Identifying the ultimate beneficial owner is one of the fundamental elements of the KYC process. An obliged institution should know not only which entity it is entering into a relationship with, but also who ultimately exercises control over it.
An ultimate beneficial owner is always a natural person. However, this person does not necessarily have to be a direct shareholder of the company or someone immediately visible in its ownership structure. In more complex cases, it is necessary to analyse several levels of ownership, voting rights and other powers that allow a person to exercise decisive influence over the customer. Therefore, identifying the ultimate beneficial owner should not be limited solely to checking who holds shares in a given company. In practice, it is necessary to establish the customer’s entire ownership and control structure.
Who is the ultimate beneficial owner?
Under the AML Act, the ultimate beneficial owner is a natural person who directly or indirectly exercises control over the customer through powers arising from legal or factual circumstances that allow that person to exercise decisive influence over the customer’s activities. The ultimate beneficial owner may also be a natural person on whose behalf a business relationship is established or an occasional transaction is carried out.
In practice, this means that when identifying the ultimate beneficial owner, the main question that should be answered is: who actually controls the entity? In simple structures, the answer may be obvious.
Example: Jan Kowalski holds 80% of the shares in ABC sp. z o.o., while the remaining 20% is held by another person. If there are no other circumstances affecting control over the company, Jan Kowalski will be its ultimate beneficial owner.
However, not every structure is this transparent. A shareholder of a company may be another company that is controlled by yet another entity. It is also possible that a person holding a relatively small percentage of shares has special rights allowing them to exercise decisive influence over the company’s activities. Therefore, identifying the ultimate beneficial owner requires an analysis not only of ownership, but also of the factual and legal control exercised over the customer.
Who can be the ultimate beneficial owner of a company?
In the case of a legal entity, the AML Act identifies several examples of situations in which a natural person may be considered the ultimate beneficial owner. In particular, this may be:
- a person directly holding more than 25% of the shares or stock – for example, a natural person holding 40% of the shares in a limited liability company;
- a person holding more than 25% of the total voting rights in the company’s governing body – including where this results from an agreement with other persons entitled to vote;
- a person exercising indirect control – for example, through another company that holds more than 25% of the shares or voting rights in the entity being analysed;
- a person exercising control in another way – in particular through powers that allow that person to exercise decisive influence over the company’s activities.
This means that identifying the ultimate beneficial owner is not merely a mathematical exercise consisting of calculating shareholdings.
Example: 60% of the shares in ABC sp. z o.o. are held by XYZ sp. z o.o. If Anna Nowak exercises control over XYZ sp. z o.o., the analysis should not end with identifying that company as the owner. It is necessary to identify the natural person behind the structure and assess whether Anna Nowak is the ultimate beneficial owner of ABC sp. z o.o.
Importantly, the statutory list of criteria should not be treated as exhaustive. If a natural person is able to exercise decisive influence over the customer’s activities in another way, that person may also meet the definition of an ultimate beneficial owner.
Does the ultimate beneficial owner always hold more than 25% of the shares?
No. Holding more than 25% of the shares or stock is one of the criteria that may lead to the identification of an ultimate beneficial owner, but it does not constitute the complete definition of the term. A person holding exactly 25% or less of the shares will not be the ultimate beneficial owner solely on the basis of the shareholding criterion. However, that person may meet other criteria, for example by holding more than 25% of the voting rights, having special powers or otherwise exercising decisive influence over the company’s activities.
It is therefore possible for a person holding 20% of the shares to be the ultimate beneficial owner if other circumstances indicate that they actually exercise control over the customer. For this reason, equating the ultimate beneficial owner solely with a person holding more than 25% of the shares is an excessive simplification.
How to identify the ultimate beneficial owner?
The identification of the ultimate beneficial owner should be based on an analysis of the customer’s entire ownership and control structure. Depending on the complexity of the entity, the process may be very simple or may require several levels of relationships to be analysed.
1. Establish the customer’s ownership structure
The first step is to determine who formally holds shares or stock in the customer. In the case of a Polish company, this information may be derived, among other things, from registration documents, the articles of association, the share register, the register of shareholders or documents provided by the customer. However, identifying the direct owners does not always complete the analysis. If a shareholder of the customer is another legal entity, its ownership structure must also be examined.
2. Analyse shareholdings and voting rights
The next step is to examine not only the percentage of capital held, but also the voting rights. The ownership structure and the control structure are not always identical. Shares may carry preferential rights, and shareholders may enter into agreements concerning the exercise of voting rights. Therefore, in certain cases, a person holding a smaller percentage of shares may have a greater number of votes than would result solely from their percentage interest in the share capital.
3. Trace the indirect ownership structure
If a shareholder of the customer is another company, the analysis must continue. Example: 70% of the shares in Client sp. z o.o. are held by Holding sp. z o.o., while 100% of the shares in Holding sp. z o.o. are held by Jan Kowalski. In such a case, simply identifying Holding sp. z o.o. as the owner of the customer does not allow the ultimate beneficial owner to be identified, because the ultimate beneficial owner can only be a natural person. The analysis should therefore continue through the holding company to the natural person who ultimately exercises control over the structure.
In more complex corporate groups, there may be several such levels.
