Beneficial Ownership and Control
Domain 3 tests whether you can look through layers to the human beings who ultimately own or control a customer. Expect questions on thresholds, control tests, trusts, nominee arrangements, and what to do when no beneficial owner can be identified.
Defining beneficial ownership
A beneficial owner is a natural person who ultimately owns or controls a customer, or the person on whose behalf a transaction is conducted. Ownership is often measured by a shareholding threshold, commonly 10% or 25% depending on jurisdiction and sector; control can exist below the threshold through shareholder agreements, voting rights, board appointment rights, or other influence. FATF Recommendations 24 and 25 require countries to ensure adequate, accurate, and timely information on beneficial ownership, and firms must not rely solely on a registry.
Structures
For companies, map the ownership chain until you reach natural persons. Watch for circular ownership, bearer shares, nominee directors, layered offshore companies, and trusts. For trusts, the beneficial owners typically include settlors, trustees, beneficiaries, and any protector. For partnerships, consider partners and those exercising control.
The fallback
If no natural person can be identified after reasonable efforts, many regimes allow the firm to record a senior managing official as the beneficial owner, but only with documented attempts and ongoing review.
Worked example
A corporate customer is owned 60% by HoldCo A, which is owned 55% by HoldCo B, which is owned by three individuals: 40%, 35%, and 25%. Correct reasoning: multiply the chains. The 40% individual owns 0.60 x 0.55 x 0.40 = 13.2%; the 35% individual 11.55%; the 25% individual 8.25%. Under a 25% threshold none qualifies by ownership, so the officer must test for control - who directs the entities, who signs, who appoints the board? If no controller emerges, escalate, document the analysis, and consider the senior managing official fallback. The trap is to declare no beneficial owner without showing the calculation.
Traps that cost marks
Stopping at the immediate parent; treating the threshold as the only test; relying on a registry extract as final proof; and ignoring trust beneficiaries with a vested interest.