforcement measures that could contribute to risk.
- Analyze the individual’s source of wealth and funds, and register any discrepancies between income, source of wealth and overall net worth.
- Gather additional information about the purpose and intended nature of the business relationship.
- Annual updates about changes in substantial ownership.
What are the obligations of establishments regarding the real beneficiary data include?
- Every company is required to identify its Beneficial owners and Nominee Directors (if applicable). Every company must maintain registers, Register of Shareholders, Register of Ultimate Beneficial Owners, Register of Directors and Nominee Directors.
- Submit this information to the affiliated licensing authority.
- Notify the licensing authority of any changes or amendments that occur to the information provided within 15 days of the occurrence of that change.
- Appoint a contact person (legal representative) for the licensing authority regarding the real beneficiary data.
- Take reasonable steps to ensure transparency, obtain accurate information regarding the beneficial owner, and update the information in the records on a regular basis.
Who is the legal representative?
is the natural resident person that authorized by the company to provide any information and documents required from the company.
What is the meaning of a Nominee Director?
A Nominee Director is a director who is obligated to act in accordance with the directions and instructions of another person.
who is designated by a business entity or beneficial owner to act as a company representative to hide the identity of the actual owner.
Who is the Corporate Director?
A corporate director, appointed by the business as head of the corporation’s board of directors who supervises the legal entity’s activities and develops a business strategy on behalf of the stakeholders
What are the constituents of a Register of Shareholders?
The legal person must include the following data and information in respect of each of its partners or shareholders:
- The date on which the shareholder or partner acquired that status in the legal person
- Number of shares held by each, associated voting rights, and categories
- Details of full name, address, nationality, date of birth, and place of birth as per the identity card or the passport as well as name and address of employer along with a true copy of the identity card or passport, in case of natural shareholders or partners
- If the shareholders or partners are corporate, the details to be submitted are the same as in the Register of Beneficial Owners.
- If any partner/s or shareholder/s acts as a Trustor or Nominee Board Member, the legal person must include this data.
- Data of persons represented by any Trustee or Nominee Board Member must also be included in this Register.
What are the constituents of a Register of Beneficial Owners?
The Register of Beneficial Owners includes the following information:
- Full name, nationality, date, and place of birth
- Address of the residence or the place where notices can be sent
- Number of identity card or passport along with the date of issuance and expiry and country of issuance
- The date on which the individual became a beneficial owner and the basis of this
- The date on which the individual ceases to be a beneficial owner
What are the duties of the Nominee Board Member towards the legal person?
When a board member or manager becomes a nominee board member, he or she shall inform the same to the legal person within 15 days of becoming the same. The nominee shall provide all the relevant data along with this.
If there is any change in the data, then the nominee board member must inform the same to the legal person within 15 days of the change. Also, when he or she ceases to be a nominee board member, the notification for the same must be sent to the legal person within 15 days.
Is there any duty of the beneficial owner towards the legal person in respect to this resolution?
Yes. If a beneficial owner’s details are not recorded adequately with the legal person in the Register of Beneficial Owners, then the legal person can inquire from the owner about the details. The beneficial owner is required to submit the required missing information.
If the beneficial owner fails to respond to the legal person within 15 days of receiving the inquiry, the latter can notify the owner. The notice must mention the following:
- Mention that the notice is in regards to the UBO decision
- Mention whatever details the legal person has on the beneficial owner in the Register and ask the missing details to be sent by the owner
- Ask the beneficial owner whether he/she has ownership in the legal person, correct the data sent, and fill in the missing data.
The beneficial owner must respond to the notice within 15 days of receiving it. If the legal person does not receive the response, it can enter the notified data in the Register. In this case, the legal person must inform the relevant person of including that information within 15 days of inclusion.
Can a natural person request for changes in the Register of Beneficial Owners?
If a natural person finds his/her name or details in the Register of Beneficial Owners, then he/she can apply to the Competent Court to rectify the Register in the following cases:
- The name of the person is missing from the Register without sufficient cause
- The name of the person is entered into the Register without sufficient cause
- If a change has occurred in the person’s status as a beneficial owner
- If there are errors in the details mentioned in the Register
Do we need to update changes in UBO?
Yes, whenever any changes come in the details of beneficial owners, the legal person must update the change within 15 days of the change coming into being.
What happens in the case of liquidation of a legal person?
If the legal person is in the process of dissolution or liquidation, the liquidator is responsible to furnish the details to the Registrar. The liquidator must submit a copy of both the Registers to the Registrar within 30 days of his/her appointment as the liquidator.
Also, the liquidator or the legal person or the management, or anyone responsible for the entity’s dissolution is responsible for maintaining these Registers for five years from the date of liquidation, dissolution, or de-registration
What powers does the Registrar have under these Regulations?
The Registrar has the following powers:
- The Registrar can make copies of the documents provided by the legal person.
- If the documents or data are not provided, the Registrar can ask the legal person or its authorized personnel or agents to submit the same at the time and place mentioned by the Registrar and answer relevant questions.
- The Registrar sends a written notice to the legal person mentioning the time and place of submission of documents and data.
Is there any sharing of information or documents with international organizations?
In respect of international cooperation, the Ministry can do the following:
- Provide access to foreign authorities to the basic information mentioned in these Registers of the legal person
- Exchange data of shareholders, UBOs, or partners of the legal person
- Obtain all the beneficial owner data from its counterpart foreign entities on related entities of the legal person by exercising its powers
Consequences of UBO non-compliance for the Cabinet resolution of the UBO procedure?
As per Cabinet Resolution (53) of 2021 Administrative penalties for violators of the provisions of the Cabinet Resolution (58) of 2020 Regulating Beneficial Owner procedures the penalties start from AED50,000 and may reach to AED100,000 and suspend the license for 12 months.
Appeal against any sanctions imposed by the Ministry or any licensing authority in case of contravention to the provisions of this regulation
Yes, legal persons can appeal against the sanctions within 30 days of receiving the notification. The appeal must happen before a committee is formed. The Committee must decide on the appeal within 30 days from its submission date.
Alia Noor (FCMA, CIMA, MBA, GCC VAT Comp Dip, Oxford fintech programme, COSO Framework)
Ahmad Alagbari Chartered Accountants