Verifying ultimate beneficial owners (UBOs) strengthens anti-money laundering (AML) efforts by helping businesses and governments identify and mitigate the risks of money laundering, corruption, and other financial crimes. By verifying UBOs, businesses and governments can better understand who their customers and business partners are and their motivations. This information can then be used to assess the risk of money laundering and other financial crimes and to implement appropriate controls.

In Africa, UBO verification is essential due to the continent's high financial crime and corruption levels. According to the UN, the flow of illicit funds in Africa has spiked to 50 billion dollars per year. Money launderers tend to use the money to fund terrorism, corruption, and other harmful activities when it could have been used to fund development projects, create jobs, and improve the lives of millions of Africans.

This post will highlight the importance of UBO verification for AML efforts in Africa and guide you on verifying UBOs in Africa.

UBO verification and AML in Africa

Financial institutions operating in Africa must abide by the Financial Action Task Force's (FATF) and other regulatory bodies' anti-money laundering (AML) regulations. AML regulations are designed to prevent financial crimes such as money laundering, terrorist financing, and corruption. One of the critical requirements of AML regulations is to verify your clients' ultimate beneficial ownership (UBO).

UBO identification goes hand in hand with fortifying anti-money laundering (AML) efforts in Africa. According to a report by the United Nations Office on Drugs and Crime, Africa is the region most affected by money laundering and other financial crimes. UBO verification is a crucial step towards combating financial crimes in Africa.

In Africa, UBO verification is mandatory for financial institutions such as banks, insurance companies, and money service businesses. Verification involves identifying the natural persons who own or control a company or asset. The UBO is the person who receives the company's or asset's economic benefits and has the power to influence its management.

The verification process requires financial institutions to collect and verify information about the UBO, such as their name, address, date of birth, and nationality. Financial institutions must also demonstrate the UBO's identity using reliable and independent sources, such as government-issued identification documents.

UBO verification helps financial institutions mitigate the risks of money laundering and terrorist financing. By identifying the natural persons who control a company or asset, financial institutions can assess the risks associated with their clients and take appropriate measures to prevent financial crimes.

The benefits of UBO identification for AML compliance

Regulatory compliance

• Adherence to Local and International Regulations: UBO identification ensures compliance with AML regulations prevalent across African nations and global standards set by entities like the Financial Action Task Force (FATF).

• Avoidance of Legal Penalties: Proper identification processes help avoid fines and sanctions associated with non-compliance.

Risk management

• Enhanced Risk Profiling: Identifying UBOs aids in the accurate assessment of client risk levels, particularly in sectors prone to money laundering and corruption.

• Tailored Due Diligence: This enables businesses to conduct enhanced due diligence (EDD) for high-risk clients, a necessity in many African markets with diverse risk landscapes.

Prevention of financial crimes

• Combating Money Laundering: UBO identification uncovers opaque ownership structures often used for illicit financial activities.

• Counteracting Terrorist Financing: By understanding the ownership chain, businesses can prevent unintentional involvement in financing activities that support terrorism.

Transparency and trust

• Building Stakeholder Confidence: Transparent ownership structures enhance trust among investors, regulatory bodies, and partners.

• Corporate Governance: UBO identification fosters ethical business practises and adherence to corporate governance norms.

Detection of conflicts of interest

• Ethical Business Operations: Identifying UBOs aids in uncovering potential conflicts of interest and ensuring objective business decisions.

Sanctions screening

• Effective Compliance with Sanctions: UBO identification is crucial for adhering to international sanctions and preventing business relations with blacklisted entities.

Fostering a compliance culture

• Organisational Integrity: A robust UBO identification process instils a culture of compliance and integrity within African businesses.

The challenges of UBO identification in Africa

Identifying ultimate beneficial owners (UBOs) in Africa can be daunting due to several challenges. Below are some of the challenges you may encounter when verifying UBOs in Africa:

Data accessibility

• Varied Data Sources: The inconsistent availability of ownership data in different African countries poses a challenge.

Technological integration

• Adoption of Advanced Systems: Implementing systems for efficient UBO identification requires technological investment and expertise.

Varying legal requirements

• Different countries in Africa have varying legal requirements for UBO identification. For example, South Africa's Companies Act requires companies to maintain a register of beneficial owners. In contrast, Nigeria's Companies and Allied Matters Act (CAMA) does not explicitly require companies to keep a record of beneficial owners. This variation in legal requirements can make it difficult for companies to comply with UBO identification regulations across African countries.

