Identifying Beneficial Owners: Your Section 36 Obligation
One of the most important AML/CTF obligations is identifying who really owns and controls your client. This is beneficial ownership identification - and it is mandatory under Section 36. Complex structures may trigger enhanced due diligence.
What is a beneficial owner?
A beneficial owner is a natural person (an individual human being) who ultimately:
- Owns more than 25% of the client entity (through shares, units or other ownership interests)
- Controls more than 25% of voting rights
- Exercises effective control over the entity (even without ownership)
The 25% Threshold
The >25% threshold is the standard benchmark. Anyone holding more than 25% ownership or control must be identified. This applies to direct and indirect holdings through chains of ownership.
Why beneficial ownership matters
Money launderers often hide behind complex corporate structures - shell companies, trusts and nominees. Beneficial ownership identification pierces this veil to find the real person behind the client. When dealing with clients from high-risk jurisdictions, this becomes even more critical.
Different client types
Companies (Pty Ltd)
Identify shareholders holding >25% and directors who exercise effective control. Check ASIC extracts for current shareholdings.
Trusts
Identify trustees, appointors, beneficiaries with >25% entitlements and anyone who controls the trust. Obtain the trust deed.
Partnerships
Identify partners with >25% interest in the partnership profits or assets. Obtain partnership agreement.
Verification steps
- Obtain ownership information: Ask the client to provide details of all owners/controllers with >25% interest
- Verify the entity: Check ASIC records for companies, obtain trust deeds for trusts
- Trace ownership chains: If an owner is a company, identify that company's beneficial owners
- Identify individuals: Keep tracing until you reach natural persons
- Verify identity: Apply your standard CDD procedures to each beneficial owner identified. See ongoing CDD requirements for maintenance.
What if no one holds 25%?
If no single person holds more than 25% ownership/control, you must identify the senior managing official(s) who have effective day-to-day control of the entity.
Documentation requirements
You must keep records of:
- The beneficial ownership enquiries you made
- The responses received from the client
- The verification steps taken
- Copies of documents obtained (ASIC extracts, trust deeds etc.)
- Identity verification for each beneficial owner
Key Takeaway
Section 36 requires you to look behind the entity and identify the real humans who own or control your client. Apply the >25% threshold, trace ownership chains to natural persons and document your verification steps. If no one meets the threshold, identify the senior managing officials.
Read our complete Tranche 2 Guide
Key dates, affected sectors, obligations and how to prepare
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