What are the two prongs defined under CDD/MDD rules for "beneficial owner"?

The concept of "beneficial owner" is crucial in the context of Customer Due Diligence (CDD) and Monitoring Due Diligence (MDD) rules, which are designed to identify and verify the individuals who ultimately own or control a customer entity. The two prongs defined under these rules are ownership criteria and control criteria.

Ownership criteria refer to the requirement to identify individuals who, either directly or indirectly, own a certain percentage of an entity, typically 25% or more. This is essential for understanding who holds the economic interest in the entity being assessed.

Control criteria focus on individuals who exercise significant control over the entity, even if they do not meet the ownership threshold. This includes those who have formal authority to govern the entity or make decisions regarding its operations.

Together, these criteria help financial institutions effectively detect and manage risks associated with beneficial ownership, ensuring compliance with anti-money laundering (AML) regulations and promoting transparency in financial transactions. This dual approach is intended to prevent illicit activities by ensuring that the true owners and controllers are known and can be monitored accordingly.