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 FATF’s international standards, and every country builds a version of it into domestic law.

FATF is clear that regulated businesses must look beyond the name on the paperwork and identify the real person who benefits from ownership or control. This is because criminals routinely use companies, trusts and nominee arrangements to distance themselves from assets. 

To help regulated professionals spot these tactics, beneficial ownership is treated as a core customer due diligence (CDD) requirement by FATF.

Beneficial owners of companies and other legal persons

For a company or other legal person that isn’t listed on a regulated market, FATF’s Recommendation 24 expects countries to make sure an individual can be identified as the beneficial owner where they meet one or more of the following conditions:

• They directly or indirectly own more than a set percentage of the shares
• They directly or indirectly control more than a set percentage of the voting rights
• They otherwise exercise control over the management of the company

FATF leaves the exact percentage to individual countries, provided the approach genuinely captures who’s in control. Most jurisdictions, including the UK, have settled on 25% under their own regulations, so check the threshold that applies where you’re regulated.

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

This means you must look deeper at a layered ownership structure, including where a company is owned by another company, because control can sit several steps removed from the client you’re dealing with.

If, after taking reasonable measures, you can’t identify an individual under these tests, most frameworks require you to fall back on treating the senior managing official as the beneficial owner. This is a fallback position, not a substitute for proper investigation.

Beneficial owners of partnerships

Partnerships don’t all work the same way in law. This changes how you find the beneficial owner.

In some countries, a partnership is treated as its own separate entity and holds its own assets and debts, as a company does. FATF treats it the same way as a company too. To identify the beneficial owner, you need to look for a partner who:

• holds a large enough share of the partnership’s capital or profit interest;
• controls a large enough share of its voting or decision-making rights;
• controls how it’s run, judged against whatever threshold the country has set. 

If no individual meets that bar, you fall back to the senior managing partner, the same fallback used for companies with no identifiable owner.

In countries where there’s no separate entity at all and the partners themselves own the business directly, in their own names, the beneficial owner test looks straight at them. 

Someone counts as a beneficial owner if they’re entitled to more than 25% of the partnership’s capital or profits, or if they control the partnership some other way, even without holding that share.

Beneficial owners of trusts and similar arrangements

FATF’s Recommendation 25 applies specifically to express trusts: trusts a settlor sets up deliberately, usually through a written trust deed, with named trustees and beneficiaries. 

Other trusts, like those a court imposes to settle a dispute, are formed without anyone independently choosing to set them up, so there’s no equivalent ownership test for them. 

For an express trust, FATF expects beneficial owners to 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 the power to appoint or remove trustees, direct distributions or otherwise influence how the trust operates. Where there are multiple beneficial owners for a single trust, you need to identify all of them.

Why beneficial ownership matters

FATF’s Recommendation 10 requires regulated businesses to identify beneficial owners and take all reasonable measures to verify their identity as part of customer due diligence. This requirement reflects the risk-based approachthat runs through the Recommendations.

Ownership structures that obscure who really controls assets pose a higher risk of money laundering, terrorist financing and proliferation financing. So regulated firms are expected to understand who ultimately controls a client, even if that means carrying out additional enquiries.

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

Identification and verification

FATF, and the national laws that implement its Recommendations, 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’s 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 is deliberately wide, wherever you’re regulated. 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.