Guidance Document for Identifying the Ultimate Beneficial Owner

Guidance Document for Identifying the Ultimate Beneficial Owner

Introduction:

The institutions subject to the Anti-Money Laundering and Countering the Financing of Terrorism Law are required to conduct due diligence on their clients to identify the Ultimate Beneficial Owner (UBO). This is because the identification of the UBO is a fundamental component of the risk-based approach mandated by the law. Article 39 of the Anti-Money Laundering and Countering the Financing of Terrorism Law No. 39 of 2015 requires institutions to identify the UBO and take appropriate measures to verify their identity. This applies to all legal persons and legal arrangements, including those established under foreign laws, as well as trusts and similar legal arrangements. The identification of the UBO is crucial for preventing the misuse of legal persons and arrangements for money laundering or terrorist financing.

Objective:

This guidance aims to provide clear instructions for institutions subject to the Anti-Money Laundering and Countering the Financing of Terrorism Law to identify the Ultimate Beneficial Owner. It seeks to ensure that these institutions have a comprehensive understanding of the ownership and control structures of their clients, enabling them to assess risks effectively. This guidance is intended to assist institutions in complying with the legal requirements and enhancing their ability to detect and prevent money laundering and terrorist financing activities.

1. Definitions:

Ultimate Beneficial Owner (UBO): The natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes the natural person(s) who exercise ultimate effective control over a legal person or arrangement.

Control: Substantial influence over the management and policies of a legal person or arrangement, whether exercised directly or indirectly.

The term "ownership percentage" or "total ownership percentage" refers to the direct or indirect ownership interest, whether held alone or jointly.

Customer: A natural or legal person who establishes or maintains a business relationship with a subject institution, including:

1. Establishing a business relationship for a specific purpose.
2. Conducting occasional transactions.
3. Acting as a beneficiary in a transaction.
4. Being the owner of a legal person or arrangement.

Occasional Customer: A person who does not have an ongoing business relationship with the institution.

Business Relationship: The relationship established between the subject institution and the customer, which is expected to involve repeated or continuous transactions over a period of time, regardless of the number of transactions.

Legal Arrangements: Legal structures such as trusts, foundations, or similar arrangements that do not have a legal personality but are established for specific purposes.

2. Legal Scope for Identifying the Ultimate Beneficial Owner:

The obligation to identify the Ultimate Beneficial Owner applies to all institutions subject to the Anti-Money Laundering and Countering the Financing of Terrorism Law, as stipulated in Article 39 of Law No. 39 of 2015. This includes obligations related to customer due diligence and the identification of the UBO. The Central Bank of Iraq has issued Circular No. 1 of 2017, which provides detailed guidelines for identifying the UBO. Institutions must identify the UBO and take measures to verify their identity. This applies to all legal persons and legal arrangements, including those established under foreign laws, as well as trusts and similar legal arrangements. The identification of the UBO is crucial for preventing the misuse of legal persons and arrangements for money laundering or terrorist financing.

3. Consequences of Incomplete, Inaccurate, or Late Submission of UBO Information:

Failure to identify the UBO or submit accurate and timely information may result in administrative penalties, including fines, suspension of business activities, or revocation of licenses, as per the Anti-Money Laundering and Countering the Financing of Terrorism Law. Specific consequences include:

1. Imposition of fines.
2. Suspension of business activities.
3. Revocation of licenses.

4. Methods Used to Conceal the Identity of the Ultimate Beneficial Owner:

Institutions should be aware of the following methods used to conceal the identity of the UBO:

1. Use of shell companies.
2. Use of nominee shareholders or directors who hold shares or positions on behalf of the UBO.
3. Use of complex ownership structures.
4. Use of bearer shares or bearer instruments.
5. Use of bearer shares or bearer instruments held by intermediaries.
6. Use of trusts or similar arrangements to obscure ownership.

5. Guidelines to be Considered in All Business Relationships (Before and During Interaction with Legal Persons and Legal Arrangements):

Institutions must identify the UBO for all clients, including legal persons and legal arrangements. This requires a thorough understanding of the ownership and control structures. Institutions should verify the identity of the UBO and take measures to mitigate risks. This applies to all legal persons and legal arrangements, including those established under foreign laws, as well as trusts and similar legal arrangements. The identification of the UBO is crucial for preventing the misuse of legal persons and arrangements for money laundering or terrorist financing.

