Post by lairezippert on Mar 21, 2018 7:34:25 GMT 4
Introduction
In April 2018, the European Parliament is expected to adopt the EU's 5th Anti-Money Laundering Directive (5AMLD), as agreed by EU Member States on 13th December 2017. This article briefly sets out the changes we can expect, particularly in respect of trusts.
Agreed Changes - Register of Trusts:
Member States will have to grant public access to information held on each Member State's register of trusts, subject to a "legitimate interest" test, the conditions for which must be defined in law by each individual Member State.
Access to the register of trusts must also be granted to any member of the public in relation to a trust which holds or owns a controlling interest in a company that is not incorporated in the EU (and is therefore not included in any Member State's register of beneficial ownership of companies);
Member States must put in place mechanisms to ensure that information on beneficial ownership in the registers of companies and trusts is "adequate, accurate and current"; and
Member States will have to ensure interconnection between each Member States' registers of companies and trusts via an EU "Central Platform".
Comment
Registration of UBO Trust Information
UBO information of trusts will have to be registered in the Member State where the trustee is established or resides. If this outside of the EU, then registration must occur in the Member State where a trustee enters into a business relationship or acquires real estate in name of the trust. For example, if a Jersey trust purchases Italian realty, the beneficial ownership would be registered on the Italian register of trusts.
Access to Registers of Trusts
Access to EU registers of trusts will be subject to a legitimate interest test.
Possibly the ruling of the French Constitutional Court in relation to the publically open French Register of Trusts in 2016 was influential in the legitimate interest test being agreed for registers of trusts.
However, each Member State will need to define what "legitimate interest" means in their country. This may result in different definitions across the EU which seems at best unhelpful and at worst may promote "forum shopping" for the most favourable definition of "legitimate interest"; albeit the "Central Platform" may prevent forum shopping? Presently, the UK Government "will consider how best to consult with interested stakeholders on how this definition should be applied in the UK, in view of the fact that many trusts are established for personal or family reasons."
The Austrian Government has been critical of "legitimate interest" expressing that registers of trusts should be fully accessible to the public. In this regard, if a trust (seemingly, regardless of whether the trustee is resident within the EU or not) owns a controlling interest in a non-EU incorporated company, then access to that State's register of trusts will be open to the public, meaning the legitimate interest test will not apply. Therefore, if a Jersey trust owns a controlling interest in a BVI company which owns German realty or enters into a transaction in Germany, then the German register of trusts will be open to the public. On the other hand, if a Jersey trust owns a controlling interest in a Germany company, then the German register of trusts will remain subject to the legitimate interest test. The difference being that the German company's UBO information will already be on the German register of companies which will be open to the public.
Consequently, the outcome is that any person using companies or trusts and dealing with a EU State must be prepared for their UBO information to be potentially publically transparent.
Adequate, Accurate and Current Information
The EU has recognised that registers are only as good as the information registered. Therefore, "Obliged Entities", as well as competent authorities within the EU, will be under an obligation to "report any discrepancies they find between the beneficial ownership information available in the central registers and the beneficial ownership information available to them" in relation to both companies and trusts.
Beyond that, it is currently unclear what "mechanisms" will be put in place to ensure UBO information is "adequate, accurate and current". If "mechanisms" consist of civil (e.g. fines) and criminal (imprisonment) offences, then those are unlikely to deter terrorists from filing false information. Hence industry professionals can expect to be subject to further risks.
The UK's Commons Select Committee (European Scrutiny) was due to receive responses on such mechanisms on 16 February 2018, but we have not been able to find those responses on the UK Parliament's webpage.
Interconnected Central Platform of Registers
Interestingly for the UK, it will likely have to implement, and incur the costs of, the interconnectivity platform during the transitional exit period before then ceasing to be part of the EU's networks and structures.
