In recent years, the fight against fraud has stepped up, with the 4th and 5th AML regulation coming into play when a company on-boards a new customer. Recommendation 10 from the Financial Action Task Force (FATF) which addresses Customer Due Diligence (CDD), states that financial institutions must identify the beneficial owner and take reasonable measures to verify their identity.
A recent survey conducted by Creditsafe revealed that 37% of businesses surveyed had been a victim of fraud within the last year. It is a very real threat that is rising steadily with time, therefore businesses are now becoming more vigilant in their due diligence to avoid this.
As part of wider due diligence, companies need to ensure their customers do not present a risk to their organisation, whether it be anti-money laundering risk, politically exposed risk or if their business has been previously sanctioned. Identifying the beneficial owner is extremely important in detailed risk assessment practices before a company enters into a new transition with another. Carrying out these checks thoroughly allows businesses to comply with regulation, and from a reputational standpoint, businesses need to know who a UBO of a company is to combat fraud for the safety of their own business.
Criminals have long used complex corporate structures to defy the law and carry out criminal anti-money laundering activity. Compliance laws including UBO screening have been implemented to deliver complete transparency in KYC policies.
Businesses need to have a robust, risk-based and auditable process that can identify who exercises ultimate effective control over legal persons.