How far should you go to identify the beneficial owner?

At its simplest, beneficial ownership comes down to one question: who ultimately owns or controls the client, or benefits from the transaction? But while the definition is simple, the issue is knowing when you’ve done enough.

The UK Money Laundering Regulations 2017 (as amended) (MLRs) expect you to look beyond names on documents and understand who really owns or controls the client.

The key point is that the answer isn’t always obvious from the paperwork. You need to understand who ultimately owns or controls the client, and to test that understanding more thoroughly when the circumstances justify it.

Companies and corporate clients

For companies that aren’t listed on a regulated market, a beneficial owner is an individual who:

• owns more than 25% of the shares, directly or indirectly
• controls more than 25% of the voting rights, directly or indirectly,
• otherwise exercises control over the company

In practice, the first two points are usually easy to establish. The third can be more challenging.

Control can exist without share ownership. It might exist through shareholder agreements, veto rights, directors or partners who aren’t shareholders but have decision-making influence, or informal arrangements. These can all be relevant, particularly where the transaction itself appears to be driven by someone who isn’t formally recorded as an owner.

Where a company is owned by another company, you’re expected to follow the ownership chain until you reach the individual or individuals who ultimately control it.

However, if after taking reasonable steps no individual can be identified under the ownership or control tests, the MLRs allow you to treat the senior managing official as the beneficial owner. This is intended as the ‘last resort’ and your file should explain why that position was reached.

Partnerships

For partnerships that are not legal persons, the principle is the same but applied differently.

A beneficial owner is an individual who is entitled to or controls more than 25% of the capital or profits, or who otherwise exercises control over the partnership.

Again, this isn’t just about what the partnership agreement says. If control over decisions or financial benefit clearly sits with someone else, that should be reflected in your assessment.

Straightforward professional partnerships usually require less scrutiny than arrangements where influence or benefit is unclear.

Trusts and similar arrangements

Trusts are treated more broadly because they are designed to separate legal ownership, control and benefit.

For an express trust, beneficial owners include:

• the settlor
• the trustees
• the beneficiaries, or the class of beneficiaries where they are not yet named
• anyone who has control over the trust

Control includes the power to appoint or remove trustees, influence distributions or otherwise direct how the trust operates.

As it’s common for trusts to have multiple beneficial owners, all need to be treated as beneficial owners for AML purposes, and identified and verified. The thing that changes is the depth of your investigation, which should reflect the risk posed by the trust structure, the jurisdiction and the nature of the matter.

How the risk-based approach shapes what you do

The MLRs deliberately avoid setting a fixed endpoint for beneficial ownership checks. Instead, they expect your approach to scale with risk.

In practice, this often turns on things like:

• how complex or layered the structure is
• how clear control appears to be
• whether ownership or control sits overseas
• whether the client’s explanation matches what the structure shows

A simple UK-based structure with clear ownership will usually justify your ‘standard’ approach. Layered or opaque structures, overseas ownership or unexplained control will justify going further with enhanced due diligence.

Identification and verification

The MLRs distinguish between identifying beneficial owners and verifying them.

Identification is about understanding who the beneficial owners are by mapping ownership and control.

Verification is about confirming their identity using reliable, independent sources.

Both are required, but the depth of verification should reflect risk. Lower-risk matters may justify standard checks. Higher-risk matters may require enhanced due diligence, additional documents or multiple sources.

What matters is that your file shows why the level of verification applied made sense in that case.

Why this matters in inspections

Beneficial ownership is a common focus in AML inspections of law firms. Issues often arise, not because firms ignored the rules, but because they can’t clearly explain why the investigation stopped where it did.

Supervisors want to see that you understood the structure, considered whether it made sense in the context of the matter, and recorded why you were satisfied with the conclusion reached.

When firms struggle, it’s often because the file shows what was collected, but not why the firm was comfortable proceeding.

Final thoughts

Identifying beneficial ownership is about reasonable understanding, applied proportionately to the risk in front of you.

For law firms, the safest position is to treat beneficial ownership as part of understanding the transaction itself. Follow ownership and control to make sense of the ultimate beneficial owner or owners, and record why that level of enquiry was appropriate.

This article is written by AMLCC as a hosted feature on the Law Society website. Views expressed are AMLCC’s.

This article is provided for general information only. It is not intended to amount to advice on which you should rely. You should obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this article. See our website legal notice here.