Beneficial ownership and BO registers in the European Union
Beneficial owners are the individuals that ultimately own or control a company or other legal entity. Beneficial ownership information is distinguished from legal ownership, although there are cases where the legal and the beneficial owners are one and the same. Regardless of immediate legal owners, there may be other persons who have the power to control or influence the activities of the legal entity.
In some cases, the legal owner of a company may be a nominee or a front for the true beneficial owner; therefore, identifying the beneficial owners is crucial for preventing money laundering, tax evasion, and other financial crimes.
Beneficial Ownership across different European jurisdictions
According to relevant EU anti-money laundering regulation, companies must always report natural persons as beneficial owners. Contrary to this, the UK allows companies to register legal entities as beneficial owners (i.e. persons with significant control – PSCs), only in cases where those legal entities are themselves subject to PSC disclosure requirements. This allows for identifying the entire ownership chain of a legal entity, so long as all the entities in the ownership chain are subject to the UK PSC regime.
To avoid unnecessary administrative burdens, national governments have implemented exemptions to the beneficial ownership reporting obligations. For example, in Austria, general partnerships and limited partnerships established under Austrian law are not required to file beneficial ownership information if all personally liable partners are individuals. Likewise, if all shareholders of a limited liability company incorporated under Austrian law are individuals, that company is exempt from the reporting obligation. Many jurisdictions do not require companies listed on a recognized stock exchange to file beneficial ownership information, so long as those regulated markets impose adequate transparency requirements, including beneficial ownership disclosure. Additionally, in several jurisdictions sole traders are automatically considered the beneficial owners of the entity.
Legal entities are required to determine (i.e. identify and verify the identity of) their own beneficial owners and report them in the registers of beneficial owners. Therefore, data in the beneficial owners registers is self-reported. Most of the jurisdictions require reporting solely the ultimate beneficial owner(s); however, some require that legal entities report a schematic representation of their ownership structure, including all intermediary entities.
What type of data about UBOs is available
In our KYC product suite, we source beneficial ownership information from official national registers of beneficial owners. In some jurisdictions (e.g. Belgium), beneficial owners registers are maintained separately, and in others they are maintained as separate datasets within the same registry institution (e.g. Latvia, Denmark). Typically, the beneficial owners dataset contains the full name, nationality and month and year of birth of the beneficial owner; the nature and extent of the beneficial interest held, as well as the date on which the beneficial ownership was acquired.
For an individual to be considered a beneficial owner of a legal entity, he or she ought to own, directly or indirectly, a sufficient percentage of shares or voting rights or ownership interest in that entity, including through bearer shareholdings. The EU currently imposes a 25% ownership threshold, although the European institutions are currently considering lowering the threshold down to 15%.
In addition to persons who pass the ownership threshold, or where the legal entity cannot identify a beneficial owner through direct or indirect ownership, it must identify and report individuals who exercise control over the legal entity via other means, for example through personal or family connections to other beneficial owners or managers, various types of formal or informal contractual agreements with owners, or through the right to benefit from company assets. For example, even if an individual wouldn’t qualify as a beneficial owner through ownership, he or she may have decision or veto rights over the legal entity’s business plan, its nature of business, the appointment or removal of the CEO, or other type of control or significant influence over the decisions of board members or the way in which shareholders vote.
In exceptional cases, where all possible means to identify a beneficial owner through ownership or control via other means have been unsuccessfully exhausted, the legal entity can report its senior managing official (i.e. director or CEO) as a beneficial owner.
Access to data from the registers of beneficial owners
Although the 5th EU Anti-money laundering directive required that data in the beneficial owners registers is made publicly accessible, the European Court of Justice invalidated the universal public access provision in November, 2022. Several EU member states restricted access to their beneficial ownership registers shortly after the ruling was published. Of those that were previously public, the following jurisdictions now impose various access restrictions: Ireland, Austria, Netherlands, Luxembourg, Malta and Germany.
However,AML-obliged entities (i.e. entities that are required to put in place policies, controls and procedures to identify, assess, understand, mitigate money laundering and terrorist financing risks) are deemed to have legitimate interest in querying beneficial ownership register data and are required to consult the registers of beneficial owners directly whenever entering into a new business relationship with a corporate or other legal entity, and at regular risk-based intervals thereafter.
Although obliged entities are required to consult the registers of beneficial owners, they must not solely rely on them and are obligated to perform customer due diligence to independently identify and verify the ownership structure and the beneficial owners of the legal entity. In case their findings do not match the data obtained through the registers of beneficial owners, they must report this discrepancy to the authorities.
For additional information on how registers of beneficial owners are implemented across the world, please see this blog by Moody’s Analytics.