Other Agreed Changes
Bank Accounts Register - Each Member State will need to create a central register or retrieval mechanism for ownership of bank accounts, enabling financial intelligence units (e.g. UK's National Crime Agency) to identify account holders. This will require a "significant change" to current UK practice where the National Crime Agency accesses bank account information via credit reference agencies and individual banks.
Real Estate Owners - Member States will have to provide financial intelligent units and competent authorities with access to information which allows the identification "in a timely manner" of any natural or legal persons owning real estate within their territory.
Extended AML Checks - AML checks will be extended to auditors, accountants, tax advisors, auction houses and estate agents (the latter only when renting out property where the monthly let is €10,000 (£8,824) or more).
Implementation Timings
5AMLD's introduction will be staggered over two to three years as follows:
The changes to registers of companies likely due by November 2019;
The enhanced access to registers of trusts will take effect in January 2020 and the live date for the register of bank accounts is scheduled for June 2020; and
The interconnected Central Platform of registers of companies and trusts is tasked to take effect early 2021.
If you think it only seems like the EU's 4th Anti-Money Laundering Directive has arrived, you would be correct. 4AMLD was adopted by the EU on 20th May 2015, giving EU Member States the required two years to implement. 3AMLD was adopted on 26 October 2005, nearly 10 years previously. Why the rapid acceleration to introduce 5AMLD?
In July 2016, responding to the revelations of tax evasion contained in the Panama Papers in May 2016, the European Commission in the fight against money laundering and terrorist financing proposed to: (i) enhance accessibility to and widen the definition of "beneficial ownership" information; (ii) clarify the registration of trusts and the accessibility to register of trusts; and (iii) strengthen customer due diligence rules for banks and other obliged entities.
Conclusion
It does not seem that 5AMLD has struck a particular balance between the right of privacy and transparency. Rather, 5AMLD suggests that information on EU registers will be publically available in most cases: only in limited circumstances will information be protected by the legitimate interest test, depending on how it is defined and how the interconnected Central Platform of registers works in practice. There are currently too many unknown answers, but it does appear there remains an argument to be had in the European Court of Human Rights on the right to privacy.
In April 2018, the European Parliament is expected to adopt the EU's 5th Anti-Money Laundering Directive (5AMLD), as agreed by EU Member States on 13th December 2017. This article briefly sets out the changes we can expect, particularly in respect of trusts.
Agreed Changes - Register of Trusts:
Member States will have to grant public access to information held on each Member State's register of trusts, subject to a "legitimate interest" test, the conditions for which must be defined in law by each individual Member State.
Access to the register of trusts must also be granted to any member of the public in relation to a trust which holds or owns a controlling interest in a company that is not incorporated in the EU (and is therefore not included in any Member State's register of beneficial ownership of companies);
Member States must put in place mechanisms to ensure that information on beneficial ownership in the registers of companies and trusts is "adequate, accurate and current"; and
Member States will have to ensure interconnection between each Member States' registers of companies and trusts via an EU "Central Platform".
Comment
Registration of UBO Trust Information
UBO information of trusts will have to be registered in the Member State where the trustee is established or resides. If this outside of the EU, then registration must occur in the Member State where a trustee enters into a business relationship or acquires real estate in name of the trust. For example, if a Jersey trust purchases Italian realty, the beneficial ownership would be registered on the Italian register of trusts.
Access to Registers of Trusts
Access to EU registers of trusts will be subject to a legitimate interest test.
Possibly the ruling of the French Constitutional Court in relation to the publically open French Register of Trusts in 2016 was influential in the legitimate interest test being agreed for registers of trusts.
However, each Member State will need to define what "legitimate interest" means in their country. This may result in different definitions across the EU which seems at best unhelpful and at worst may promote "forum shopping" for the most favourable definition of "legitimate interest"; albeit the "Central Platform" may prevent forum shopping? Presently, the UK Government "will consider how best to consult with interested stakeholders on how this definition should be applied in the UK, in view of the fact that many trusts are established for personal or family reasons."
