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4.3.2.2. Applying a Risk Based Approach

Effective from 7/6/2021

It is important to note that the legal requirements mentioned above (section 4.3.2.1) are baseline obligations rather than definitions of beneficial ownership. A beneficial owner, as defined in AML-CFT Decision, is any individual who owns or controls all or part of a legal person. This means that a legal person can have several beneficial owners, not all of whom are required to be identified under the law. LFIs should always identify and verify the identity of all individuals owning or controlling at least 25% of a legal person, but they should also make a risk-based decision as to whether to identify and verify the identity of additional beneficial owners. For legal person customers that require EDD, whether as a function of law or because they are higher risk, LFIs should always consider lowering the ownership threshold below 25%.

LFIs should be aware that even minority owners of a legal person customer can exercise control over the legal person through information arrangements, family relationships, and specific governance arrangements (e.g. preferred stock), among other methods. Customers whose minority owners include individuals that are subject to United Nations or UAE sanctions may also create serious risks for LFIs, even if the individual only owns a small share of the customer (see section 4.5 below). Thus, particularly in higher risk scenarios, LFIs should consider completing an ownership and control chart that includes at least the names of all beneficial owners of every legal customer, or all individuals owning at least 5% of the customer. Collecting the names of beneficial owners is distinct from identifying them and verifying their identity and does not require the LFI to collect identifying information. LFIs must still identify and verify the identity of all individuals owning at least 25% of legal person customers.

Beyond lowering the ownership threshold, EDD methods related to identification of ownership and control can include requiring the beneficial owners of customers to verify their ownership by presenting share certificates or contracts.

Example 1: Company A is a UAE-based company that leases office space. Company A applies to open an account with Bank Lion, a CBUAE-supervised LFI. Bank Lion verifies that Company A is 50% owned by Mr. Y and 40% owned by Ms. W. Bank Lion is aware that Company A has additional owners, but knows they own less than 10% of Company A.

Because Company A is a low-risk domestic firm, Bank Lion is not required to identify the additional owners of Company A.

Example 2: Company B is a Cayman Islands-based company with no business operations and a letterbox address on the premises of a known Cayman Islands TCSP. Company B applies to open an account with Bank Lion, a CBUAE-supervised LFI. Bank Lion verifies that Company B is 50% owned by Mr. Y, a citizen of Russia and 40% owned by Ms. W, a citizen of Malta.

Company B is likely a shell company, and its known beneficial owners are from high-risk jurisdictions. Therefore, Bank Lion decides to take the step of identifying and verifying the identity of the individuals who owns the remaining 10% of the company before accepting Company B as a customer. It discovers that the remaining 10% of shares are owned by Mr. Y’s father, a well-known Russian businessman. Because Mr. Y is only 22 and a recent university graduate, Bank Lion suspects that Mr. Y is a nominee and that his father may be the true controlling owner of Company B.