DETERMINING ULTIMATE BENEFICIAL OWNERSHIP IBOS DETERMINING ULTIMATE BENEFICIAL OWNERSHIP

What is the purpose of this guide To achieve, in the context of Anti-Money Laundering and Counter-Terrorist Financing regulations, a common definition within IBOS of Beneficial Ownership, which is also known as Ultimate Beneficial Ownership To reach a common understanding within IBOS as to what has to be done in the Account Opening process regarding the identification of Ultimate Beneficial Owners or “UBOs,” as well as the identification of Intermediate Beneficial Owners, or “IBOs” To equip staff at the Host Bank with the means for carrying out this work such that the information sent to the Account-Holding Bank is up to the standard necessary for the Account-Holding Bank to easily complete their know-your-client (“KYC”) due diligence To thereby improve the efficiency and speed of opening an account within IBOS, improve customer satisfaction, and help create a competitive advantage for IBOS

What is the task in the Account Opening process? To lay out the ownership structure of every client applying for an account (“Applicant”) To identify the Applicant’s UBOs, who are always natural persons To identify the Applicant’s IBOs, who are always legal persons or legal arrangements, e.g., companies, trusts, partnerships, limited partnerships, and similar entities, and who sit between the Applicant and the UBOs Note: IBOs are not, in their own right, Beneficial Owners, but must be identified as a necessary condition for the correct identification of the UBOs To carry out the requisite identification checks on UBOs and IBOs as prescribed by the Account-Holding Bank

Definition of Beneficial Owner Definition of “beneficial owner” from the Glossary to the FATF Recommendations* Beneficial owner refers to the natural person(s) who ultimately50 owns or controls a customer51 and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement. 50 Reference to “ultimately owns or controls” and “ultimate effective control” refer to situations in which the ownership/control is exercised through a chain of ownership or by means of control other then direct control 51 This definition should also apply to beneficial owner or beneficiary under a life or other investment linked insurance policy. *FATF Guidance: Transparency and Beneficial Ownership; http://www.fatf-gafi.org/documents/documents/transparency-and-beneficial-ownership.html; page 8; 9 March 2015.

Definition of Beneficial Owner The definition excludes: References to entities other than natural persons The notion of intermediary entities, whether persons, legal persons or legal arrangements A prescribed minimum amount of ownership or control The requirement to verify the identity of beneficial owners The definition includes: Chained legal ownership and chained control of legal persons or legal arrangements Cumulative ownership and control, that is, ownership or control or both through otherwise separate multiple chains of ownership or control of the same legal person or legal arrangement Effective control over legal persons and legal arrangements does not presume a holding of capital or assets or voting rights

Understanding “control” of legal persons and arrangements …”the FATF definition focuses on the natural (not legal) persons who actually own and take advantage of capital or assets of the legal person; as well as on those who really exert effective control over it (whether or not they occupy formal positions within that legal person), rather than just the (natural or legal) persons who are legally (on paper) entitled to do so.”* Example: in a Limited Liability Partnership the General Partner, or more precisely the persons, including legal persons and legal arrangements, acting for the General Partner, have effective control over the Limited Liability Partnership whether or not the General Partner owns capital or assets of the Limited Liability Partnership Implication: all legal persons or legal arrangements have beneficial owners even if no natural person ultimately owns capital or assets at or above the prescribed threshold level *FATF Guidance: Transparency and Beneficial Ownership; http://www.fatf-gafi.org/documents/documents/transparency-and-beneficial-ownership.html; page 8; 9 March 2015. Also see a similar reference in page 9 addressing Legal Arrangements.

