What is a UBO?
UBO stands for “ultimate beneficial owner.” This is the person who ultimately controls the company and benefits from the company’s activities.
What kind of information can I learn from identifying a company’s UBO?
Knowing a company’s UBO can tell you a lot about its ownership structure, management, and business operations. It can also help you determine if doing business with a company carries a potential risk. This is important information for performing due diligence and risk assessment. In business, “risk” is anything that could cause your business to lose profits and cease to be able to operate. When you do business with companies that fail to comply with national and international standards, you are no longer considered to be in compliance. Identifying the UBO can help you ensure that your “partner” is a legitimate business and that they fully comply with relevant business standards. It can also help you identify any relevant conflicts of interest.
Why might the UBO make it risky to do business with a company?
If you or your company are caught doing business with a partner who is convicted of fraud, misconduct, or other financial crimes, you may be considered guilty by association. This could damage your reputation and even lead to legal or financial repercussions. Particularly risky partners include Politically Exposed Persons and those who have been the subject of adverse media.
A Politically Exposed Person (PEP) is someone who has held a prominent public position and been granted access to sensitive information. This could be someone who has held a political office or is a high-ranking military official. Because of their influence and access, they have more opportunities to commit financial crimes—like money laundering or terrorist financing—than the average citizen.
When we say “adverse media”, we are talking about negative information the media has reported about a person or company. Doing business with a partner who has crimes or other wrongdoings made public can negatively impact your reputation by association.
How can identifying a company’s UBO help you comply with trade embargoes or sanctions?
A government can place an embargo or sanction on another country, a company, or an individual. By limiting or prohibiting trade and other financial transactions, the government imposing the sanction or embargo subjects the other entity to financial strain to pressure them into changing a specific policy. If you engage in a prohibited transaction with an entity that is subject to a sanction or embargo from your government, you can face financial penalties.
Your potential business partner may not specifically be listed under an embargo or sanction, but if their UBO is subject to embargoes or sanctions, you could still face penalties for doing business with them.
What are the potential consequences of failing to identify a company’s UBO before engaging in business with them?
At the very least, working with a company whose UBO has been credibly accused of misconduct can hurt your reputation and drive away potential business partners and clients. If you violate an embargo or sanction, you will likely face financial penalties as well. In the most serious cases, if the UBO is convicted of a serious crime, you may face legal action as well.
Key Takeaway
- Identifying a company’s “ultimate beneficial owner” (UBO) can help you determine if doing business with them carries potential risk.
- Particularly risky partners include Politically Exposed Persons (PEP) and those who have been the subject of adverse media coverage.
- Identifying the UBO can help ensure that your “partner” is a legitimate business.
- If you engage in a prohibited transaction with an entity subject to such a sanction, you could face financial penalties.
- Failure to identify a company’s UBO can hurt your reputation and drive away potential business partners and clients.