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New Legal Insight: Ultimate Beneficial Ownership Identification in Egypt

New Legal Insight: Ultimate Beneficial Ownership Identification in Egypt

The Central Bank of Egypt (CBE) has issued on January 8, 2025 a Guiding Manual on Identifying Ultimate Beneficial Owners (UBOs). This manual sets a critical regulatory framework for banks to enhance transparency, combat financial crimes, and comply with international anti-money laundering (AML) and counter-terrorist financing (CFT) standards.

Our article provides a comprehensive analysis of this critical development, including:

  • Key regulatory requirements for banks

    • Definition and verification of UBOs

    Common techniques used to obscure ownership

    Risk indicators for concealed UBOs

    Compliance measures and international best practices

    This initiative aligns Egypt’s financial sector with global transparency standards, ensuring a robust framework for financial integrity.

    Table of contents

  • The Egyptian Central Bank of Egypt Issues a Guiding Manual on Ultimate Beneficial Ownership Identification

  • Objective and Legal Framework

  • Key Requirements for Banks

  • Definition of Ultimate Beneficial Ownership

  • Methods Used to Conceal Ultimate Beneficial Ownership

  • Identifying Ultimate Beneficial Owners in Different Scenarios

  • Verification Procedures for Ultimate Beneficial Owners

  • Indicators for Concealed Ultimate Beneficial Ownership

  • Conclusion

  • FAQs

    • The Egyptian Central Bank of Egypt Issues a Guiding Manual on Ultimate Beneficial Ownership Identification

    On January 8, 2025, the Central Bank of Egypt (CBE) issued a guiding manual aimed at identifying the ultimate beneficial owners of bank clients. This initiative aligns with international standards for combating money laundering and terrorist financing, emphasizing the necessity for banks to ascertain the true identity of ultimate beneficial owners. Various methods are often used to obscure the identity of ultimate beneficial owners, facilitating illicit financial activities.

    Objective and Legal Framework:

    The manual, developed in collaboration with the Anti-Money Laundering and Terrorist Financing Unit, provides comprehensive guidelines on identifying ultimate beneficial owners and recognizing the techniques used to conceal their identities. This initiative aims to establish a robust framework for banks to obtain accurate and updated data on ultimate beneficial owners in compliance with the local legislative and regulatory framework, particularly:

  • The Anti-Money Laundering Law No. 80 of 2002 and its executive regulations issued by Prime Ministerial Decree No. 951 of 2003, along with their amendments.

  • The Central Bank and Banking System Law No. 194 of 2020.

  • Due diligence measures for bank customers issued by the Anti-Money Laundering and Terrorist Financing Unit.

  • Regulatory controls concerning anti-money laundering and terrorist financing.

    • Key Requirements for Banks:

    The guiding manual stipulates that banks must incorporate, at a minimum, the following measures within their internal procedures:

  • Verification of Ownership and Control Structure: Banks must collect necessary documentation to assess the ownership structure and control mechanisms of their clients, whether individuals, legal entities, or legal arrangements.

  • Identification and Verification of Ultimate Beneficial Owners: For natural persons identified as ultimate beneficial owners, banks must apply due diligence measures issued by the Anti-Money Laundering and Terrorist Financing Unit.

  • Ongoing Monitoring and Updates: Banks must regularly update customer information in accordance with regulatory guidelines, adjusting procedures based on the level of risk associated with concealing ultimate beneficial ownership.

    • Definition of Ultimate Beneficial Ownership:

    The manual defines an ultimate beneficial owner as “any natural person who ultimately owns or exercises actual control over a client, either directly or indirectly, or on whose behalf transactions are conducted.” Legal ownership and ultimate beneficial ownership are distinct concepts, as a natural person may be considered an ultimate beneficial owner based on the actual control they exercise over a legal entity.

    For legal entities, ownership structures are typically clear through shareholders and partners, whose information can be verified via official documents, such as general assembly minutes and board resolutions. In the case of trusts and similar structures, certain individuals may hold contractual roles with rights and obligations under a trust deed, despite not being legal owners.

    Methods Used to Conceal Ultimate Beneficial Ownership:

    The manual highlights several techniques used to obscure the identity of ultimate beneficial owners, including:

  • Declaring false ultimate beneficial owners.

  • Using shell companies or dormant companies.

  • Establishing complex ownership structures.

  • Appointing nominee shareholders or directors.

  • Utilizing bearer shares, fraudulent loans, and fictitious invoices.

    • Identifying Ultimate Beneficial Owners in Different Scenarios

  • Ultimate Beneficial Owners of Natural Persons:

    • The client is typically the ultimate beneficial owner unless another natural person is authorized to act on their behalf through power of attorney, delegation, or legal representation. If a designated representative manages the account’s operations in a manner suggesting ultimate control, banks must assess whether this individual is the true ultimate beneficial owner.

  • Ultimate Beneficial Owners of Legal Entities:

    • For corporations, commercial entities, institutions, non-profit organizations, and similar entities, ultimate beneficial owners are identified as follows:

  • A natural person holding controlling ownership interests.

  • A natural person exercising control through other means.

  • If no individuals meet the above criteria, a senior management official is identified as the ultimate beneficial owner.

  • Ultimate Beneficial Owners of Legal Arrangements:

    • The identification process mirrors that of legal entities, considering the structural differences in legal arrangements, which may lack ownership control through equity stakes. Additionally, the money laundering and terrorist financing risks associated with such structures vary.

    Verification Procedures for Ultimate Beneficial Owners

    The manual outlines essential procedures for verifying ultimate beneficial ownership:

  • Reviewing relevant documents such as trust deeds or letters of wishes.

  • Obtaining information from reliable sources, including regulatory authorities, financial institutions, and corporate service providers.

