Beneficial Ownership and UBO Screening

Criminals rarely open accounts in their own names. They use companies, trusts, and layered structures to put distance between themselves and their money. The counter to this is a core pillar of anti-money-laundering compliance: identifying the ultimate beneficial owner (UBO) — the real human being who ultimately owns or controls a legal entity. For anyone onboarding business customers, UBO identification and screening is not optional; it is a regulated obligation.

What a beneficial owner is

A beneficial owner is the natural person who ultimately owns or controls a customer, or on whose behalf a transaction is conducted. The key word is natural person — you must trace ownership through corporate layers until you reach actual humans, not another company. Control can arise through ownership of shares, through voting rights, or through other means such as the right to appoint directors, even without a large shareholding.

The Financial Action Task Force (FATF), whose recommendations underpin most national AML regimes, requires that institutions identify beneficial owners and take reasonable measures to verify their identity so they know who they are really dealing with.

Ownership thresholds

Because tracing every fractional owner is impractical, regulations set a threshold above which a person is treated as a beneficial owner. The most common threshold is ownership or control of more than 25% of an entity's shares or voting rights — used in the EU's Anti-Money Laundering Directives and widely mirrored elsewhere. The US beneficial ownership rule under FinCEN sets it at 25% ownership plus a separate control prong capturing any individual with significant managerial control, regardless of percentage.

Thresholds can be lower in higher-risk situations, and firms may apply stricter internal thresholds. Where no individual meets the ownership threshold, regulations typically fall back to identifying the person who exercises control, and ultimately to a senior managing official as a last resort.

Layered structures and the tracing problem

The hard part is not a simple company with three shareholders — it is deliberately layered structures. Consider an account for Company A, which is 60% owned by Company B, which is in turn 50% owned by an individual and 50% by a trust in another jurisdiction. To find the UBO you must multiply ownership through the chain and account for control that does not follow the share percentages. Nested holdings, nominee shareholders, bearer shares, and cross-border trusts are all techniques used to obscure the real owner.

Working out effective ownership requires calculating the product of ownership stakes along each path and aggregating across paths, then flagging anyone whose combined effective interest crosses the threshold — while separately capturing control-based owners who may hold little or no equity.

UBO screening

Identifying the UBO is only half the job; you must then screen those individuals. UBO screening applies the same checks you would run on any customer to the humans behind the entity:

• Sanctions screening — checking each UBO against sanctions lists, because a sanctioned person can hide behind a non-sanctioned company (this connects directly to the 50% ownership rule for sanctions).
• PEP screening — identifying politically exposed persons among the owners, who warrant enhanced due diligence.
• Adverse media — searching for negative news linking a UBO to financial crime.
• Ongoing monitoring — re-screening as ownership changes and as lists update, since a clean UBO today can be listed tomorrow.

Registers and verification

Firms verify beneficial ownership using a combination of customer-provided declarations, corporate registry filings, and beneficial-ownership registers. Many jurisdictions now maintain such registers, though access and reliability vary, and FATF has pushed for more accurate and accessible ownership information. Good practice is to corroborate the customer's self-declaration against independent sources rather than accepting it at face value, and to document the ownership chain and the reasoning behind who was identified. The overarching principle is simple even when the structures are not: you must be able to name the real people behind your corporate customers and confirm they are not sanctioned, politically exposed, or linked to crime.

Key takeaways

• A UBO is the natural person who ultimately owns or controls an entity — trace through corporate layers to real humans.
• The common ownership threshold is more than 25%; US rules add a control prong regardless of percentage.
• Layered structures require multiplying ownership along each path and separately capturing control-based owners.
• UBO screening applies sanctions, PEP, adverse-media, and ongoing-monitoring checks to the identified owners.
• Corroborate declarations against registries and independent sources, and document the ownership chain.