What’s a beneficial owner?

A beneficial owner is the individual who ultimately owns or controls a client or the individual on whose behalf a transaction or activity is carried out. This concept sits at the heart of the UK Money Laundering Regulations 2017 (as amended) (MLRs). 

The Regulations are clear that regulated businesses must look beyond the name on the paperwork and identify the real person who benefits from ownership or control. Criminals routinely use companies, trusts and nominee arrangements to distance themselves from assets, which is why beneficial ownership is treated as a core customer due diligence (CDD) requirement.

The legal definition appears in Regulation 5 of the MLRs and applies differently depending on whether the client is a company, partnership, trust or another legal arrangement.

Beneficial owners of companies and other bodies corporate

For a body corporate that is not listed on a regulated market, the MLRs define a beneficial owner as an individual who meets one or more of the following conditions:

• They directly or indirectly own more than 25% of the shares
• They directly or indirectly control more than 25% of the voting rights
• They otherwise exercise control over the management of the body corporate

Ownership and control can be direct or indirect and can exist where there is no shareholding at all, where ownership is dispersed among many people and where shares carry little or no real power. There is always, however, a person or a group of people exercising control.

This means you must consider layered ownership structures, including companies owned by other companies, where control may sit several steps removed from the client you are dealing with.

If, after taking reasonable measures, no individual can be identified under these tests, the Regulations require you to treat the senior managing official as the beneficial owner. This is a fallback position, not a substitute for proper investigation.

Beneficial owners of partnerships

For partnerships that are not legal persons, the beneficial owner is defined as an individual who is ultimately entitled to or controls more than 25% of the capital or profits of the partnership or otherwise exercises control over the partnership.

As with companies, indirect ownership and control must be considered. The focus remains on who ultimately benefits and who makes decisions, not simply who is named on the partnership agreement.

Beneficial owners of trusts and similar arrangements

The MLRs take a broader approach to trusts. For an express trust, beneficial owners include all of the following:

• The settlor
• The trustees
• The beneficiaries, or where beneficiaries are not yet determined, the people in whose main interest the trust is set up or operates
• Any individual who has control over the trust

Control includes powers to appoint or remove trustees, direct distributions or otherwise influence how the trust operates. There can be multiple beneficial owners for a single trust, and all must be identified.

Why beneficial ownership matters

The MLRs require regulated businesses to identify beneficial owners and take all reasonable measures to verify their identity as part of CDD. This requirement reflects the risk-based approach set out in Regulation 18. 

Ownership structures that obscure who really controls assets present a higher risk of money laundering, terrorist financing and proliferation financing. The Regulations therefore expect firms to understand who ultimately sits behind a client, even where that requires additional enquiries.

Failing to correctly identify beneficial owners is a common area of non-compliance and undermines the effectiveness of due diligence.

Identification and verification

The Regulations draw a distinction between identification and verification.

1. You must identify who the beneficial owners are by understanding the ownership and control structure of the client.
2. You must then take all reasonable measures to verify those individuals’ identities using information obtained from a reliable source which is independent of the person being verified.

What is considered reasonable depends on the level of risk. More complex or opaque structures generally require deeper verification, potentially using enhanced due diligence (EDD) where risk is higher.

Final thoughts

The definition of a beneficial owner under the MLRs is deliberately wide. It’s designed to prevent individuals from hiding behind corporate structures, trusts or informal arrangements to disguise ownership or control.

Applying the definition properly means asking one simple question and following it through logically: who ultimately owns or controls this client or transaction? When that question is answered clearly and evidenced appropriately, your due diligence is on far firmer ground.