Importance of Identifying Beneficial Owners
Identifying beneficial owners is crucial in combating money laundering and terrorist financing. International bodies like FATF, OECD, and the EU provide guidance on how to identify beneficial owners. Most countries also have relevant national legislation.
Challenges in Identifying Beneficial Owners
Complex ownership structures, such as circular and cross ownership, makes it challenging to accurately identify the Beneficial Owners of companies.
Many European countries maintain Beneficial Owner registries. These registries are based on information reported by the companues themselves. The result is massive quality issues.
T-rank’s Beneficial Owners services have the following features:
Calculating beneficial owners
There are several approaches to calculating beneficial owners. All traditional approaches have deficiencies when it comes to identifying powerful ultimate shareholders in complex ownership structures. T-rank´s unique voting power score reveals who the powerful owners are.
Our recommended method for identifying beneficial owners is to combine the Voting power approach (who control the client) with the integrated ownership approach (who own the client). You can read more in our White paper.
Since different local and national regulations and legislation must be obeyed, we support all common ways of calculating beneficial owners. You can read more in our white paper
The integrated ownership approach
Integrated ownership, a.k.a. cash rights, effective ownership, accumulated ownership or simply indirect ownership, is the sum of direct and indirect ownership. It is calculated by multiplying together edges in ownership paths.
A natural person will be considered a Beneficial Owner according to the integrated ownership approach if his/her integrated ownership is above a threshold set by you.
In the example below, both Vera and Brandy have integrated ownership over 25% and thus become beneficial owners according to this model.
The ownership at each level approach
If the ownership is above the beneficial ownership threshold at each level between a person and the company, the natural person will become a Benefical Owner. If ownership and share of voting rights differ, one of them being above threshold is usually considered sufficient.
In the example below, both Lorraine and Kari become beneficial owners according to this approach since there exists paths where the ownership is above 25% at every step on the way.
T-rank’s implementation takes into account all possible forms of circular and cross-ownership.
The voting power approach
A natural person is a Beneficial owner according to the voting power approach if the voting power is above a threshold, usually set to about 50%.
Based on this, all the owners in the example below become beneficial owners in the company. They all have the same level of power – if any of them cooperate with any other person, regardless of whom, they will obtain majority.
The control approach
A natural person is considered beneficial owner according to the control approach when the sum of the persons direct ownership in the company and the share owned by entities controlled by the person is above the beneficial ownership threshold.
In the example below, Martin controls a company which have 36.15 of the votes in Kilback Group. This is above the beneficial owner threshold, and he is a beneficial owner according to the control approach. Cassandra has 7.53% direct ownership in the company. In addition, she controls Farrell and Sons which have 20.22% of the votes. In sum, she controls 27.75% of the votes, which is enough for beneficial ownership.