Prescribed level or threshold FATF’s recommendations do not establish whether all Beneficial Owners need to be identified or only those who meet or exceed a certain level of ownership or control Each FATF member country defines the minimum level or threshold of ownership or control for identifying Beneficial Owners applicable for its jurisdiction, which normally is 25% ownership or control The prescribed minimum may be lower for certain classes of Legal Persons or Legal Arrangements such as, for example, corporations whose stock trades in certain Stock Exchanges Using a risk-based approach, banks, in this case, Account-Holding Banks, decide whether to uniformly adhere to the prescribed minimum threshold, or whether they wish to uniformly apply a higher level threshold, or to apply a higher threshold only under certain conditions, for example when carrying out enhanced due diligence of the Applicant Account-Holding Banks define the prescribed level or threshold of Beneficial Ownership for clients applying to establish banking arrangements with them

The two meanings of “identify” We need to distinguish between two tasks: Ascertaining who are the UBOs and IBOs, following the prescribed level or threshold applicable for a given Account-Holding Bank Verifying the identity of the UBOs and IBOs, as required by the individual Account-Holding Banks Task (1) involves two steps: A) Analysing and assessing facts required to ascertain the UBOs and IBOs. This may involve examining the Applicant’s or the Applicant’s IBOs’, capitalization tables, or shareholder lists, or suitable ownership organograms B) Collecting information regarding the identity of the UBOs and IBOs such as names, registered addresses, residential addresses, jurisdiction of legal formation, nationality, date of birth, date of legal formation, etc

The two meanings of “identify” Task (2) depends on the requirements of individual Account-Holding Bank and may include one or more of the following: Doing nothing further Confirmation by the Applicant, or by a professional third-party such as a lawyer or chartered accountant, of the accuracy and completeness of the identified UBOs or IBOs or both Checking the validity of the identity of the UBOs by comparing the given elements of identify established in task 1 against trusted documents such as passports or driving licences, or by other means Checking the validity of the identity of the IBOs by comparing the given elements of identify established in task 1 against copies of documents such certificates of formation issued by competent authorities, or by other means such as consulting public records available online through the Internet, or through trusted bureaux who procure such information from public records 9

Example UBO declaration I, [insert signer’s position] of [insert applicant’s name], certify that the foregoing chart accurately depicts the current Ultimate Beneficial Ownership of [insert applicant’s name], and that no individual besides [insert names of UBOs] has direct or indirect beneficial ownership of [insert percentage] or more of [insert applicant’s name]. For greater certainty, ultimate beneficial ownership means an individual directly or indirectly, (a) owning, controlling or having power to vote [insert percentage] or more of any class of voting securities or voting interests of [insert applicant’s name]; or (b) controlling in any manner the affairs of [insert applicant’s name] or the election of a majority of the directors of [insert applicant’s name]. I further certify that none of the shares of the entities depicted in the foregoing chart have been issued in bearer form, and certify that none of the entities are authorized to issue shares in bearer form. Date: [insert current date] Signed by: [insert signer’s name] Position: [insert signer’s position]

Sample ownership chart 1 Sample Profile Ltd (Location of Incorporation) 3 individuals 5.02% E. G. Smith 26.01% ABC Canada Inc. 40.32% FGB Limited 23.25% R. B. Sampson 5.31% 86.23% 1 Individual 13.77% Private Holdco Limited 80.00% 5 Individuals 20.00% P. E. Martin 100%

(Location of Incorporation) Identifying UBOs and IBOs – worked example 1 Sample Profile Ltd (Location of Incorporation) 3 individuals 5.02% E. G. Smith 26.01% ABC Canada Inc. 40.32% FGB Limited 23.25% R. B. Sampson 5.31% UBO: E.G. Smith needs to be identified because that person owns 26.1% of Sample Profile Limited directly IBO: ABC Canada Inc. needs to be identified because it is a legal person owning 40.32% of Sample Profile Limited directly

(Location of Incorporation) Building the ownership chart – worked example 1 Sample Profile Ltd (Location of Incorporation) 3 individuals 5.02% E. G. Smith 26.01% ABC Canada Inc. 40.32% FGB Limited 23.25% R. B. Sampson 5.31% 86.23% 1 Individual 13.77% UBO: R.B. Sampson needs to be identified because this person owns 5.31% of Sample Profile Limited directly, and owns 86.23% of FGB Limited directly, which in turn owns 23.25% of Sample Profile Limited directly a. 86.23% x 23.25% = 20.05% b. 20.05% + 5.31% = 25.36%

