The anonymity and freedom offered by the internet makes it harder to track down modern financial criminals and the challenge has only grown in the last decade. In an International Monetary Fund (IMF) article in 2018 (written before the explosive growth in crypto-currencies which has only added fuel to the fire), the IMF wrote that ‘the United Nations recently estimated that the criminal proceeds laundered annually amount to between 2 and 5 percent of global GDP, or $1.6 to $4 trillion a year.’

In addition, technological developments now make it possible to enter into a relationship remotely, which requires the implementation of new processes and tools to verify the identity of third parties.

On 1st January 2021, the US Senate passed the Anti-Money Laundering Act 2020 (AMLA), and the provisions in the Corporate Transparency Act (CTA) within it are comparable to the EU regulations (the 5th AML European Directive) already in place in Europe.  

What Does AMLA Mean for Your Business?

The Anti-Money Laundering Act (AMLA) sees the introduction of the most significant reforms to anti-money laundering laws and regulations in the United States for twenty years and will apply to all US companies and any foreign companies operating on US soil.  

A wide-ranging piece of legislation, in part AMLA is designed to strengthen the federal government’s Financial Crimes Enforcement Network (FinCEN). Its measures span everything from new protections for corporate whistleblowers to beneficial ownership rules designed to counter the use of shell companies in money-laundering schemes.

By 2023 all businesses in the US must be complying with these new domestic regulations, which require businesses to implement a risk-based strategy towards customers’ onboarding and identification. One which provides proof of ownership as well as gathering information about the identity of, and being able to perform risk assessments on, their customers. 

Why It’s Never Been More Important to Know Your Customer 

KYC is a measure of fraud and financial crime prevention and one of the most critical regulatory and compliance factors in the financial services sector. It typically involves establishing and validating customer identity, understanding the nature of customers’ activities and funds origin, and assessing potential money laundering and terrorist-financing risks.

For many firms in the US, one of the largest KYC changes ushered in by AMLA 2020 is the introduction of ultimate beneficial ownership (UBO) requirements, which means that—at a minimum—banks and organizations are expected to know the individuals they are in business with. 

The precise definition of a UBO differs, depending on where you are in the world and which regulations apply, but generally, a UBO is defined as an individual who holds a minimum of 10-25% of capital or voting rights in the underlying entity. It’s who ultimately benefits when an institution initiates a transaction. 

Ultimate Beneficial Owner (UBO) legislation means that any business or institution adhering to AML and CFT (Counter the Financing of Terrorism) regulations need to disclose the UBO’s identity for any of their business transactions. By properly identifying the UBO during on-boarding and the lifecycle of client engagement, this plays a big part in ensuring a company isn’t – unknowingly – involved in financial crime. 

The Cost of Non-Compliance

Non-compliance will come at a hefty cost for companies, aside from the obvious damage done to its brand. Firms that do not comply with UBO rules may be subject to fines of up to $500 per day and criminal fines of up to $10,000. Anyone found responsible for submitting incomplete, false, or fraudulent UBO information may face up to two years in prison.

What Is the UBO Data Collection Process?

These regulations are designed, amongst other things, to prevent the misuse of shell companies by money launderers. As part of the UBO measures, AMLA authorizes FINCEN to create a non-public national database of beneficial owners.

Under the new requirements, when any firm (US or foreign) does business in the United States, it must collect, verify, and submit multiple data about its ownership to the Financial Crimes Enforcement Network (FinCEN), including:

• Full name
• Dates of birth 
• Residential and business addresses 
• Government-issued identification number associated with a legal document (valid official identity card, passport, or driving license)

While the data won’t be publicly available, it will be available to US authorities (and international authorities) conducting investigations into money laundering or counter-terrorism. 

The data identification, collection and verification processes are as important as the information itself. Beyond data collection, this Know Your Business (KYB) information must be updated every year and must be verifiable. So companies must implement robust, efficient (and trustworthy) identity verification methods to guarantee that the information sent to FINCEN is right.

What Is the Process for Identifying a UBO?

1. Retrieve the organization’s credentials

Companies must supply accurate, full information that includes the firm’s registration number, name, address, official status and the names of top management employees. The information must also be up to date at the time of submission.

2. Research the chain of ownership

Your business will need to work out who the natural or legal persons who have a percentage in shares or interests, and if their ownership is direct or indirect.

3. Identify the Ultimate Beneficial Owner(s)

You’ll need to be able to identify the total percentage of shares, management control and ownership stake of every individual. It will be up to your business to determine which (if any) are defined as the UBO.

4. Perform an AML and/or KYC check

All UBOs must perform the appropriate AML/KYC checks.

How Can Concentrix Help?

There is not a lot of time for US firms to get ready and ensure they are compliant by the start date of December 2022 for new firms and a year later – December 2023 – for existing firms. 

From an operational point of view, there will be new and complex IT and business processes to implement (with attendant costs to be taken into account). Companies must implement robust processes to guarantee accuracy and keep the date up-to-date each year. The identity and verification process is as important as the data itself, and obviously there is a cost attached to it.

Which Approach Is Right for Your Business?

For a company, there are two different approaches to take. Invest the time and money internally to define and build the identification and verification capabilities you need with all the benefits of bringing your skills in-house, or tap into the expertise and convenience that come from working with a specialist KYC partner. At Concentrix, we cover the entire value chain of KYC processes with an end-to-end customized offer.

The solution you choose has to be right for your business, each with its own short-term and long-term costs and merits. The only certain thing, as the deadlines loom, is that taking no action is not an option.

Learn more about how we can help you to know your customer better.