A legal entity applies to open an account in a financial institution. The owners of the entity are 20 individuals with equal shareholding. Who should…

The Financial Action Task Force (FATF) provides a cascading approach for identifying the Ultimate Beneficial Owner (UBO). The primary method is to identify any natural person(s) who ultimately own or control a specified percentage of shares or voting rights (e.g., 25%). In this scenario, with 20 equal shareholders each holding 5%, no single individual meets this ownership threshold.

When no UBO can be identified through ownership, the FATF Recommendations require financial institutions to identify the natural person(s) exercising control through other means. If no such person can be identified, the institution must then identify the individual(s) who hold the position of senior managing official(s). This ensures a natural person is always held accountable.

A. The 25% threshold applies to individual ownership or control, not to an arbitrary aggregation of unrelated shareholders to meet the percentage.

B. Identifying all shareholders is not the required procedure; the goal is to find the individual(s) with ultimate effective control, not just list all owners.

C. FATF standards do not permit an entity to have "no UBO" for due diligence purposes; a fallback to senior management is explicitly required.

1. Financial Action Task Force. (2023). International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation – The FATF Recommendations. FATF

Paris

France. See Interpretive Note to Recommendation 10 (Customer Due Diligence)

paragraphs 5(a)(i) and 5(b)(i-ii)

which define the beneficial owner as the person with ultimate effective control and stipulate that if no such person can be identified

the senior managing official(s) should be identified.

2. Financial Action Task Force. (2014). FATF Guidance: Transparency and Beneficial Ownership. FATF

Paris

France. See Section II

Paragraph 28

page 13

which outlines the multi-pronged approach: first

identifying owners by a percentage threshold; second

identifying those who exercise control through other means; and third

as a fallback

identifying senior managing officials.

3. Walker

J. (2016). Measuring the Effectiveness of the FATF's Ultimate Beneficial Ownership Standard. Journal of Money Laundering Control

19(4)

405-418. This academic article discusses the implementation of FATF standards

noting that "where no natural person is identified as having a controlling ownership interest

the beneficial owner is the natural person exercising control through other means... [or] the senior managing official" (p. 408). DOI: https://doi.org/10.1108/JMLC-01-2016-0001.