Britain’s registry of beneficial owners – a flawed masterpiece?|Wolters Kluwer Financial Services
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  • Britain’s registry of beneficial owners – a flawed masterpiece?

    Chris Hamblin

    Published March 20, 2017

    Last year, the United Kingdom became the first nation in the world to have a publicly available register of beneficial owners of companies. The whole project, however, has been jeopardised by the departure of former premier David Cameron from politics and widespread cheating.

    Although it was meant to list all the actual human beings with holdings of 25% or more who sit behind every body corporate, the registry actually contains many entries that do not do this. Large numbers of companies that filed their confirmation statements (a substitute for the old annual returns) at Companies House in the run-up to the deadline of 30th June 2016 listed other companies as 'persons of significant control'. Nobody has been punished for failing to respond properly at the time of writing, although it is a criminal offence to do so without a valid reason. There are no legal restrictions on what a 'valid reason' might be, and it is for the company to decide, but the only factor it can take into consideration is the capacity of the person in question to respond. The vast majority of non-entries do not pass this test.

    Silvio the law enforcer

    The figure of 25% is, or should be, another bone of contention. It is, of course, impossible to keep track of all shareholdings at all times, even when one discounts the second-by-nanosecond trading of shares on electronic markets. During the late 1990s and the early years of this century, the Joint Money Laundering Steering Group guidelines did not mention any cut-off point (merely stating that banks should 'know their customers'). The City of London informally decided that 10% should be the relevant figure.

    All this changed in 2005 when the European Union was putting the final touches to its third Money Laundering Directive (MLD3). One figure in particular – Silvio Berlusconi, Italy's billionaire prime minister who himself has been subject to allegations of money laundering – pressed fervently for as high a figure as possible. The result was a compromise, with the entire EU – and, judging from the pronouncements of the Group of Eight top industrialised nations in 2013 that underpinned the British registry, the entire world as well – accepting the ludicrously high figure of 25% as a good lower marker of undue influence by money-laundering shareholders.

    The G8 meeting at Loch Erne in June 2013 decided that ‘companies should know who really owns them and tax collectors and law enforcers should be able to obtain this information easily.’ Cameron, who dominated this occasion, later went further than his fellow politicians by proclaiming his desire to set up a registry of beneficial ownership interests and publicise the results – something that many compliance officers at the time hailed as a great step forward, as one alternative might have been a lengthy process of asking and obtaining permission from an unhelpful and understaffed team at Companies House. Others saw this as typical British 'gold-plating.'

    British influence abroad

    A crucial part of Cameron's policy, at least in the eyes of international non-governmental organisations such as the Tax Justice Network, was his desire to force this policy on the UK's 14 overseas territories and/or Crown Dependencies. This policy came into being in true Cameroonian style, with an initial declaration that each jurisdiction could make up its own mind, followed by intense pressure on the governments of those jurisdictions to emulate British policy. This was supplemented by other initiatives such as an announcement in May that any company that wanted to buy property in the UK would have to enter details of its beneficial ownership on the register beforehand. More than 100,000 properties were thought to be affected.

    The policy, however, failed. The territories had already declared, during a stormy meeting in 2014, that they would not capitulate to British demands for public registries until all 19 of the so-called 'Group of 20' industrialised nations had done the same. One of the ringleaders was Bob Richards, Bermuda’s minister of finance, who later told reporters that “we will adopt public beneficial ownership when the UK, US and Canada do.”

    The reference to the US was the most telling. The Financial Action Task Force (FATF), the world's anti-money laundering (AML) standard-setter, said in its latest evaluation of the AML laws of that country that there was a "significant gap" in its "beneficial ownership obligations" and concluded that the US should introduce "beneficial ownership preventive measures." Compared with the FATF's harsh evaluations of (and threats towards) smaller nations whose laws allow for the release of far more beneficial information than do those of Delaware, Wyoming and Nebraska, this is a mild rebuke. Indeed, the word 'Delaware' only appears four times in the entire 266 pages of the report. The British territories knew that the US would never pass any meaningful laws to make these internal jurisdictions less conducive to the setting-up of untraceable shell companies and that they therefore had a valuable bargaining chip in their hands.

