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Finding UBO with software - Promise a lot, give little

Compliance/Due Diligence software is offered by several vendors to find UBOs (Ultimate Beneficial Owner). This information can be purchased in the form of a report or a subscription. Much is promised: “So that it is quickly clear who the ultimate beneficial owner (UBO) of a company is.” or “The UBO check gives you insight into which natural person(s) is/are the Ultimate Beneficial Owner of the company”.

In practice, such claims are rarely, if ever, true. The real UBO 's are almost never found with the software offered. If any UBO 's are found with the software, it is questionable whether it is true. They are more likely to be possible UBOs (suspect UBOs). The software does assist in looking up the necessary information and registering source documents.

When you need to conduct a UBO search independently, extracts from the Chamber of Commerce allow you to find out who are the officers, directors and owners of a legal entity. From the operating company, the parent company is searched and from there the next parent company; the chain up is followed. This is what the software also does. However, there are gaps in this method as we will demonstrate later in this article.

Works at a sole proprietorship

In the case of a sole proprietorship with one owner/ officer or other entity with one owner/ officer, finding a UBO at the Chamber of Commerce works reasonably well. Of these, it can be stated with reasonable certainty that this person is the UBO. Although it is possible that someone else has actual control over the legal entity, the owner or officer can be labeled as the UBO.

No real insight into corporate structures

Giving insight into concern structures is also not possible based on CoC information because <= 25% shareholders are not visible in the CoC. In the case of an operating company with two 50% owners each with a personal holding company [A 50%; B 50%], the CoC works. The group structure is transparent. In the case of a different share distribution [Holding A 25%; Holding B 75%], Holding A with its StAK is invisible in the CoC structure

A natural person who should be considered UBO through two legal entities will not be able to surface as UBO.

Foundation administration office makes shareholder invisible

An interesting problem is a Foundation Administration Office (StAK). Finding a director at a StAK is possible but this says nothing about the real shareholders. The StAK is registered as the sole shareholder of the BV. A certificate holder within the STAK is anonymous.

Problems in the method described

The following problems apply:

  1. Who has actual control in the entity cannot be identified based on CoC extracts. Only the legal entity itself can provide more information on this.
  2. This also applies to the distribution of shares and/or capital. Whether a person is a possible UBO of a company can be inquired, but to what extent he is, is not public.
  3. Only the Netherlands. First of all, the Dutch Chamber of Commerce only covers registrations and registrations within the Dutch national borders. When a UBO investigation leads to entities outside the Netherlands, the extracts from the Chamber of Commerce are no longer sufficient. When a UBO investigation leads to entities outside the Netherlands, the investigation will have to be pursued through foreign authorities and persons. For some countries, the information is easy to retrieve. For other countries, however, this is a lot more complicated and it becomes a challenge to get the UBO investigation as conclusive as possible. In this case, however, efforts can be made to trace the UBOs through an intermediary (UBO Gateway).

The consequences

In the case of a sole proprietorship with one owner/ officer or other entity with one owner/ officer, it can be stated with reasonable certainty that this person is the UBO. Although it is possible that someone else may have actual control of the legal entity, the owner or officer can be labeled as the UBO (UBO).

If an entity has multiple natural persons as owners and/or officers, only persons who may be UBOs (UBO suspect) can be identified.

Even when the UBO investigation leads to more difficult to understand entities, such as associations, and foundations, only directors can be identified as possible UBOs. Again, it is not publicly apparent who controls the entity to what extent. Thus, research here may well lead to suspected UBOs (UBO Suspect) and/or persons who should know who the UBOs are (UBO Gateway).

What you can do

Only when the corporate structure is (extremely) simple and only one natural person is involved can it be assumed with reasonable certainty that this person is the UBO. In doing so, of course, you should try to find out whether this person is actually the sole UBO.

In all other cases, you depend on the information provided by your client. This information must be accurately set out so that the corporate structure and UBOs can be clearly documented and archived. Therefore, to verify the client's supplied information, it remains important that you also request the supplied extracts directly from the Chamber of Commerce.

During the UBO discussions you have with your client or during client due diligence, you can immediately request the necessary extracts. You can, of course, do this piece by piece, but this process can be streamlined with an automated UBO check from CDD On Demand. This will immediately retrieve the extracts from the entities involved and display the corporate structure - to the extent possible - in a clear report. With this report and the information provided to you by your client, you can conduct a proper UBO investigation. In this, you will remain dependent on the information provided by your client.

Stay sharp!

It is important to find out the UBOs. It should be noted, however, that there is currently only a limited amount of information available in public sources to request. The UBO register coming into effect soon is unlikely to change this much, although it will make it easier to retrieve UBOs. Until then, UBO searches will have to be conducted on your own, with automated UBO checks never able to cover the whole gamut. You will always remain dependent on the information provided and its reliability. So use an (automated) UBO check only as a tool, not as a comprehensive UBO investigation.

About the WWFT

The Wwft requires (financial) service providers to conduct a thorough UBO investigation. Such an investigation seeks to identify the UBO (ultimate beneficial owner). This investigation will be simplified by the introduction of the UBO register. This new register is scheduled to take effect in the spring of 2020. Until then, service providers will have to conduct the UBO investigation themselves.

UBO research using the Chamber of Commerce: how does it work?

Extracts from the Chamber of Commerce can be used to provide partial insight into the corporate structure. These extracts include the officers and owners of a legal entity. If the owner of a legal entity is another legal entity, the UBOs and owners/officers of this legal entity are also disclosed. In a UBO investigation, this structure is checked and clearly displayed. Furthermore, the client must provide insight into the structure and distribution of capital and ownership using deeds and extracts.

UBO conditions

A UBO is a natural person who meets the following requirements or owns one of the following:

  1. More than 25% of shares;
  2. More than 25% of voting rights;
  3. Actual control of the company;
  4. When this does not allow identification of actual UBOs, the legal entity's senior executives are designated as UBOs.