1. DETERMINING ULTIMATE BENEFICIAL OWNERSHIP
IBOS
DETERMINING ULTIMATE BENEFICIAL OWNERSHIP

2. What is the purpose of this guide
To achieve, in the context of Anti-Money Laundering and Counter-Terrorist Financing regulations, a common definition within IBOS of Beneficial Ownership, which is also known as Ultimate Beneficial Ownership
To reach a common understanding within IBOS as to what has to be done in the Account Opening process regarding the identification of Ultimate Beneficial Owners or “UBOs,” as well as the identification of Intermediate Beneficial Owners, or “IBOs”
To equip staff at the Host Bank with the means for carrying out this work such that the information sent to the Account-Holding Bank is up to the standard necessary for the Account-Holding Bank to easily complete their know-your-client (“KYC”) due diligence
To thereby improve the efficiency and speed of opening an account within IBOS, improve customer satisfaction, and help create a competitive advantage for IBOS

3. What is the task in the Account Opening process?
To lay out the ownership structure of every client applying for an account (“Applicant”)
To identify the Applicant’s UBOs, who are always natural persons
To identify the Applicant’s IBOs, who are always legal persons or legal arrangements, e.g., corporations, trusts, partnerships, limited partnerships, and similar entities, and who sit between the Applicant and the UBOs
Note: IBOs are not, in their own right, Beneficial Owners, but must be identified as a necessary condition for the correct identification of the UBOs
To carry out the requisite identification checks on UBOs and IBOs as prescribed by the Account-Holding Bank

4. Definition of Beneficial Owner
Definition of “beneficial owner” from the Glossary to the FATF Recommendations*
Beneficial owner refers to the natural person(s) who ultimately50 owns or controls a customer51 and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.
50 Reference to “ultimately owns or controls” and “ultimate effective control” refer to situations in which the ownership/control is exercised through a chain of ownership or by means of control other then direct control
51 This definition should also apply to beneficial owner or beneficiary under a life or other investment linked insurance policy.
*FATF Guidance: Transparency and Beneficial Ownership; page 8; 9 March 2015.

5. Definition of Beneficial Owner
The definition excludes:
References to entities other than natural persons
The notion of intermediary entities, whether persons, legal persons or legal arrangements
A prescribed minimum amount of ownership or control
The requirement to verify the identity of beneficial owners
The definition includes:
Chained legal ownership and chained control of legal persons or legal arrangements
Cumulative ownership and control, that is, ownership or control or both through otherwise separate multiple chains of ownership or control of the same legal person or legal arrangement
Effective control over legal persons and legal arrangements does not presume a holding of capital or assets or voting rights

6. Understanding “owns”
Owning is a claim on the equity of a legal person or legal arrangement. If there is more than one owner, ownership is expressed as a percentage (a share) of the equity that is allocated to each owner.
While for a corporation a portion of ownership is conveyed by the holding of a share, for our purposes, the term “share” applies equally to the allocation of a portion of equity ownership for all legal persons or legal arrangements. For example, we may describe the portion of equity held by a partner in a partnership to be an x percentage share of the partnership equity.
Implication: for corporations, calculating ownership is simply a matter of calculating the percentage of all outstanding shares – irrespective of class or type of shares - that an owner holds.
Tip: the calculation of percentage of equity ownership has no regard for the value of the shares, whether the nominal value or the market value.

7. Understanding “control” - 1
Not all ownership of equity conveys the right to control legal persons or legal arrangements. For example, in a limited partnership the partners having limited liability have no control over the partnership: general partners have all control.
For a corporation, while all shares confer a right of ownership, not all shares have the same rights. For example, preferred or preference shares have the right to dividend payments before dividends are paid to common or ordinary shares; some shares have the right to vote on the major decisions of the company or on the appointment of directors, while others do not; or some shares afford one vote per share, whereas others may afford multiple votes for each share.
Implication: all shares are an equal claim on equity but not all shares provide equal ability to control the legal person or legal arrangement. It is very important, therefore, to account for a share of equity separately from accounting for a share of control.
Tip: do not assume that all common shares or all preferred shares have the same voting rights as traditionally accorded to these types of shares.

