What are pseudo-UBOs and why should you pay more attention to them?

What are (Pseudo-)UBOs?

Let’s start with the basics. UBO stands for Ultimate Beneficial Owner, which refers to the individual who ultimately owns or controls a legal entity (a company, foundation, or association). This is usually someone who directly or indirectly holds more than 25% of the shares or voting rights. A legal entity may have one or more UBOs (or pseudo-UBOs). UBOs must be registered in the UBO register, a requirement stemming from the European Anti-Money Laundering Directive (AMLD5).

But what is a pseudo-UBO? If no one within the organisation holds more than 25% of the interest or control, a pseudo-UBO is appointed. These are “natural persons” in higher management positions. The type of legal entity or company determines who may fall under this category. Usually, it is one of the directors. Appointing one or more pseudo-UBOs is often a fallback option. This is less common for companies but more frequent for foundations and associations.

The UBO register will indicate that the registered person is a designated UBO (pseudo-UBO) and not a “real” UBO. The identity of pseudo-UBOs can be verified through a reliable source, such as the Chamber of Commerce.

Why are pseudo-UBOs relevant for lawyers, legal professionals, and investment advisors?

You might wonder: “Why should I, as a lawyer or investment advisor, pay attention to this?” The answer is simple: rules and regulations. In recent years, the requirements for identifying UBOs have become stricter, and failing to recognize a (pseudo-)UBO can result in significant legal consequences and financial penalties.

1. Laws and regulations

Legislation aimed at preventing money laundering and terrorist financing (such as the Dutch Wwft) requires you to have insight into the UBO structure of your clients or investors. Failure to comply can result in fines and loss of trust from clients and investors. It is expected that every client is correctly identified.

2. Identification requirement

In legal services, it is mandatory to identify (pseudo-)UBOs. This is an essential step in preventing money laundering and terrorist financing. According to the European Anti-Money Laundering Directive (AMLD5), legal service providers are legally required to thoroughly screen their clients and identify their UBOs. This applies not only to actual UBOs but also to pseudo-UBOs, including directors who have influence over the entity but do not formally hold an ownership interest.

3. Supervision checks

The identification requirement for (pseudo-)UBOs directly impacts supervisory checks. Supervisors monitor compliance with the AML regulations. During these checks, the supervisor assesses whether the firm has correctly identified its clients and (pseudo-)UBOs. An incorrect or incomplete file can lead to financial consequences.

4. Financial risks

It’s not just fines that can harm your firm. The risks of involvement in fraud or criminal activities can have severe financial consequences for your firm or fund. You certainly don’t want your investments or clients to be negatively affected by these hidden structures.

Practical tips to identify pseudo-UBOs

It’s important to have a robust due diligence process to identify pseudo-UBOs. To make it clearer, here are some practical tips:

• Review corporate structures: Carefully examine the layers of companies and who is behind them. This can help uncover suspicious structures.
• Ask questions: Pose critical questions about ownership structures and the source of funds. Don’t forget to discuss statutes and powers of attorney.
• Use screening tools: There are many tools available today that can help analyze UBO structures. Think of our RegLab software.
• Stay alert: By staying alert, conducting thorough research, and collaborating with experts like RegLab, you can ensure your organisation remains safe and AML-compliant. Don’t take risks, and always keep the UBO in sight.
• Maintain records: Continuous monitoring can make the difference between receiving a fine or just a warning. Make sure you stay informed about changes in your client management.

RegLab plays an important role in increasing knowledge and awareness around AML. By providing up-to-date files, tools, and training, we help firms be AML-compliant and minimise risks. Whether you’re a lawyer or a fund manager, you can always rely on the expertise of our AML experts.

RegLab

Are you also spending a lot of time on a Know Your Customer (KYC) and Customer Due Diligence (CDD) policy to comply with the AML obligations? Despite the frustrations they generate, CDD principles are becoming increasingly important. RegLab helps organisations comply with the AML quickly, securely and with ease.