  • Conducting continuous assessments of transaction patterns, country risks, and the sources of funds linked to ultimate beneficial owners.

    • Indicators for Concealed Ultimate Beneficial Ownership

    The manual categorizes suspicious indicators into three groups:

  • Indicators related to Individuals:

  • Reluctance to provide personal information.

  • The client's reluctance or inability to explain his business activities and organizational history, the identity of the real beneficiary, or the source of his wealth and funds, as well as clarifying his financial transactions.

  • The nature of his business dealings with other parties such as suppliers or customers.

  • Insisting on using an intermediary for all transactions without sufficient justification.

  • Persistent avoidance of personal contact with the commercial registry of the legal entity or legal arrangement without sufficient justification.

  • Foreigners who do not have significant dealings in the country where they obtain professional or financial services.

  • Refusal to cooperate or provide information, data and documents normally required to clarify the transaction.

  • Inability to make decisions and requesting time to take necessary actions or required behaviors.

  • Conducting transactions that are not appropriate for the client's age, especially for underage clients.

  • Previous conviction for fraud, tax evasion or other offenses.

  • Being under investigation or being associated with criminals.

  • Having a person authorized to sign the company's accounts without sufficient justification.

  • Conducting financial activities and transactions that are not in line with due diligence procedures.

  • Declaring income that does not correspond to their assets or financial transactions.

  • Indicators related to Legal Entities and Arrangements:

  • Long period of inactivity after incorporation, followed by a sudden and unexplained increase in the volume of activity and financial transactions.

  • Absence of any information on the internet or popular social media platforms.

  • Registration under a name that does not refer to the company's activity.

  • Registering under a name similar to another company, especially well-known multinationals.

  • The company's registered address does not match the identification model.

  • The address is not verifiable or accessible.

  • The company's address is shared with several other companies or legal arrangements, indicating that it may be used as a mailbox address only.

  • Lack of an active role for the company's CEO.

  • Declaring a large number of bona fide beneficiaries.

  • Authorizing numerous authorized signatories without sufficient explanation or business justification.

  • Incorporating in a country considered high risk for money laundering and terrorist financing.

  • Incorporating in a country with favorable tax laws.

  • Regularly sending money to low-tax countries or international business or financial centers.

  • Conducting financial activities and transactions that are disproportionate to the size and nature of the company.

  • Conducting a large number of transactions with a small number of beneficiaries.

  • Conducting a small number of high-value transactions with a small number of beneficiaries.

  • Conducting regular transactions with international companies without commercial justification.

  • Establishing relationships with foreign professional intermediaries in the absence of business activities in the country where the professional intermediary operates.

  • Receiving disproportionate amounts of capital funding after incorporation, which is spent or transferred in a short period of time with no business purpose.

  • Maintaining a near-zero bank balance, despite frequent incoming and outgoing transactions.

  • Incorporating in a country that does not require companies to report real beneficiaries to a centralized registry or allows for shareholder anonymity.

  • Operating using bank accounts in countries other than the country where the company is registered without a clear justification.

  • Engaging multiple shareholders, each with an ownership interest just below the minimum threshold required for declaration or enhanced due diligence.

  • Indicators related to Transactions:

  • Executing financial transactions without a legitimate business justification.

  • Transactions involving two legal persons with the same executives, shareholders, or real beneficiaries.

  • Sending or receiving funds from a foreign country without a clear relationship between the country and the client.

  • Unjustified use of powers of attorney or other authorization processes, (e.g., use of representative offices)

  • Unwarranted use of trusts, and unclear or unwarranted relationships between the beneficiaries and the trustee.

    • Conclusion

    The issuance of the guiding manual by the Central Bank of Egypt marks a significant step toward enhancing transparency and mitigating financial crimes. By implementing the prescribed measures, banks can strengthen their due diligence frameworks, ensuring compliance with regulatory obligations while contributing to global efforts against money laundering and terrorist financing.

    Written by:

    Mona Osama  &  Amr Lotfy

    FAQs:

    What is the purpose of the Central Bank of Egypt's (CBE) new Guiding Manual on Identifying Ultimate Beneficial Owners (UBOs)?

    The manual, issued on January 8, 2025, aims to establish a robust regulatory framework for banks in Egypt. Its primary goals are to enhance transparency, combat financial crimes, and ensure compliance with international anti-money laundering (AML) and counter-terrorist financing (CFT) standards. This initiative helps align Egypt’s financial sector with global transparency efforts.

    What is the definition of an Ultimate Beneficial Owner (UBO) according to the manual?

    The manual defines a UBO as "any natural person who ultimately owns or exercises actual control over a client, either directly or indirectly, or on whose behalf transactions are conducted". It emphasizes that legal ownership and ultimate beneficial ownership are distinct concepts, as actual control is the determining factor.

    What are some common techniques used to conceal Ultimate Beneficial Ownership?

    The manual highlights various methods used to obscure UBO identities, facilitating illicit financial activities. These include declaring false UBOs, utilizing shell or dormant companies, establishing complex ownership structures, and appointing nominee shareholders or directors. Other techniques involve bearer shares, fraudulent loans, and fictitious invoices.

    What are the key regulatory requirements for banks regarding UBO identification?

    Banks are required to incorporate several measures into their internal procedures. These include verifying the ownership and control structure of clients by collecting necessary documentation. They must also identify and verify UBOs by applying due diligence measures, and continuously monitor and update customer information based on the risk of UBO concealment.

    How does this new manual align Egypt's financial sector with international standards?

    The issuance of this manual aligns Egypt's financial sector with global transparency standards. It is a significant step towards enhancing transparency and mitigating financial crimes, ensuring compliance with international standards for combating money laundering and terrorist financing. By implementing these measures, banks strengthen their due diligence frameworks and contribute to global efforts against financial illicit activities.

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