In 2022, the Central Bank of Nigeria (CBN) launched the AML/CFT Law to combat money laundering, financing for terrorism, and weapon proliferation. To ensure the regulation achieves its aim, the CBN developed a guide on identifying the ultimate beneficial owner and made it available for financial institutions and the public on the 12th of January, 2023. 

The guide provides direction for fulfilling a critical part of the AML/CFT Law on identifying the ultimate beneficial owners. Also, it requires immediate compliance by banks, fintechs, and other financial institutions. 

  • Who is the ultimate beneficial owner?
  • How can financial institutions determine the beneficial owner of a company? 
  • What is the role of KYC and doing customer due diligence in identifying the ultimate beneficial owner? 
  • What are financial institutions’ responsibilities in implementing the law? 

In this article, we answered some of the questions above and discussed other important details. Let’s dive into it. 

Who is a Beneficial Owner?

A beneficial owner refers to a person or group with the final and ultimate effective control over a company or organization. It can also refer to the person(s) on whose behalf a transaction is conducted. For example, if your father-in-law owns a company where you work as CEO. He is the ultimate beneficial owner of all transactions you or the employees under you perform. In other words, as the Financial Action Task Force (FATF) Guidance of 2014 put it, a person who officially or legally owns or leads a company might not be the one who actually calls the shots. 

How Do You Determine  Beneficial Ownership?

To identify a beneficial owner of a company, the following are fundamental pointers:

  • Direct or indirect ownership or holding of at least 5% shares and or voting rights in a company;
  • Control of a customer and or the person in charge of daily operations of the company;
  • Capacity to directly or indirectly appoint or remove the majority of the directors or similar positions in a company;
  • A person on whose behalf a transaction is being conducted;
  • A person who exercises ultimate effective control over a company directly or indirectly.
  • Nature of relationships with senior management, authorized signatories, persons with voting rights, and those with the power to legally act over the company.

Determining  Beneficial Ownership Beyond the Key Pointers. 

Understanding the company’s management structure also helps determine beneficial owners with a particular focus on individuals who have the power to dismiss or appoint those in senior management positions. 

Financial institutions can also effectively identify a company’s beneficial owner through documentation like a certificate of incorporation, shareholders’ particulars, minutes of meetings, and partnership agreements usually filed at public registries like the Corporate Affairs Commission (CAC). 

Other methods range from shareholders’ agreements showing that someone can control the shares of more than one shareholder and documentary evidence of an employment contract showing that a director or employee can influence the company.

The bottom line is any arrangement that effectively gives one person or group of individuals direct or indirect control and dominant influence over a company, and transactions can show us who is (or are) the beneficial owner(s).

Some Tips for Verifying Beneficial Owner(s).   

The law expects financial institutions to identify and verify beneficial owners by doing all the required customer due diligence at the onboarding stage. They must also understand and pay attention to the fact that ownership can be so diversified that no single person or group may control the company through (official) ownership. 

Financial institutions can also identify and verify the identity of a beneficial owner through other means where no natural person has control of a company through ownership interests. If that also becomes difficult, financial institutions are encouraged to identify the relevant person(s) who holds senior management positions in the company.

Meanwhile, the regulation made it clear that when verifying the identity of a beneficial owner, financial institutions must use reliable and independent sources as a partner in prohibiting companies from engaging in illegal activity.

Responsibilities of Financial Institutions Concerning Beneficial Ownership Obligations. 

As obtainable in the CBN regulations and global best practices, some of the responsibilities of financial institutions regarding beneficial ownership of their customers include:

  • Identifying and managing money laundering, financing terrorism, and weapon proliferations (ML/TF/PF) risks posed by companies, 
  • Taking reasonable steps to verify the identity of a beneficial owner by understanding the nature of a customer’s business, especially concerning its ownership and decision-making structure, 
  • Applying Enhanced Due Diligence (EDD) on complex companies that have higher risks of committing money laundering and related crimes and filing a suspicious transaction report with the Nigerian Financial Intelligence Unit (NFIU) when necessary, 
  • Keeping and updating records of all relevant documents, either in electronic or written form, for at least five years after the end of the business relationship or after the date of the occasional transaction,
  • Establishing internal policies and procedures to mitigate identified risks relating to beneficial owners,
  • Providing timely access to information on beneficial owners to the relevant authorities like the CBN and NFIU on request. 

Also, financial institutions are legally expected to take extra measures like establishing the beneficial owner’s source of funds and wealth to determine if a beneficial owner is a Politically Exposed Person (PEP) or family member or close associate of a PEP. 

Guidelines for the Register of Beneficial Owners. 

The CBN, through the regulation, also mandates financial institutions to have a register of beneficial owners that follows these criteria: 

  • The register should be created using the records or information collected through Customer Due Diligence (CDD) or other reliable sources,
  • The register should be periodically reviewed and annually updated, or when there are changes, 
  • Flagging and reporting inconsistency or discrepancies between the beneficial owner information in the public register and those in their records to the Corporate Affairs Commission (CAC).  

The stakeholders of the financial industry in Nigeria must continue to collaborate effectively to ensure the integrity of the system.

Written by the Legal Team at Flutterwave with contribution from Henry Chinemerem Akanwa.

Published by David

Head, Legal Team