    Decline of a policy?

    The British capitulation, when it happened, was an amusing one. Grant Shapps, the UK’s minister for international development at the time, visited the Cayman Islands in 2015 to discuss the possibility of a registry there. After a brief canvassing of opinion he told reporters that HM Government’s objectives were achievable without the Cayman Islands having to change their laws at all to create a new register. He reassured the public that “there’s more than one way to skin a cat.” Various British jurisdictions are now striking their own deals with the mother country, all of which so far have fallen short of a public registry.

    The departure of David Cameron from the political scene last summer removed the one politician who appeared truly keen to make registries public. The only detectable initiative in the common law world in this direction since then has been limited to an Australian consultative initiative that mentions the British model as an option. It also, however, extols the "lower compliance costs" of an obligation for each company and each beneficial owner to obtain the requisite information and ensure that the company has it on hand for law enforcers to read.

    Details of the registry

    The British registry counts someone as a 'Person of Significant Control' if he:

    • directly or indirectly owns more than 25% of the company’s shares or more than 25% of its voting rights;
    • has the right to appoint or remove the majority of the company’s directors; and
    • exercises or is legally entitled to exercise significant influence or control over the company or the activities of a trust or firm which is not a legal entity, but would itself satisfy any of the other conditions if it were a company.

    Each company, in the case of each person of significant control, should disclose his name, date of birth, nationality, habitual residence, domestic address, service address, date of 'significant control' acquisition and further details about why the individual qualifies.

    A question of trust

    The original British plans for a register excluded trusts. Eventually, after the issue was debated in the press, HM Government thought aloud about including trusts on the register and making such arrangements public. In the end, however, the register excluded them. Trust registers exist in Belgium and France, where trusts are not very common, but in England they are used for multifarious purposes and the Government knew that the sheer volume of entries would overload the system.

    The European Union then entered the fray, dictating that every EU state ought to have its own registry and allow law enforcers and people with a 'legitimate interest' (such as journalists who could demonstrate that their enquiries were in the public interest) to inspect parts of it. This leaves it open for each country to make up its own mind about whether to publicise its register; most will not.

    The EU's fourth money-laundering directive, due to come into force this year, now insists on national registers and sets out rules to govern the collection, storing and access to information on the ultimate beneficial owners of companies, trusts and other types of legal arrangements. The European Commission proposed, in a document it published in July last year, to go one better and amend its company legislation to introduce:

    • public access to such information for companies and trusts engaged in commercial activities; and
    • access to such information on a legitimate-interest basis with respect to family or charitable trusts.

    The commission also proposed to dictate (in 'measure six') that any EU state that registers a trust must be the one in which that trust is administered. The document, entitled “ Anti-money laundering and countering terrorist financing: stronger rules to respond to new threats”, attributes the EU's interest in additional rules to recent terrorist attacks and the influence that the “Panama Papers” have had on the media.

    The idea of public registers may be seen as a Cameron legacy. Since his departure, some elements in the EU and Australia seem to have matched the UK in their enthusiasm for them.

    At the same time, the outgoing prime minister’s attempts to force public registries on Britain’s dependencies have collapsed and now ‘Brexit’ campaigners are mumbling about turning the UK country into a regulation-lite and tax-free haven. The days when the register of Persons of Significant Control contains the right entries might be some way off.

    About the author: Chris Hamblin has been writing about compliance generally and money laundering in particular since 1996. In the late 1990s, he edited high profile publications such as Compliance Monitor, Fraud Intelligence and Money Laundering Bulletin. In the first decade of the noughties, Chris also set up and ran a dedicated Money Laundering publishing product and gained a vast following. In addition, Chris’ work has appeared in recent years in Compliance Monitor and Financial Adviser. He also chairs conferences on compliance and money laundering. Chris contributes written comment and analysis to Wolters Kluwer Compliance Resource Network, which provides global coverage on regulatory issues.

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