Institutions should consider the following factors when identifying the UBO:

a. Customer Transparency and Cooperation:
Institutions should ensure that customers are transparent and cooperative in providing information about the UBO. This includes verifying the identity of the UBO and taking measures to mitigate risks. This applies to all legal persons and legal arrangements, including those established under foreign laws, as well as trusts and similar legal arrangements.

b. Understanding Ownership Structure and Reasons: Institutions should understand the ownership structure and the reasons behind it. This includes verifying the identity of the UBO and taking measures to mitigate risks. This applies to all legal persons and legal arrangements, including those established under foreign laws, as well as trusts and similar legal arrangements.

c. Identifying the Ultimate Beneficial Owner through Control: Institutions should identify the UBO based on ownership and control. This includes verifying the identity of the UBO and taking measures to mitigate risks. This applies to all legal persons and legal arrangements, including those established under foreign laws, as well as trusts and similar legal arrangements.

d. Procedures for Identifying the Representative of the Ultimate Beneficial Owner: Institutions should identify the representative of the UBO if the UBO is not directly involved in the transaction. This includes verifying the identity of the representative and taking measures to mitigate risks. This applies to all legal persons and legal arrangements, including those established under foreign laws, as well as trusts and similar legal arrangements.

e. Accessing Data and Information from Official Documents: Institutions should access data and information from official documents to verify the identity of the UBO. This includes verifying the identity of the UBO and taking measures to mitigate risks. This applies to all legal persons and legal arrangements, including those established under foreign laws, as well as trusts and similar legal arrangements.

f. Periodic Update of Information and Documents: Institutions should periodically update the information and documents related to the UBO. This includes verifying the identity of the UBO and taking measures to mitigate risks. This applies to all legal persons and legal arrangements, including those established under foreign laws, as well as trusts and similar legal arrangements.

g. Obtaining a Written Declaration from the Customer: Institutions should obtain a written declaration from the customer identifying the UBO. This includes verifying the identity of the UBO and taking measures to mitigate risks. This applies to all legal persons and legal arrangements, including those established under foreign laws, as well as trusts and similar legal arrangements.

6. Information on Identifying the Ultimate Beneficial Owner Must Include at Minimum:

a. If the Customer is a Legal Person:

1. The name(s) of the natural person(s) who own(s) or control(s) the legal person.
2. The percentage of ownership or control held by each natural person.
3. The identity of the natural person(s) who exercise(s) ultimate effective control over the legal person.

b. If the Customer is a Non-Profit Organization: Institutions should identify the UBO of non-profit organizations. This includes verifying the identity of the UBO and taking measures to mitigate risks. This applies to all legal persons and legal arrangements, including those established under foreign laws, as well as trusts and similar legal arrangements.

7. Identifying the Ultimate Beneficial Owner Based on Ownership Structure:

Examples of ownership structures include:

1. Direct ownership.
2. Indirect ownership.
3. Direct and indirect ownership.
4. Ownership through multiple layers.

8. Diagrams Illustrating Ownership Structures:

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Additional Considerations Based on Ownership Structure:

1. Ownership by minors or individuals with limited legal capacity.
2. Ownership by entities with complex structures.
3. Ownership by entities with no clear beneficial owner.
4. Ownership by entities with multiple layers of ownership.
5. Ownership by entities with no clear control structure.
6. Ownership by entities with no clear beneficial owner.
7. Ownership by entities with no clear control structure.
8. Ownership by entities with no clear beneficial owner.
9. Ownership by entities with no clear control structure.
10. Ownership by entities with no clear beneficial owner.

Reporting Suspicious Transactions:

Institutions must report suspicious transactions to the Iraqi Financial Intelligence Unit (IFIU). Reports should be submitted electronically via the IFIU portal or by email to: iq.aml@info or iq.aml@str. For inquiries, institutions can contact the IFIU at 07832629650.