WHO.2 EU Sanctions DD

EU Sanctions DD WHO.2: Ultimate Beneficial Ownership (UBO) Identification

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What This Control Requires

Has the full Ultimate Beneficial Ownership (UBO) structure been identified for each counterparty?

In Plain Language

EU sanctions apply not just to directly listed persons but to entities owned or controlled by them. If a designated person owns more than 50% of an entity - even through layers of holding companies - that entity is effectively sanctioned too.

The EU uses two tests from the EU Best Practices for Restrictive Measures (July 2024): the ownership threshold of more than 50% (aggregating holdings of multiple designated persons) and qualitative control indicators such as holding the position of CEO, board member, or managing director.

This means screening just the entity name is not enough. You need to trace ownership chains to identify who ultimately owns and controls each counterparty. Without UBO analysis, you could be dealing with a sanctioned person through a chain of seemingly clean intermediary companies.

How to Implement

Trace ownership chains to the ultimate beneficial owner(s) for each counterparty. Under EU Best Practices (July 2024), an entity is 'owned' by a designated person if they hold more than 50% of proprietary rights, including shares, voting rights, or other ownership interests.

Critically, aggregate the holdings of multiple designated persons. If Designated Person A holds 30% and Designated Person B holds 25%, the entity is considered owned by designated persons (55% aggregate).

Beyond ownership percentages, check control indicators: designated person as CEO, board member, managing director, or holding buyback options, put/call arrangements, or side agreements that give effective control.

Also check for front persons, trust structures, nominee shareholders, and shell companies that obscure real control. Ownership chains that pass through opaque jurisdictions (BVI, Seychelles, etc.) warrant extra scrutiny.

Document the full chain with sources - company registry extracts, annual filings, shareholder agreements, and any third-party due diligence reports.

Evidence Your Auditor Will Request

UBO analysis records for each counterparty showing ownership chain to ultimate beneficial owners
Application of the 50% ownership test with aggregation of multiple designated persons
Assessment of control indicators beyond ownership (board positions, management roles, voting rights)
Source documentation: company registry extracts, annual filings, shareholder agreements
Records of any counterparties where UBO could not be fully determined and risk mitigation applied

Common Mistakes

Relying on self-declared ownership information without independent verification
Failing to aggregate holdings of multiple designated persons (only checking individual stakes)
Not looking beyond direct ownership to control indicators like board positions and management roles
Stopping the ownership chain at the first level without tracing through holding companies
No process for updating UBO information when ownership structures change

Related Controls Across Frameworks

Framework	Control ID	Relationship
EU Sanctions DD	EU Sanctions DD WHO.1: Counterparty Screening Against EU Consolidated List	Related
EU Sanctions DD	EU Sanctions DD WHO.3: Suspicious Ownership Restructuring Detection	Related
EU Sanctions DD	EU Sanctions DD WHO.4: Shell Company and Complex Structure Assessment	Related

Frequently Asked Questions

What is the 50% ownership test?

Under EU Best Practices (July 2024), an entity is considered 'owned' by a designated person if that person holds - directly or indirectly - more than 50% of the proprietary rights (shares, voting rights, or other ownership interests). The EU test is more than 50%; the US OFAC rule is 50% or more - do not mix them up if you also screen under US rules. The critical detail: holdings of multiple designated persons are aggregated. So if two designated individuals each hold 30%, the entity is treated as owned by designated persons.

What are 'control indicators' beyond ownership?

Even without majority ownership, a designated person may 'control' an entity. Control indicators include: holding the position of CEO, managing director, or board member; having the right to appoint or remove a majority of the board; holding buyback options or put/call arrangements on shares; having side agreements that give effective decision-making power; or being able to determine the entity's business strategy. These qualitative factors can make an entity subject to sanctions even if the designated person owns 50% or less.

How deep should the ownership chain analysis go?

There is no fixed limit. You should trace through every layer until you reach natural persons (individuals) or entities whose ownership is fully transparent and clean. In practice, this means going through holding companies, trusts, and nominee structures. If you hit an opaque layer (e.g., a bearer-share company in a non-transparent jurisdiction), that itself is a red flag requiring further investigation or risk mitigation.

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