Identifying Ultimate Beneficial Owners (UBOs) is a grueling task that takes time, strict governance and manual processes. But with advances in technology, these challenges can be overcome. Intelligent Process Automation can enhance the speed, accuracy and cost-efficiency of UBO identification.

In this blog, we examine the importance of identifying UBOs for private equity firms, and the increasing demand for automation in this key KYC process.

why identifying UBOs is increasingly important for private equity firms

In recent years, regulation and enforcement aimed at curbing financial crime have become more stringent, increasing the exposure of private equity (PE) firms to regulatory and reputational risk. Robust pre-acquisition due diligence is critical in detecting and mitigating these risks.

Key compliance risks facing PE firms include:

bribery and corruption

In 2016, the US Department of Justice (DoJ) increased resources focused on the enforcement of the Foreign Corrupt Practices Act (FCPA) by 50%. Under the FCPA firms are liable for the actions of their third parties, including portfolio companies. The FCPA also has extraterritorial reach, making it applicable to firms with any exposure in the US or to US dollar transactions. Other global regulations, including the UK Bribery Act, have similar provisions.

The ability to identify beneficial owners of acquisition targets that present a higher risk of bribery and corruption, for example public officials or Politically Exposed Persons (PEPs), is critical to avoid falling foul of these regulations.

sanctions

As overseas investments have increased, so has exposure to sanctions, and with constant evolutions to the global sanctions regime, staying on top of changes and updates is a continual struggle. Narrative sanctions that extend to non-listed entities based on a narrative statement, such as the EU and US 50 percent rules, add to the complexity. While a potential acquisition may not appear on any lists, ownership of 50 percent or more by a listed individual (or individuals) will make it subject to sanctions.

A detailed understanding of ownership levels is imperative in ensuring Private Equity firms compliance with global sanctions. However, building this picture often requires gathering and analyzing data from multiple sources which is time-consuming when handled manually.

money laundering

While there may still be room for improvement, banks have been focused on shoring up their anti-money laundering defenses for many years. As these programmes have become more effective in thwarting the efforts of money launderers, these criminals have set their sites on other methods to disguise the proceeds of crime, including hiding behind complex corporate structures.

Knowing the people behind a company allows Private Equity firms to conduct thorough risk screening against relevant databases and to identify adverse media connecting beneficial owners to criminal activities.

Without a comprehensive and accurate view of a company’s structure and beneficial owners, assessing and mitigating these risks is impossible. However, identifying the natural persons behind multiple layers of corporate entities is complex and time-consuming. Especially when those entities and people are spread across the globe in multiple jurisdictions.

improving UBO identification with intelligent process automation

As competition for the most lucrative deals intensifies, the ability to move quickly is essential to the success of your firm. However, traditional due diligence processes are highly manual, laborious and slow. The information needed to build a comprehensive picture of a potential acquisition target resides in multiple places including publicly-available registers, premium databases and global media outlets. The challenge facing compliance and due diligence teams within private equity and investment funds is accessing and analyzing this information quickly, in order to drive fast, informed decisions.

Inefficient processes will lead to the view that compliance is a stumbling block, which can result in processes being circumvented. This exposes firms to significant risk. The good news is that technology, in the form of Intelligent Process Automation, is now available that can automate the process of mapping out corporate structures and identifying beneficial owners.