Corporate Conversations: Navigating Ultimate Beneficial Ownership Compliance with Mercator by Citco

Meet Kariem Abdellatif and Mercator by Citco:
Kariem Abdellatif, with over 30 years of experience, leads the Citco group of companies’ (Citco) entity portfolio management provider, Mercator® by Citco. Mercator provides corporate governance solutions to multinationals across 180+ countries, ensuring compliance from annual filings to board resolutions.

What is Ultimate Beneficial Ownership (UBO), and Why Does It Matter?
A UBO is the individual or entity that controls a company. UBO regulations, aimed at fighting money laundering and financial crimes, vary across 106 countries. Non-compliance can result in severe penalties, including fines and prison time.

The Compliance Conundrum for Multinationals:
Multinationals must navigate different jurisdictions and rulebooks, each with unique requirements. Non-compliance may lead to heavy fines, exclusion from tenders, and potential criminal charges. Staying compliant is a critical business necessity.

Mercator’s UBO Report: Clarifying a Complex Landscape:
Mercator’s UBO Report provides insights into registration processes, costs, and timelines. It highlights the role of technology in streamlining compliance, with countries like the UK leading, while others, like Brazil and the UAE, lag behind.

The High Cost of Non-Compliance:
Penalties for non-compliance are severe. Repeat offenders in some European countries risk penalties exceeding $1 million. Offenders in other nations may receive prison terms of up to five years.  Multinationals face high stakes and little room for error.

Technology: The Game-Changer in UBO Compliance:
Digital solutions, such as e-filings and digital signatures, are revolutionizing compliance, with countries like the UK setting the standard. Less flexible jurisdictions are struggling to keep up.

The Future of UBO Regulations: What Lies Ahead?
With 106 countries onboard, UBO regulations will likely expand. More nations may adopt these rules, creating greater uniformity. Technology will be crucial in simplifying and streamlining compliance.

Kariem’s Golden Rules for Multinationals:
Kariem’s advice: comply, comply, comply. Understand the rules in each jurisdiction, file on time, and keep accurate UBO records. Proactive compliance isn’t just about avoiding penalties—it protects reputation and opens business opportunities.

---

Kariem, thank you very much for joining us today.

Please introduce yourself to our listeners and our viewers.

Yeah, thank you, Fred.

My name is Kariem Abdellatif.

I head the business Mercator by Citco, which is Citco’s entity portfolio management business for multinationals.

I am professionally sort of a one trick pony. I have 30 plus years of experience in corporate servicing.

That’s what I’ve been doing all of my professional life and, after several overseas postings, I came back to Europe to set up this entity portfolio management business in Citco, a business that both combines servicing and a technology platform to service multinationals in 186 countries for corporate governance requirements.

Who is Mercator by Citco, and what is your role at the company?

 

Mercator by Citco is Citco’s entity portfolio management provider, mainly to multinational companies and multinational clients.

My role is to head that business, which means that I take a hand in product development and development of business as such and in the development of our technology.

Typically, our clients, as I said before, are multinational corporations.

They will have corporate governance requirements globally and multinational by its nature, it is a global business and therefore has entities in the far corners of the world. Basically what we do is we take care of providing a corporate governance framework to ensure proper corporate governance for those multinationals.

The sort of corporate governance that I’m talking about is the typical corporate secretarial work – the annual obligations that every company globally needs to perform, and it is also the event-driven work that comes with that from time to time, such as shareholders meetings, extraordinary shareholders meetings, board resolutions, powers of attorney, and the like.

Now to give a bit of context to our meeting, we got in touch with you following the launch of your Ultimate Beneficial Owner Report. That’s how we got here today actually.

But before we dig into some of the report findings, can you firstly tell our listeners what Ultimate beneficial ownership is or UBO and why doesn’t matter?

That is, of course, where it all starts: with the definition.

What is UBO? What is a beneficial owner? To put it simply, an ultimate beneficial owner is the person or the persons who control or own a company ultimately.

And that sounds fairly simple I suppose, fairly straightforward. In actual fact, definitions of beneficial ownership actually change per country, change per legislation, and change per regulation as well.

So, it’s not quite as straightforward as I just said.

And in response to your question as to why it matters: as a result of the fight against money laundering, as a result of counterterrorist financing, governments globally have instituted UBO regulations locally or nationally that basically require UBOs to be registered and to potentially be disclosed in their own countries.

