The term UBO comes up in almost every due diligence investigation. Yet for many organisations it is not always clear exactly when someone qualifies as a UBO and why it receives so much attention in compliance.
What does UBO mean?
UBO stands for Ultimate Beneficial Owner. This is the natural person who, directly or indirectly, ultimately owns or controls a company or legal entity. So it is not about the formal director or the party that owns the company on paper, but about the person who actually sits at the end of the chain of ownership or control.
How is a UBO identified?
UBO research usually focuses on two elements:
- Ownership — who holds, directly or through intermediate entities, a certain percentage of the shares or capital?
- Control — who, regardless of formal shareholding, can exercise decisive influence over the company, for example through voting rights or other control arrangements?
With simple corporate structures this is quick to trace. With structures involving several intermediate companies, trusts or foreign entities, it often requires more thorough research.
Why UBO research is part of due diligence
UBO research is relevant to trade compliance for several reasons:
- Sanctions risk — a party may not be sanctioned itself while a UBO is on a sanctions list.
- Reputational risk — adverse media or past involvement in compliance incidents on the part of a UBO can bring risks to the business relationship.
- Transparency — an unclear or deliberately concealing structure can itself be a risk signal.
- Regulation — for many organisations, identifying UBOs is a legal obligation, for example under the Dutch Anti-Money Laundering and Anti-Terrorist Financing Act (Wwft).
Signs that call for extra attention
Not every corporate structure is problematic, but certain characteristics call for closer assessment:
- Several intermediate entities in different jurisdictions
- Use of nominee shareholders or directors
- Structures that appear deliberately opaque
- UBOs that do not match what publicly available information suggests
Example from practice
An organisation enters into a trading relationship with a foreign company. At first sight the ownership structure is simple, but on closer investigation the shareholder turns out to be a holding company, which in turn is held by an entity in another jurisdiction. Only after this structure has been fully traced does it become clear who the actual UBO is.
Frequently asked questions
Is every shareholder automatically a UBO?
No. A certain threshold of ownership or control usually applies before someone is designated as a UBO. Control without formal shareholding can also lead to UBO status.
What if a UBO cannot be identified?
If, after reasonable research, no natural person can be identified as the UBO, this is usually regarded as a risk-increasing factor in itself and calls for additional measures.
Is UBO research part of every customer relationship?
UBO research is a standard part of a full due diligence process, with the depth matched to the risk profile of the relationship.
TradeRisk carries out UBO and corporate structure research as part of due diligence. Also read more about Customer Due Diligence and sanctions screening of companies.