New obligations for UBOs arising from the new AML Package: How is your corporate structure affected?

The European Union has recently updated its Anti-Money Laundering (AML) framework to improve transparency, strengthen measures against financial economic crime, and expand to sectors such as luxury goods, real estate, and crypto assets. These updates aim to harmonize the approaches to combat financial economic crimes across the EU and introduce new obligations for businesses, especially with regard to the identification and registration of Ultimate Beneficial Owners (UBOs). Companies with complex cross-border structures will need to adapt to these new rules. 

This article was written by Kristi Rutgers ([email protected]) and Lorena Velo [email protected]). Both Kristi and Lorena are consultants with RSM Netherlands Business Consulting with a focus on International Trade & Strategy.

Background for the AML Framework   

The new EU AML/CFT Legislative Package was published in the EU Official Journal on the 19th of June 2024. The package includes two regulations AMLR and AMLAR as well as a Directive (AMLD6). The implementation dates of the AML/CFT Legislative package are as follows: 

In our previous installment, we outlined the main legislative components included in the AML/CFT Legislative package by focusing on the role and supervisory powers of the new AML Authority. In this article, we will specifically focus on the changes regarding the threshold for UBOs as outlined in the AMLR and highlight the impact on corporate structures.

The Ultimate Beneficial Owner

The Ultimate Beneficial Owner refers to the natural person who ultimately owns or controls a legal person and/or the natural person on whose behalf a transaction is being conducted. This also includes those persons who exercise ultimate effective control over a legal person or arrangement. In accordance with the current AMLD, an individual qualifies as a UBO if they hold more than 25% of the shares or voting rights in a company. However, under the new AMLR, this threshold has been lowered to 25% or more ownership of shares or voting rights, therefore encompassing individuals with exactly 25% ownership or voting rights.     

Impact on Corporate Structures    

This seemingly minor adjustment carries significant consequences for multinational companies and complex corporate structures. With the lowered threshold, the impact includes:

1. Increased number of UBOs: More individuals will now qualify as UBOs, requiring additional disclosure and registration.
2. Greater scrutiny of ownership: Companies must reassess their shareholder structures to identify newly qualifying UBOs.
3. Due diligence from service providers: Financial services providers will ask for additional information regarding the newly identified UBOs under the AMLR. 
4. Updating the UBO registry: Companies may need to review their UBO registry to ensure that information is updated. 

Specifically, Article 52 of the AMLR states that ownership includes both direct and indirect interests, meaning businesses must evaluate ownership at every level of their structure. This applies to “every link” in the chain. The lowered UBO threshold means more individuals will now qualify as UBOs, and companies must also meet the identification and verification obligations outlined in Article 22 of the AMLR. These include collecting detailed UBO information, such as full names, dates and places of birth, and places of residence. For legal entities, businesses must gather details such as the legal form and name, office address, names of legal representatives, and individuals holding shares or serving as directors in a nominee capacity, among other critical data. Furthermore, businesses must be prepared for increased scrutiny from service providers, such as banks, which will impose compliance measures in response to the new regulations. These institutions are likely to demand more documentation to meet due diligence requirements.

Forward Thinking

The recent updates to the EU's AML/CTF framework represent a significant shift in how financial crime is addressed across sectors. The lowered UBO threshold and expanded regulatory scope will require companies to reassess their ownership structures and enhance their compliance efforts to meet the stricter identification and reporting requirements. As a result, companies may also need to review their UBO registries to make sure the information of people is correct. As service providers like banks will also heighten their scrutiny, businesses must be proactive in adapting their strategies, strengthening internal compliance processes, and ensuring they are prepared for the increased due diligence demands.     

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