And, because this comes as a result of AML and counterterrorist financing, the potential pitfalls or the potential penalties for non-compliance are actually quite nasty.

So that is why I would say this matters.

Even while our typical clients, being multinationals, are not perhaps the primary target for this legislation, they are caught up in it by virtue of the fact that they operate globally and internationally with many different entities that may be subject to this regulation.

We’ve seen UBO non-compliance capture global news headlines.

In 2016, the Panama Papers exposed beneficial ownership structures used by global politicians and business figures.

At the same time, Russian oligarchs’ assets came under scrutiny in 2022, following sanctions related to the Ukraine invasion, highlighting complex ownership structures of yachts, properties and companies.

Indeed, the UK’s Public Beneficial Ownership Register exposed previously hidden property ownership in London, particularly affecting Russian oligarchs.

The list goes on, and we’re often talking about high-profile illicit actors exploiting complex ownership structures to essentially conceal their identities.So, thinking about the business sector, can you tell us how compliant multinationals can unwittingly wind up in breach of UBO regulation?

That’s an excellent question. And you’re absolutely right, in highlighting that the UBO regulation targets are sort of not primarily in multinationals. It targets, as you said, the bad apples.

So, in that sense, how do multinationals get affected by that?

I think it’s important to realize, first of all, that today there are 106 countries that have some form of regulation on their statutory books and in their legal systems.

So, when we talk about multinationals getting caught up in those or multinationals being internationally active by their nature, and having entities globally by their nature, they may be… will be subject to this regulation.

I will add to that: although I talked about the definition of a UBO previously, in actual fact how a UBO is defined nationally differs by country.

Generally, the definition is somewhere between 10 and 25% ownership or a percentage in between 10 and 25%, voting wise as well.

So, taking into account different definitions, 106 different countries, and adding to that the fact that rules actually change, because UBO rules do change, it shows you the logistical complexity of maintaining the UBO data and complying with UBO regulation consistently. That is basically what the multinationals are faced with.

So, even if they’re not primarily addressed, they are corporate citizens and they need to comply with this regulation. The complexity, the logistics around it make it so that they could actually get caught up and suffer consequences in case of non-compliance.

And what are the potential pitfalls multinationals can fall into?

There are definitely many.

As I said, the definitions per country are different and they are not consistent.

The first thing that multinational needs to do is to be assured that they know what they’re doing in this field, that they know what the rules are in particular countries. They need to know what the filing deadlines are in particular companies, whether to report an actual UBO or in some cases, I think in Indonesia, one may report a director, for instance, as a UBO.

It’s the complexity that makes this dangerous to navigate for multinationals. The fallout, if one does not comply, again, is penalties, there are fines, and potentially criminal prosecution.

And tell us why you chose to launch your UBO report and what were the key findings?

The UBO legislation came up a few years ago and we could see this coming down the road because of our international, global network, from where we pull our intelligence and our information.

So, we could see that this was going to be quite relevant to our client base of multinational clients.

And then, combined with that, multinationals actually started to ask us questions because they – the company secretaries, the general counsels within multinationals– realized that this was going to affect them as well.

So, this came from two sides: both from our intelligence and from our clients who saw that UBO regulation was going to affect them in the years to come.

Now, I’m going to add to that the fact that when we provide UBO compliance services to our multinational clients, we do so with the help of our technology, Entica®.

Entica stores all the data around how to register a UBO, how to perform those activities and the cost around those activities as well.

We found, on one hand, a market demand for knowledge and information about the UBO reporting. And, on the other hand, we found that we sit on this treasure trove of data that has very practical insights into how to maintain UBO compliance, how to maintain registers, how long it takes, and what it costs.

So, it was really a confluence of those two things, the need and the fact that we’re sitting on this data.

Fascinating.

Kariem, let’s talk about a little bit of risk management at this point. What happens when UBO compliance goes wrong, for instance? And what are the risks for multinationals?

Well, it can get quite nasty quite soon, in fact, because when things go wrong in this field, there are particular penalties.

And remember what I said earlier, this comes out of a fight against money laundering and terrorist financing. Given that that’s the origin, the penalties, as you can imagine, are quite severe for non-compliance with UBO regulation.

Those penalties can include financial fines, they could be $1,000,000-plus fines, and they can also include jail time.

