What are the risks of unintentionally transacting with a shady shell company or funds gained from criminal activities? In South Africa, it’s substantial.

For example, investigators recently uncovered 61,000 shell companies listing the same Tshwane mall as their registration address. South Africa’s wealthy underworld is also not to be scoffed at, reflected in the R400-million tax bill sent to an alleged crime kingpin.

These problematic and risky examples often surface during large transactions, creating problems for honest brokers who assumed they were dealing with legitimate parties.

Legislatively, such transactions are also a risk as laws around the world tighten anti-money laundering (AML) requirements. South Africa has fallen short of such safeguards.

It is currently working on removing a greylisting status imposed by the Financial Action Task Force (FTAF), including the creation of an ultimate beneficial owner (UBO) database of company ownership at the Companies and Intellectual Property Commission (CIPC).

The database will help support UBO requirements, but it’s just one step in a complex journey to comprehensively ensure one has a truthful version of someone’s identity and source of funds. UBO analysts must verify identity and residency, build a comprehensive picture of ownership in companies and trusts, and identify red flags such as past financial scandals.

However, execution is often convoluted and difficult.

In 1989, leaders at the G7 conference agreed to create a financial task force that oversees global efforts to combat money laundering. During the eighties, drug cartels had grown into global businesses. For example, at its peak, the Medellin cartel earned $470-million a week, amounting to $22-billion in annual revenue. This was just the tip of underworld wealth, sparking fears that it would erode trust in legitimate markets. Hence, the FTAF and UBO were established.

Over the years, UBO checks have expanded to include terrorist financing, and today, they’re often used to combat various aspects of criminal money. However, UBO verification is a very convoluted process that can take weeks and still leave risky gaps.

“UBO checks are manual and time-intensive,” says Jason Shedden, chief operating officer at identity platform Contactable. “Let’s say someone buys a big stake in a company. The brokerage conducts checks and files a stack of paperwork, taking weeks to provide clearance. Then, that same person buys another big stake a few months later.

“The brokers often have to do all that work again because it’s easier than finding and collating the previous information due to the amount of admin involved.”

Digital platforms are helping organisations cut through such paperwork headaches. In 2022, the AML software market grew to $1-billion and is estimated to reach $2,7-billion in four years. Among these products are cloud-based identity platforms that give companies another powerful ability in their verification toolset: to build, own and modernise UBO databases that they can share via API integrations.

Systems that are primarily manual and rely on paperwork substantially slow down UBO processes and dull their effectiveness. Integrated identity platforms are helping enterprises stay ahead of AML requirements and bolster their KYC (Know Your Customer) capabilities. They incorporate UBO checks into a larger system managing related risks and provide rules that enact controls for different situations.

By using an identity platform with UBO features, companies can tackle multiple issues at once. They can build an internal UBO database that they trust and share safely internally and with third parties. They can connect to multiple verification databases for quick vetting. Their staff have access to versatile digital tools to quickly build trees, diagrams, and other relationships between pieces of information. Such platforms automate UBO processes, and digitise those processes that rely on human intervention.

“Companies can use digital platforms to create internal UBO databases. With the right software, they can visually develop ownership trees, digitise UBO processes and rules, automate data capture, and improve analysis with artificial intelligence,” says Shedden.

Integrated identity platforms are providing UBO tools that hadn’t existed before, and in good time, too. Disingenuous individuals abuse the digital era to hide their wealth. Authorities are clamping down on gaps and loopholes that used to let verifying companies off the hook. Using digital systems to verify UBO statuses have become necessary in order to keep up. Fortunately, the best identity platforms are turning this requirement into an advantage.

“Someone needs to keep things honest, and that responsibility will fall more and more on companies,” says Shedden. “The databases and resources that they get from governments and official bodies will only go so far, and won’t cover all their business needs to ensure they get extensive value from their UBO and KYC systems.

“Identity platforms provide much more than just checks. They represent a digitisation ecosystem that you can use to create UBO databases, processes, rules, and resources. UBO checks are becoming necessary by law and for risk management, but the right identity platform helps companies take back control over these challenges.”