8. Understanding “control” - 2
…”the FATF definition focuses on the natural (not legal) persons who actually own and take advantage of capital or assets of the legal person; as well as on those who really exert effective control over it (whether or not they occupy formal positions within that legal person), rather than just the (natural or legal) persons who are legally (on paper) entitled to do so.”*
Example: in a Limited Liability Partnership the General Partner, or more precisely the persons, including other legal persons and legal arrangements, acting for the General Partner, have effective control over the Limited Liability Partnership whether or not the General Partner owns capital or assets of the Limited Liability Partnership
Implication: all legal persons or legal arrangements have beneficial owners even if no natural person ultimately owns capital or assets at or above the prescribed threshold level
*FATF Guidance: Transparency and Beneficial Ownership; page 8; 9 March Also see a similar reference in page 9 addressing Legal Arrangements.

9. 1 2 3 Beneficial Ownership – 3 measures
Ownership as a measure of total equity (for corporations, measure percentage of all shares outstanding, including shares held in Treasury) 2
Control conveyed (or not conveyed) by virtue of equity ownership (measure percentage of voting rights) 3
Control by any other means (senior executive, informal and formal controlling arrangements among shareholders, etc.)

10. Beneficial Ownership – corporation (25% threshold)
Class A
Class B
Class C
Class D
Total
shares
Votes
Shares
% shares
% Votes
Owner 1
100 50
150
10.79%
3.31%
Owner 2
500 10
510
600
36.69%
19.83%
Owner 3 25
250 5
280 75
20.14%
2.48%
Owner 4
200
700
17.99%
23.14%
Treasury
1,500
1,550
14.39%
51.24%
Outstanding
350
525
300
215
2,150
1,390
3,025
Owner 2 is a beneficial owner (even if owner 2 only has 19.38% of voting control)
Treasury has voting control, i.e., management has voting control
Owners 3 and 4 could be considered beneficial owners if they decide to act jointly when voting
Note: Class C shares have no voting rights; class D shares have the right to multiple votes per share. Treasury shares are shares that have been “bought back” by the corporation.

11. Prescribed level or threshold
FATF’s recommendations do not establish whether all Beneficial Owners need to be identified or only those who meet or exceed a certain level of ownership or control
Each FATF member country defines the minimum level or threshold of ownership or control for identifying Beneficial Owners applicable for its jurisdiction, which most commonly is 25% ownership or control
The prescribed minimum may be lower for certain classes of Legal Persons or Legal Arrangements such as, for example, corporations whose stock trades in certain Stock Exchanges
Using a risk-based approach, banks, in this case, Account-Holding Banks, decide whether to uniformly adhere to the prescribed minimum threshold, or whether they wish to uniformly apply a higher level threshold, or to apply a higher threshold only under certain conditions, for example when carrying out enhanced due diligence of the Applicant
Account-Holding Banks define the prescribed level or threshold of Beneficial Ownership for clients applying to establish banking arrangements with them

12. The two meanings of “identify”
We need to distinguish between two tasks:
Ascertaining who are the UBOs and IBOs, following the prescribed level or threshold applicable for a given Account-Holding Bank
Verifying the identity of the UBOs and IBOs, as required by the individual Account-Holding Banks
Task (1) involves two steps:
A) Analysing and assessing facts required to ascertain the UBOs and IBOs. This may involve examining the Applicant’s or the Applicant’s IBOs’ capitalization tables, or shareholder lists, or suitable ownership organograms
B) Collecting information regarding the identity of the UBOs and IBOs such as names, registered addresses, residential addresses, jurisdiction of legal formation, nationality, date of birth, date of legal formation, etc.