 

And can you give us some examples of the toughest penalties?

Definitely.

I know that in Germany, for repeat offences, one can receive fines of $1,000,000 plus and the same actually applies to the country where I reside: in Luxembourg you also face potentially $1,000,000 plus penalties.

To give you another example, in Mauritius there are financial penalties but there is also the possibility to punish non-compliance with FSC regulation with up to five years in prison.

How could you verify the Ultimate Beneficial Owner, or UBO, of an entity during the due diligence in order to assess potential legal or financial risks?

That’s an interesting question because that sort of goes into a slightly different angle, if you will, of the UBO concept.

Our report deals with the regulation that’s been implemented over the past couple of years, which imposes obligations on companies to disclose their UBOs.

What you’re pointing to is more of a transactional nature. It’s an event-driven type UBO identification as part of a broader due diligence.

And so there are certain differences between the two concepts and between the two contexts.

Having said that, there is of course an overlap because we’re still talking about UBOs.

The differences, perhaps, are in who performs the due diligence. That’s usually a law firm, an external legal team. And the difference is in how far one goes in that due diligence to ascertain the UBO, the ownership of a company. Does one need to go only and ascertain who the UBO is? Or does one have to have the full chain of ownership included? Does one, for instance, also need to know who the previous owners were, the previous UBOs?

And all of that basically comes down to data collection. What are the sources of that data? It could be the UBO registers that we would compile on behalf of our clients and that we would help them compile and file when necessary.

In your opinion, Kariem, how important is understanding the UBO of a client or a partner or a partner entity when considering reputation or risk?

Well, I can be fairly brief about that. I think it’s absolutely vital to know that: if you put down your signature on a contract, you’ll want to know very well who’s on the other side of that contract. You want to know very well who you are partnered with, in that sense.

So, I would say it is absolutely vital from that perspective and that it cannot be underestimated.

And in terms of client relationships, what tools or processes do you use to gather detailed information on a client’s UBO for accurate legal advice?

Basically, what you need to do is, first of all, decide what is the scope – what is it that I have to report?

And that depends on the countries in which you have to report or compile UBO information for. But that scope will determine what information you’re going to fetch from the files, what information you’re going to require to be disclosed by the client.

So, it’s very much a fact-finding mission. And in due diligence operations or due diligence scenarios, it’s the same thing. It’s exactly like that.

And how do you protect your personal data?

Well, it’s a very good question because UBO data – at the end of the day – is very personal data.

And this was driven home to me by a case that we saw not that long ago whereby we had to identify the beneficial owner of one of our clients. All of a sudden you’re holding the passport copy and the residential address of someone who is quite well known and a quite public figure, as well as an owner of certain businesses. So, it’s a very important matter.

And of course there are certain technical means, certain procedural means of protecting that data and the safe storage of that data.

And one of the things that’s also interesting in this respect is that there is, of course, that tension between personal data, data privacy and the UBO disclosure requirements.

And that’s perhaps best illustrated by a European Court of Justice ruling from 2022, which ruled that personal data is subject to data privacy rules and may not be disclosed in all cases where certain countries in Europe had that disclosure mandatory in their legislation.

Those countries then had to change their procedures and processes around UBO disclosure, so it’s a very topical subject.

 

What are the benefits of new techniques or technologies for maintaining data accessibility for corporations or global businesses?

I’d like to look at that from two perspectives.

On the one hand, there’s the fact that technologies – and Entica is one of those – actually allows the storage and the obtaining of data and the disclosure of that data where necessary, in the process of collecting the data.

The other angle is that, where new technologies are allowed – I’m talking about things like e-filings, electronic signatures – that sort of technology will actually speed up the process for UBO compliance.

If you look at some of the countries that score well in our report, including the UK and Luxembourg, which came out top of the list, then you will see that they allow a very flexible use of electronic means and technologies.

Basically, the countries that don’t do so well, I’m going to mention Brazil and Colombia, and also the UAE, are much less flexible in allowing the use of such technologies.

In terms of transaction integrity, what specific steps are taken to confirm the legitimacy of the UBO in mergers and/or acquisitions to ensure transparency in the transaction?

This is a slightly different angle: not so much the annual compliance, but more the transactional UBO identification, which is part of the broader due diligence that’s performed by legal teams, by law firms, by specialized M&A teams, as well.

