UBO – You have Gathered all of the Ownership Information- Now What?

Part Three in a Series

We have discussed the UBO rule and the changes that will be required when the both parts of the rule are passed- but one thing that we have yet to get into is the how to us ethe information that is collected in a manner that is effective for the overall AML monitoring program.  Put another way- so now that you have the UBO information on your customers- So what?  

The gathering  of the information that is required is the first basic step- it is what you DO with that information that can make the rule game-changing.  Incorporating UBO information in to both risk-rating and monitoring plans  for customers is a key best practice.  It is also the overall goal of the UBO rule.   

The Reason for the Rule

Before the UBO rule was enacted, the ownership of established companies as well as shell corporations was an area that we missed in our overall information gathering used for risk assessment purposes.  While we often did a background check on the company itself,  we did not focus on the ownership of the company.  The ownership of a business can and should make a huge difference in your risk profile of a customer.

Owners can present additional risks in many ways such as:

·        Cash intensive related businesses

·        Ownership that is potentially OFAC sanctioned or otherwise compromised.

·        Ownership that is engaged in illicit activities such as trade-based money laundering that could be blended into the operations of the established business

 

Risk and Ownership

How can the ownership of a company impact risk?  A small example may help illustrate.  Suppose we have a local owned and operated flower shop that specializes in the Sky-blue Orchid that grows almost exclusively in Tasmania Australia- 

Our customer specializes in selling this rare plant to the many admirers in the local area and throughout the country.  Our risk profile of this customer would include business flow expectations  that would include:

·        A combination of cash checks and credit/debit card payments as deposits.

·        Wires to the suppliers primarily in Australia

·        Payments to other suppliers, utility bills, rent or lease payments, insurance, etc.  by debit card and /or ACH

·        Minimal wires coming in

·        Incremental growth  

 

Now suppose our customer is joined by a 51% owner who is also a casino owner;  does the risk profile of the company change?  What else would you look for as a result of this change in ownership or control?

The risk profile of the company has not necessary changed, but it would be a best practice to consider that any change in the cash flow or other activities of the flower shop might indicate that the new owner is changing the operation of the  company.  This is not to infer that a change in ownership itself is a problem; but the risk profile of the company must be re-considered. 

Risk Profiles and UBO 

When risk rating customers and administrating  the list of customers considered ‘high risk”  it is important that the UBO information including who the controller people/persons are is part of the overall risk assessment and monitoring program that results. 

The whole point of risk assessing customers should be to determine how your monitoring program will be used to mitigate risks.  In the above example, the monitoring program would be altered to look for potential changes in the nature of the cash flow of the company including:

·        Higher cash deposits

·        Wire activity in countries s different from the past

·        Incoming wires

·        Bulk sales of flowers

·        Customers from regions outside the established base

 

UBO information collection should be dynamic -at least annually and must be built into the overall risk assessment and subsequent monitoring program.  Once the information is collected, it should be incorporated in to the overall risk assessment of customers and the monitoring program designed to mitigate risk.

***James DeFrantz is Principal at Virtual Compliance Management.  For More information please visit our website at www.vcm4you.com ***