Political and economic instability

• Political and economic instability in some African countries can also pose a challenge when verifying UBOs. Corrupt officials or criminal networks may be involved in companies, making identifying beneficial owners difficult. Additionally, some companies may be used as vehicles for money laundering or other illicit activities, making it challenging to locate UBOs.

How to overcome the challenges of UBO identification in Africa

To overcome the difficulties of UBO identification in Africa, governments, businesses, and other stakeholders can take several steps, including:

1. Enhanced collaboration with regulatory bodies

• Strengthening Regulatory Frameworks: Work closely with African governments and regulatory agencies to develop more robust and clear guidelines for UBO identification.

• Harmonising Standards: Encourage standardisation of UBO identification processes across different African jurisdictions to simplify compliance for businesses operating in multiple countries.

2. Leveraging technology and data analytics

• Digital Solutions: Invest in digital platforms and databases to streamline the gathering and analysing of UBO-related information.

• Advanced Analytics: Utilise big data analytics and AI to identify patterns and anomalies in ownership structures that may indicate hidden beneficial owners.

3. Building public-private partnerships

• Collaborative Efforts: Establish partnerships between governments, financial institutions, and private sector entities to enhance information sharing and improve the accuracy of UBO identification.

• Public Registers: Advocate for creating and maintaining publicly accessible registers of beneficial ownership to increase transparency.

4. Capacity building and training

• Employee Training: Regularly train your employees on UBO identification techniques and the latest compliance requirements.

• Awareness Programmes: Conduct workshops and seminars for businesses to understand the importance of UBO identification in AML compliance.

5. Implementing risk-based approaches

• Customised Strategies: Develop risk-based approaches to UBO identification, focusing more resources on high-risk entities while streamlining processes for low-risk entities.

• Continuous Monitoring: Implement systems for ongoing monitoring of UBO information to capture any changes in ownership structures.

6. Cross-border information sharing

• International Cooperation: Enhance cooperation with international bodies and foreign governments for cross-border exchange of beneficial ownership information.

• Regional Networks: Form regional networks in Africa for business and intelligence related to UBO identification.

7. Addressing technological and infrastructural gaps

• Infrastructure Development: Invest in strengthening the technological infrastructure in regions lacking digital capabilities.

• Mobile Technology Utilisation: Leverage widespread mobile technology in Africa to facilitate information collection and verification.

8. Adapting to local contexts

• Understanding Local Nuances: Recognise and adapt to African countries' diverse economic, cultural, and legal landscapes in implementing UBO identification processes.

• Customised Solutions: Develop solutions tailored to different African markets' specific challenges and needs.

How Smile ID can help African businesses with UBO identification

Our business verification services can help you identify UBos of the companies that you transact with to help you stay compliant with AML laws

Here is how our business verification solution works:

• Identifying Beneficial Owners: Our business verification process lets you receive crucial business information, including stakeholders' names and ID numbers, to verify company ownership. This is a key step in identifying who ultimately controls or benefits from a company, especially in complex corporate structures.

• Simplified Verification Process: Our system simplifies the process by requiring only a registration or tax number to conduct a business verification search. This reduces the paperwork and time spent verifying business entities and their beneficial owners.

• Access to Real-Time Updated Records: We provide access to post-incorporation databases with business information that is updated in real time. Any changes made after the initial registration are reflected in the verification process. The results include information on beneficial owners, directors, proprietors, fiduciaries, and other owners.

• User-Friendly Interface for Review: Our portal offers a user-friendly interface for businesses to review all business and stakeholder information in one place, streamlining the process and making it easier to manage and understand the ownership structure.

Final Thoughts  

Verifying UBOs is a crucial step in strengthening your AML efforts. By identifying the individuals who ultimately own, control, or benefit from the companies you do business with, you can better assess and mitigate the risks of money laundering and terrorist financing.

Through advanced technology and data analytics, verifying UBOs has become more accessible and efficient. By automating the process, you can save time and resources while ensuring compliance with relevant legislation and avoiding fines.

Smile ID offers a comprehensive AML Check solution that empowers organisations to verify Africa against a database of 7million+ companies. Our AML solution gives a breakdown of UBOs after which you can screen them against: 

• 1100+ global and African sanctions
• PEP list of approximately 1.5 million individuals across four levels.
• Adverse media from 75,000+ reputable news sources with a minimum of 2 news sources from every country in the world.

This way, organisations can easily spot high-risk businesses through their UBOs and place appropriate money laundering prevention processes in place. 

Book a free demo to see how it works.