Understanding corporate structures and identifying the ultimate beneficial owners of businesses you work with guards against geopolitical risk, including sanctions placed on companies and individuals in your network.
In a crisis, you must respond to changing events, and you can only do so if you enhance due diligence on your customer base and supply chain. You need to review sanctions lists and watchlists daily to check who is exposed to political risk. Failure to comply with sanctions could result in fines and severe reputational damage.
The importance of UBOs
To comply with national and international laws on sanctions – as well as laws on money laundering, bribery, and corruption – you need to know the ultimate beneficial owners (UBOs) of all your customers and suppliers. A UBO ultimately owns or manages a company and benefits from its transactions.
Knowledge of the UBOs in your business network can help you keep up when regulatory changes more quickly. Sanctions have developed at a fast pace since Russia’s invasion of Ukraine in February, and you must have a grip on corporate structures to comply with the latest rules.
A range of sources
To identify UBOs, you need to use sources of data from many jurisdictions. Because corporate structures can be complex and UBOs may hide themselves, data collection can be onerous, especially if done manually. An automated process can save time and money, and ensure that you comply with the rules.
Some data sources are tied to legal requirements, such as the UK Register of Persons with Significant Control, or the registers of UBOs that EU members are required to set up under the 4th Anti-Money Laundering Directive. But national sources are insufficient – campaign groups are still fighting for greater transparency in UBOs and more local registers.
To get a comprehensive view of UBO information, you can use global data providers such as Moody’s Analytics.
Understanding a company
If you cannot easily see the structure of a company, you could be exposing your organization to risk. Under normal circumstances, know your customer (KYC) best practices mitigate the risk of activities such as money laundering. In times of military conflict, you need to go further and understand your exposure to risk related to politically exposed persons and those on sanctions lists.
Theoretically, the simpler the company structure, the easier it is to find its UBOs. Other company information can help – for example, average turnover, and what the business does (including unexpected or unusual activities). When assessing a company’s risk, ask questions like:
● Does it make more money than you would expect?
● Is it registered in an opaque jurisdiction?
● Is it on a list of unregistered firms such as the Warning List published by the UK Financial Conduct Authority?
● Does it present a geopolitical risk?
● Does it operate in an area which could present a risk in the future?
The answers will help you assess the broader risk of a company and decide whether to continue the relationship. If you are operating or plan to operate in volatile areas, a knowledge of UBOs and corporate structures will help you mitigate risk and future-proof your organization.
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Sanctions imposed on Russian entities and individuals affect supply chains, vendor management, and operations throughout the global business community. Learn how Moody’s Analytics can help you adapt to these rules in a rapidly changing environment. For more information and resources, please visit this Moody's Analytics site.