And essentially this is again a data gathering exercise. One needs to gather the data – who’s the UBO? But one also needs to decide – what information do I need? Do I need to see who a previous owner was? Do I need to see the full chain of ownership rather than simply the actual identification of the UBO?

Once that scope is clear, at that point, the data gathering exercise starts.

The data is collected from internal sources, perhaps external sources, and internal sources may be compared with external sources.

One of the tools we use for that is the so-called ‘corporate health check’ or ‘compliance health check’, by which we verify external data, and we verify that with the internal data that the company itself holds. It’s very much a data gathering exercise for which the team that conducts due diligence may, to some extent, rely on the work that we do in performing our due diligence on UBO compliance duties.

 

Kariem, you mentioned before that you’re starting to see some clients incorporate KPIs into UBO reporting, extending beyond the legal teams through the sales and operations teams.

That really underscores the significance of staying compliant. Can you share more about this?

That’s something I found quite interesting as well. And it goes back to the meeting that I had with a client not that long ago in the Netherlands.

As we were discussing the corporate governance-related work that we do for them, they told us that they, the legal team, had been set by their board a KPI for full UBO regulatory compliance.

That was motivated quite apart from all the penalties – the fines that might be levied and all the nasty consequences that are attached to non-compliance – it was motivated also by a very sound commercial reason, which is that in certain countries this client may not be allowed to tender for public business or to participate in public tenders if they are not fully UBO compliant.

That told me that UBO compliance as a KPI has real commercial consequences for our clients.

And, on that same line of answers, in your experience, how does transparency in UBO disclosure contribute to the overall integrity of corporate transactions?

That’s also a very good question.

I would say it’s absolutely vital for that transparency.

I think that transparency brings trust – and transparency on UBOs is actually the next level of transparency, because you’re talking about very sensitive data.

There is a trust-building exercise, thereby facilitating business, creating, or helping to create, the integrity of transactions. I would say that UBO transparency has very positive effects on that.

And with regards to the future of UBO, Kariem, how do you foresee the future of UBO regulations evolving and what impact this may have on multinational companies?

It’s very interesting that today there are 106 countries, starting with 0, that have some sort of UBO regulation on their books, in their legislation.

The first thing that I suspect will happen is that more countries will implement UBO regulation, bringing more entities into scope of UBO regulation. I think there will be an expansion of the number of countries that require some form of UBO identification. I think that’s one thing, that one could see is going to happen.

The second thing, and this is more of an open question, is: will there be more convergence in terms of the type of rules around UBO disclosure? Remember earlier that we talked about the definitions of a UBO, we talked about how to implement UBO regulations, what to allow, what not to allow in terms of technological means, such as e-filings.

One of the things that we’re seeing is that countries change their regulations perhaps to be more efficient. Argentina, for instance, which formerly required annual resubmission of UBO data: today you only need to submit UBO data upon changes occurring.

So, will there be more of a convergence in that sense? It’s an interesting question that I’m not sure I can fully answer today, but that is a possible route.

Perhaps the third thing that I would say is that as technology advances, further digitization and simplification of processes is likely to occur.

Kariem, what advice would you give to multinational companies looking to improve their UBO compliance in complex jurisdictions?

I suppose one can summarize that in in three words: comply, comply, comply.

We know that the consequence of non-compliance are nasty. So, that’s the main thing I want to say:  that multinationals want to comply. Nobody’s arguing against the idea of UBO registers. They know, as corporate citizens, they need to comply.

I suppose the question is also: how does one do so? How does one comply? What framework does one need?

I think it starts with knowing the rules. Knowing the rules of a different country in which you operate. Knowing the rules of UBO compliance. What is the definition of a UBO? Where do you file? Do you have to keep internal registers or also external registers?

That’s the first thing: know the rules and know that they change as well.

The second thing I would say is file in time. One needs to file on time.

And the third thing I’ll say is collect the information and make sure it’s available, make sure it’s stored.

One of the examples that I have is, in Mexico, where although UBO information does not have to be publicly filed, it has to be present in the company files, and it may have to be produced on 15 days’ notice to the proper authorities. When that happens and you have to provide a 20- or 30-page report, 15 days is not a lot of time. So, maintain a UBO register internally, even if it’s not required.

 

Kariem, thank you very much for your time. It’s been wonderful having you with us.

Thank you. It’s been great sharing some insights.

Thank you very much, Fred.

 

---