Beneficial & Nominee Owners

A beneficial owner is a person who ultimately owns or controls a legal entity or a legal arrangement, such as a trust, corporation, or foundation. The beneficial owner is the natural person who ultimately controls the entity or arrangement, even if they do not hold legal title to it.

A nominee owner, on the other hand, is a person who holds legal title to an asset, such as a bank account or a property, on behalf of the beneficial owner. The nominee owner acts as an agent for the beneficial owner and has no ownership rights or control over the asset.

From an anti-money laundering (AML) perspective, it is important to identify and verify the beneficial owner of a legal entity or arrangement because the beneficial owner may be using the entity or arrangement to conceal the true ownership of assets or to facilitate financial crimes, such as money laundering or terrorist financing. Nominee owners may also be used to conceal the identity of the beneficial owner. Therefore, it is important for AML compliance officers to conduct due diligence on both the beneficial owner and the nominee owner in order to understand the true ownership and control structure of the entity or arrangement.

How Beneficial Owners Conceal their Ill-gotten gains

Beneficial owners may try to hide their illegal or undeclared assets, often referred to as "black money," by using various methods to conceal their ownership or control of the assets. Some common methods include:

1. Using nominee owners: A nominee owner is a person who holds legal title to an asset, such as a bank account or a property, on behalf of the beneficial owner. The nominee owner acts as an agent for the beneficial owner and has no ownership rights or control over the asset. By using a nominee owner, the beneficial owner can conceal their ownership of the asset.
2. Using trusts, shell companies, and other legal entities: Beneficial owners may use trusts, shell companies, or other legal entities to hold assets on their behalf. These entities can be used to obscure the true ownership of the assets and make it more difficult to trace the assets back to the beneficial owner.
3. Transferring assets to a foreign jurisdiction: Beneficial owners may transfer their assets to a foreign jurisdiction where it is more difficult for authorities to access information about the ownership of the assets.
4. Using intermediaries: Beneficial owners may use intermediaries, such as lawyers or accountants, to hold assets on their behalf or to facilitate transactions. These intermediaries can help to conceal the beneficial owner's involvement in the transactions.

Identification of Beneficial Owners

There are several ways to identify the beneficial owner of a legal entity in a bank:

1. Review the bank's onboarding documents: The bank should have collected documents such as articles of incorporation, partnership agreements, trust agreements, or other documents that identify the beneficial owner(s) of the entity when it opened the account.
2. Review the bank's transaction activity: The bank should be monitoring the transactions of the account for suspicious activity and should be able to identify the beneficial owner(s) based on the transaction patterns and other activity in the account.
3. Ask the customer: The bank can ask the customer directly who the beneficial owner(s) of the entity are.
4. Use publicly available information: The bank can search online databases, such as business registration records or news articles, to gather information about the beneficial owner(s) of the entity.
5. Conduct ongoing due diligence: Review and update your understanding of the beneficial ownership of the entity on a regular basis, as needed. This may involve requesting additional documentation or conducting additional research.

Here are some examples of how a bank might identify the beneficial owner(s) of a legal entity:

1. A corporation opens a business account at the bank. The bank reviews the articles of incorporation, which list the names and addresses of the corporation's board of directors. The bank determines that the directors are the beneficial owners of the corporation.
2. A trust opens an account at the bank. The bank reviews the trust agreement, which identifies the settlor (the person who created the trust), the trustees (the people who manage the trust), and the beneficiaries (the people who will receive the trust's assets). The bank determines that the settlor and trustees are the beneficial owners of the trust.
3. An LLC opens a business account at the bank. The bank asks the LLC's manager who the beneficial owner(s) of the LLC are. The manager provides the names and addresses of the LLC's owners. The bank determines that the owners are the beneficial owners of the LLC.