13. The two meanings of “identify”
Task (2) depends on the requirements of individual Account-Holding Banks and may include one or more of the following:
Doing nothing further
Confirmation by the Applicant, or by a professional third-party such as a lawyer or chartered accountant, of the accuracy and completeness of the identified UBOs or IBOs or both
Checking the validity of the identity of the UBOs by comparing the given elements of identity established in task 1 against trusted documents such as passports or driving licences, or by other means
Checking the validity of the identity of the IBOs by comparing the given elements of identity established in task 1 against copies of documents such certificates of formation issued by competent authorities, or by other means such as consulting public records available online through the Internet, or through trusted bureaux who procure such information from public records 13

14. Example UBO declaration
I, [insert signer’s position] of [insert applicant’s name], certify that the foregoing chart accurately depicts the current Ultimate Beneficial Ownership of [insert applicant’s name], and that no individual besides [insert names of UBOs] has direct or indirect beneficial ownership of [insert percentage] or more of [insert applicant’s name]. For greater certainty, ultimate beneficial ownership means an individual directly or indirectly, (a) owning, controlling or having power to vote [insert percentage] or more of any class of voting securities or voting interests of [insert applicant’s name]; or (b) controlling in any manner the affairs of [insert applicant’s name] or the election of a majority of the directors of [insert applicant’s name]. I further certify that none of the shares of the entities depicted in the foregoing chart have been issued in bearer form, and certify that none of the entities are authorized to issue shares in bearer form. Date: [insert current date] Signed by: [insert signer’s name] Position: [insert signer’s position]

15. Sample ownership chart 1
Sample Profile Ltd
(Location of Incorporation)
3 individuals
5.02%
E. G. Smith
26.01%
ABC Canada Inc.
40.32%
FGB Limited
23.25%
R. B. Sampson
5.31%
86.23%
1 Individual
13.77%
Private Holdco Limited
80.00%
5 Individuals
20.00%
P. E. Martin
100%

16. (Location of Incorporation)
Identifying UBOs and IBOs – worked example 1
Sample Profile Ltd
(Location of Incorporation)
3 individuals
5.02%
E. G. Smith
26.01%
ABC Canada Inc.
40.32%
FGB Limited
23.25%
R. B. Sampson
5.31%
UBO: E.G. Smith needs to be identified because that person owns 26.1% of Sample Profile Limited directly
IBO: ABC Canada Inc. needs to be identified because it is a legal person owning 40.32% of Sample Profile Limited directly

17. (Location of Incorporation)
Building the ownership chart – worked example 1
Sample Profile Ltd
(Location of Incorporation)
3 individuals
5.02%
E. G. Smith
26.01%
ABC Canada Inc.
40.32%
FGB Limited
23.25%
R. B. Sampson
5.31%
86.23%
1 Individual
13.77%
UBO: R.B. Sampson needs to be identified because this person owns 5.31% of Sample Profile Limited directly and also owns 86.23% of FGB Limited directly, which in turn owns 23.25% of Sample Profile Limited directly; therefore R.B. Sampson has a cumulative interest (once directly and once indirectly) of 25.36%
a % x 23.25% = 20.05%
b % % = 25.36%

18. Building the ownership chart – worked example 1
Sample Profile Ltd
(Location of Incorporation)
3 individuals
5.02%
E. G. Smith
26.01%
ABC Canada Inc.
40.32%
FGB Limited
23.25%
R. B. Sampson
5.31%
86.23%
1 Individual
13.77%
Private Holdco Limited
80.00%
5 Individuals
20.00%
P. E. Martin
100%
UBO: P.E. Martin needs to be identified because this person owns:
a. 100% of Private Holdco Limited, which owns…
b. 80% of ABC Canada Limited, which owns…
c % of Sample Profile Limited directly
d. 100% x 80% x 40.32% = %
IBO: Private Holdco Limited because:
directly owns 80% of ABC Canada Inc., which owns
40.32% of Sample Profile Limited directly
80%x40.32%=32.256%