Building the ownership chart – worked example 1 Sample Profile Ltd (Location of Incorporation) 3 individuals 5.02% E. G. Smith 26.01% ABC Canada Inc. 40.32% FGB Limited 23.25% R. B. Sampson 5.31% 86.23% 1 Individual 13.77% Private Holdco Limited 80.00% 5 Individuals 20.00% P. E. Martin 100% UBO: P.E. Martin needs to be identified because this person owns: a. 100% of Private Holdco Limited, which owns… b. 80% of ABC Canada Limited, which owns… c. 40.32% of Sample Profile Limited directly d. 100% x 80% x 40.32% = 32.256% IBO: Private Holdco Limited because: directly owns 80% of ABC Canada Inc., which owns 40.32% of Sample Profile Limited directly 80%x40.32%=32.256%

Sample Profile 1 UBOs and IBOs – 25% prescribed threshold E.G. Smith: 26.01% R.B. Sampson: 25.36% P.E. Martin: 32.256% IBOs ABC Canada Inc.: 40.32% Private Holdco Limited: 32.256% 15

Sample ownership chart 2 16

Deconstructing profile 2 – 1st layer Both direct owners are Intermediary Beneficial Owners. Their direct ownership exceeds the 25% threshold. 17

Deconstructing profile 2 – 2nd layer Another Company Inc. is an indirect Intermediary Beneficial Owner: 60% x 70% = 42% The Jones Family Trust is also an indirect Intermediary Beneficial Owner: 40% x 70% = 28%. It is highlighted in partial gold and partial blue because Trusts are representations of true beneficial owners, but are also legal arrangements As the general partner for Venture Capital LLP, the General Partner LLP is a controlling entity even if it only has 0.60% indirect ownership. In Limited Liability Partnerships, the general partner makes all business decisions, and the limited partners are just passive investors. Therefore, the most senior executive managers of the general partners are controlling Ultimate Beneficial Owners None of venture capitalists are indirect beneficial owners because none has a sufficiently high equity interest 18

Deconstructing profile 2 – 3rd layer Both G. Stein and M. Findlay are indirect controlling Ultimat Beneficial Owners, notwithstanding each having negligible equity interests of 0.42% (1% x 60% x 70%). The control arises from G. Stein and M. Findlay each holding nearly half of the voting rights of Another Company Inc., which is itself an Intermediary Beneficial Owner L. Francis is an Ultimate Beneficial Owner: 98% x 60% x 70% = 41.16% 19

Deconstructing profile 2 – 3rd layer Each beneficiary of The Jones Family Trust is an Ultimate Beneficial Owner: 40% x 70% = 28%. Note that beneficiaries of the Trust are not considered for their individual share of the Trust; instead, all are Ultimate Beneficial Owners Each Trustee is a controlling Ultimate Beneficial Owner. A bank, according to its policy, may also consider each of the Settlors and each of the Protectors of the Trust as Ultimate Beneficial Owners. The interest on the Settlors arises from the Settlors being the original source of the wealth of the Trust. On the other hand, the interest on the Protectors arises from the Protectors potentially acting as controlling parties because they may potentially control the Trustees of the Trust. 20

Deconstructing profile 2 – 3rd layer As the general partner for General Partner LLP, General Partner Inc. is a controlling entity even if it only has 0.57% indirect ownership. In Limited Liability Partnerships, the general partner makes all business decisions, and the limited partners are just passive investors. Therefore, the most senior executive managers of the general partners are controlling Ultimate Beneficial Owners. With that being said, it very likely that the executive management of General Partner Inc. are the same individuals as the executive managers of General Partners LLP. 21

Sample Profile 2 UBOs and IBOs – 25% prescribed threshold Executives that operate General Partner LLP Executives that operate General Partner Inc. Beneficiaries and related controlling parties of The Jones Family Trust Beneficiaries Trustees Settlors Protectors G. Stein M. Findlay L. Francis IBOs Parent Client Ltd: 70% Another Company Inc.: 42% The Jones Family Trust Venture Capital LLP: 30% General Partner LLP General Partner Inc. 22