4. Examine other ways of exercising control
The identification of the ultimate beneficial owner should not be limited to the shareholding structure. It is also necessary to analyse whether a particular person has special rights allowing them to influence key decisions taken by the company.
Relevant factors may include, among other things, provisions of the articles of association, individual rights granted to a shareholder, the ability to appoint or remove members of corporate bodies, or other legal and factual circumstances allowing a person to exercise decisive influence over the customer’s activities. Therefore, two companies with identical shareholding structures may have different ultimate beneficial owners if control is exercised differently in each of them.
5. Verify the findings
Once a potential ultimate beneficial owner has been identified, the obliged institution should verify that person’s identity and ensure that it understands the customer’s ownership and control structure. The scope of verification should be proportionate to the level of risk and the complexity of the structure. In the case of a simple Polish company, the analysis may be based on a relatively limited number of documents. However, if the structure includes foreign holding companies, foundations, trusts or other entities, it may be necessary to obtain additional documents and information.
6. Document the analysis carried out
An important element of the process is also proper documentation of how the ultimate beneficial owner was identified. It should not be limited solely to recording the person’s name. The documentation should make it possible to reconstruct how the institution reached the conclusion that a particular natural person exercises control over the customer.
For more complex structures, it may be helpful to prepare an ownership chart showing the individual entities, their shareholdings and the relevant control relationships. Proper documentation is particularly important where the identification of the ultimate beneficial owner does not result directly from a simple shareholding criterion.
What if the ultimate beneficial owner cannot be identified?
In exceptional cases, despite analysing the ownership and control structure, it may not be possible to identify a natural person who meets the primary criteria of the definition of an ultimate beneficial owner. The AML Act then provides for the possibility of identifying a natural person holding a senior management position. However, this does not mean that a member of the management board may automatically be identified as the ultimate beneficial owner whenever the ownership structure is complex.
This approach may be applied where the inability to identify the relevant natural persons, or doubts as to their identity, have been documented, and provided that there is no suspicion of money laundering or terrorist financing. The obliged institution should therefore first take steps aimed at establishing the customer’s actual ownership and control structure.
The mere fact that the structure is multi-layered or includes foreign entities should not be sufficient reason to end the analysis and identify a member of the management board. If, despite taking reasonable steps, the ultimate beneficial owner cannot be identified, the manner in which the analysis was carried out and the difficulties encountered should be properly documented.
Ultimate beneficial owner vs company owner – are they always the same person?
No. The company owner and the ultimate beneficial owner are concepts that may overlap, but they are not identical.
In a simple case where a natural person holds 100% of the shares in a company and independently exercises control over it, the owner will also be the ultimate beneficial owner. The situation is different where the shares are owned by another company.
Example: all shares in ABC sp. z o.o. are held by XYZ sp. z o.o. XYZ sp. z o.o. is therefore the formal owner of ABC sp. z o.o. However, it cannot be the ultimate beneficial owner because the ultimate beneficial owner can only be a natural person.
In such a case, the ownership structure of XYZ sp. z o.o. must be analysed in order to identify the natural persons who ultimately exercise control over the entire structure. Similarly, a natural person may formally be a shareholder of a company, but merely holding a small percentage of shares does not automatically mean that this person is its ultimate beneficial owner. What matters is the manner in which control is exercised and the rights held by that person. Therefore, in the KYC process it is not enough to determine who owns the customer. It is also necessary to understand who ultimately controls the customer.
Why is identifying the ultimate beneficial owner important in AML?
Identifying the ultimate beneficial owner and verifying their identity are elements of the customer due diligence measures applied by obliged institutions. Knowing the ultimate beneficial owners makes it possible, above all, to understand who actually stands behind the customer and who may influence its activities. This is important not only for the KYC process itself, but also for properly assessing the customer’s risk. If an institution knows only the company’s name and the persons authorised to represent it, it may fail to identify risks associated with individuals higher up in the ownership structure.
Identifying the ultimate beneficial owner is relevant, among other things, when:
- assessing money laundering and terrorist financing risk,
- checking PEP status,
- analysing sanctions-related connections,
- establishing and understanding the customer’s ownership and control structure,
- applying enhanced customer due diligence measures,
- subsequently updating customer information during the ongoing relationship.
Particular attention should be paid to unusual or excessively complex ownership structures, especially where their design has no clear justification in the nature of the customer’s business activities. Correctly identifying the ultimate beneficial owner is therefore not merely a formal obligation. It is one of the elements that allows an obliged institution to genuinely understand its customer and assess the risks associated with establishing and maintaining a business relationship.
Do you need support with identifying ultimate beneficial owners?
Identifying the ultimate beneficial owner in a simple ownership structure is usually not particularly difficult. Challenges arise in multi-layered corporate groups, structures involving foreign entities, unusual shareholder rights or situations where the formal structure does not clearly reveal the person who actually exercises control.
As part of AML outsourcing, we support obliged institutions, among other things, in carrying out KYC processes, analysing ownership structures, identifying and verifying ultimate beneficial owners, and documenting the activities performed. This allows the process of identifying the ultimate beneficial owner to be carried out according to consistent rules, tailored to the customer’s risk profile and the requirements arising from the AML Act.
Contact us
office@amloutsourcing.pl