19. Sample Profile 1 UBOs and IBOs – 25% prescribed threshold
E.G. Smith: 26.01%
R.B. Sampson: 25.36%
P.E. Martin: %
IBOs
ABC Canada Inc.: 40.32%
Private Holdco Limited: % 19

20. Sample ownership chart 220

21. Deconstructing profile 2 – 1st layer
Both direct owners are Intermediary Beneficial Owners. Their direct ownership exceeds the 25% threshold. 21

22. Deconstructing profile 2 – 2nd layer
Another Company Inc. is an indirect Intermediary Beneficial Owner: 60% x 70% = 42%
The Jones Family Trust is also an indirect Intermediary Beneficial Owner: 40% x 70% = 28%. It is highlighted in partial gold and partial blue because Trusts are representations of true beneficial owners, but are also legal arrangements
As the general partner for Venture Capital LLP, the General Partner LLP is a controlling entity even if it only has 0.60% indirect ownership. In Limited Liability Partnerships, the general partner makes all business decisions, and the limited partners are just passive investors. Therefore, the most senior executive managers of the general partners are controlling Ultimate Beneficial Owners
None of venture capitalists are indirect beneficial owners because none has a sufficiently high equity interest 22

23. Deconstructing profile 2 – 3rd layer
Both G. Stein and M. Findlay are indirect controlling Ultimat Beneficial Owners, notwithstanding each having negligible equity interests of 0.42% (1% x 60% x 70%). The control arises from G. Stein and M. Findlay each holding nearly half of the voting rights of Another Company Inc., which is itself an Intermediary Beneficial Owner
L. Francis is an Ultimate Beneficial Owner: 98% x 60% x 70% = 41.16% 23

24. Deconstructing profile 2 – 3rd layer
Each beneficiary of The Jones Family Trust is an Ultimate Beneficial Owner: 40% x 70% = 28%. Note that beneficiaries of the Trust are not considered for their individual share of the Trust; instead, all are Ultimate Beneficial Owners
Each Trustee is a controlling Ultimate Beneficial Owner.
A bank, according to its policy, may also consider each of the Settlors and each of the Protectors of the Trust as Ultimate Beneficial Owners.
The interest on the Settlors arises from the Settlors being the original source of the wealth of the Trust. On the other hand, the interest on the Protectors arises from the Protectors potentially acting as controlling parties because they may potentially control the Trustees of the Trust. 24

25. Deconstructing profile 2 – 3rd layer
As the general partner for General Partner LLP, General Partner Inc. is a controlling entity even if it only has 0.57% indirect ownership. In Limited Liability Partnerships, the general partner makes all business decisions, and the limited partners are just passive investors. Therefore, the most senior executive managers of the general partners are controlling Ultimate Beneficial Owners.
With that being said, it very likely that the executive management of General Partner Inc. are the same individuals as the executive managers of General Partners LLP. 25

26. Sample Profile 2 UBOs and IBOs – 25% prescribed threshold
Executives that operate General Partner LLP
Executives that operate General Partner Inc.
Beneficiaries and related controlling parties of The Jones Family Trust
Beneficiaries
Trustees
Settlors
Protectors
G. Stein
M. Findlay
L. Francis
IBOs
Parent Client Ltd: 70%
Another Company Inc.: 42%
The Jones Family Trust
Venture Capital LLP: 30%
General Partner LLP
General Partner Inc. 26

27. Sample ownership chart 327

28. Sample Profile 3 UBOs and IBOs – 25% prescribed threshold
A. Apple: 74.51% of the voting rights
Executive or Board of Directors of Good Deeds Foundation: 99.64% of the equity
IBOs
GTR Inc.: 74.51% of the voting rights
Good Deeds Foundation: 99.64% of the equity 28