An Intermediary Beneficial Owner (IBO) in the context of Know Your Customer (KYC) is a legal entity that owns shares in another company, acting as a middleman between that company and its ultimate beneficial owner(s) (UBOs). Essentially, an IBO is a company that sits in the ownership structure between a company and the real person(s) who ultimately control it.
Understanding IBOs in KYC
KYC regulations require financial institutions and other regulated entities to identify and verify the ultimate beneficial owners of their customers to prevent money laundering, terrorist financing, and other illicit activities. IBOs can complicate this process because they create layers of ownership that can obscure the identity of the UBOs.
Why are IBOs Important in KYC?
- Obscuring Ownership: IBOs can be used intentionally or unintentionally to hide the true ownership structure of a company.
- Increased Risk: Multiple layers of ownership make it harder to assess the risk associated with a particular customer.
- Compliance Requirements: KYC regulations require regulated entities to look through IBOs to identify the UBOs.
Identifying and Verifying IBOs
The KYC process typically involves:
- Collecting Ownership Information: Requesting detailed information about the ownership structure of the company, including all IBOs.
- Verifying IBOs: Checking the legitimacy of the IBOs by verifying their registration, location, and activities.
- Tracing Ownership: Following the ownership chain through the IBOs to identify the UBOs.
Exceptions
It's important to note that the IBO is not investigated as the UBO in the following situations:
- The IBO is a listed entity (e.g., a company traded on a major stock exchange).
- The IBO is a government entity.
In these cases, further investigation into the UBOs of the IBO isn't required because these entities are subject to different regulatory oversight and transparency requirements.
Example
Imagine Company A is owned by Company B. Company B is, in turn, owned by John Doe. In this scenario, Company B is the IBO because it sits between Company A and the ultimate beneficial owner, John Doe. The KYC process for Company A would involve identifying Company B as an IBO and then looking through Company B to identify John Doe as the UBO.
In conclusion, IBOs play a crucial role in KYC processes as they represent intermediate layers of ownership that must be thoroughly investigated to identify and verify the ultimate beneficial owners of a company, thereby ensuring regulatory compliance and mitigating financial crime risks.