The Austrian Government has been critical of "legitimate interest" expressing that registers of trusts should be fully accessible to the public. In this regard, if a trust (seemingly, regardless of whether the trustee is resident within the EU or not) owns a controlling interest in a non-EU incorporated company, then access to that State's register of trusts will be open to the public, meaning the legitimate interest test will not apply. Therefore, if a Jersey trust owns a controlling interest in a BVI company which owns German realty or enters into a transaction in Germany, then the German register of trusts will be open to the public. On the other hand, if a Jersey trust owns a controlling interest in a Germany company, then the German register of trusts will remain subject to the legitimate interest test. The difference being that the German company's UBO information will already be on the German register of companies which will be open to the public.
Consequently, the outcome is that any person using companies or trusts and dealing with a EU State must be prepared for their UBO information to be potentially publically transparent.
Adequate, Accurate and Current Information
The EU has recognised that registers are only as good as the information registered. Therefore, "Obliged Entities", as well as competent authorities within the EU, will be under an obligation to "report any discrepancies they find between the beneficial ownership information available in the central registers and the beneficial ownership information available to them" in relation to both companies and trusts.
Beyond that, it is currently unclear what "mechanisms" will be put in place to ensure UBO information is "adequate, accurate and current". If "mechanisms" consist of civil (e.g. fines) and criminal (imprisonment) offences, then those are unlikely to deter terrorists from filing false information. Hence industry professionals can expect to be subject to further risks.
The UK's Commons Select Committee (European Scrutiny) was due to receive responses on such mechanisms on 16 February 2018, but we have not been able to find those responses on the UK Parliament's webpage.
Interconnected Central Platform of Registers
Interestingly for the UK, it will likely have to implement, and incur the costs of, the interconnectivity platform during the transitional exit period before then ceasing to be part of the EU's networks and structures.
Other Agreed Changes
Bank Accounts Register - Each Member State will need to create a central register or retrieval mechanism for ownership of bank accounts, enabling financial intelligence units (e.g. UK's National Crime Agency) to identify account holders. This will require a "significant change" to current UK practice where the National Crime Agency accesses bank account information via credit reference agencies and individual banks.
Real Estate Owners - Member States will have to provide financial intelligent units and competent authorities with access to information which allows the identification "in a timely manner" of any natural or legal persons owning real estate within their territory.
Extended AML Checks - AML checks will be extended to auditors, accountants, tax advisors, auction houses and estate agents (the latter only when renting out property where the monthly let is €10,000 (£8,824) or more).
Implementation Timings
5AMLD's introduction will be staggered over two to three years as follows:
The changes to registers of companies likely due by November 2019;
The enhanced access to registers of trusts will take effect in January 2020 and the live date for the register of bank accounts is scheduled for June 2020; and
The interconnected Central Platform of registers of companies and trusts is tasked to take effect early 2021.
If you think it only seems like the EU's 4th Anti-Money Laundering Directive has arrived, you would be correct. 4AMLD was adopted by the EU on 20th May 2015, giving EU Member States the required two years to implement. 3AMLD was adopted on 26 October 2005, nearly 10 years previously. Why the rapid acceleration to introduce 5AMLD?
In July 2016, responding to the revelations of tax evasion contained in the Panama Papers in May 2016, the European Commission in the fight against money laundering and terrorist financing proposed to: (i) enhance accessibility to and widen the definition of "beneficial ownership" information; (ii) clarify the registration of trusts and the accessibility to register of trusts; and (iii) strengthen customer due diligence rules for banks and other obliged entities.
Conclusion
It does not seem that 5AMLD has struck a particular balance between the right of privacy and transparency. Rather, 5AMLD suggests that information on EU registers will be publically available in most cases: only in limited circumstances will information be protected by the legitimate interest test, depending on how it is defined and how the interconnected Central Platform of registers works in practice. There are currently too many unknown answers, but it does appear there remains an argument to be had in the European Court of Human Rights on the right to privacy.