Not only in the EU, but worldwide, more and more countries are introducing beneficial ownership registers as part of the fight against money laundering and terrorist financing based on the recommendations from the Financial Action Task Force (FATF). The stage of implementation of such registers as well as the rules on who is considered a beneficial owner and in terms of public access, however, still differ greatly. In the following article, we take a closer look at some of the latest developments worldwide.
The introduction of national central register of beneficial owners of corporate entities, trusts, foundations and other legal arrangements similar to trusts in the European Union through the 4th and 5th Anti Money Laundering Directives (AMLD4/5) is no news as the member states were obliged to transpose the new rules into national legislation by June 2017 (AMLD4) and January 2020 (AMLD5). Several of the member states did however not meet the deadlines. The last member state to implement a beneficial owner register is Cyprus. We previously outlined the Cyprus rules and the planned timeline for data collection. In the meantime, the starting date for the data collection was again postponed to 16 March 2021, and the final national provisions are not yet published.
Not only EU member states are asked to implement rules to increase beneficial owner transparency. Liechtenstein for example, not an EU member state but also closely tied to the EU as member of the European Economic Area, introduced a register of beneficial owners of domestic entities in 2019. The Liechtenstein beneficial ownership provisions (VwEG) were however not in line with AMLD5 which is why a new beneficial ownership law (VwbPG) will enter into force in April 2021. Perhaps most notably, the new rules stipulate that a founder, settlor, trustee, protector as well as beneficiaries are considered beneficial owners of an entity – regardless of whether they actually exercise control or not, which is more far-reaching than the current rules. In addition, access to the register will be granted to a larger circle of authorised persons.
Likewise, the UK Crown Dependencies and Overseas Territories have since already a few years back introduced beneficial ownership registers, based on an agreement with the UK. The Crown Dependencies have committed to introduce public registers in 2022 or 2023, and the Overseas Territories have committed to do so by end of 2023.
We are also seeing developments in the direction of increased beneficial ownership transparency in all parts of the world – countries like Panama, Argentina, the United Arab Emirates and New Zealand have introduced or will soon introduce a central beneficial ownership register.
Just recently, on 1 January 2021, also the US congress passed beneficial ownership rules – the historic Corporate Transparency Act (CTA) – banning anonymous shell companies, into law. The CTA requires all corporations, limited liability companies and other similar entities formed in any US state or foreign entities which are registered to do business in the US to disclose certain information on their beneficial owner(s). Each individual who directly or indirectly through any contract, arrangement, understanding, relationship or otherwise exercises substantial control over the reporting company or owns or controls no less than 25 percent of the ownership interests of an entity is considered to be a beneficial owner. What falls under “substantial control”, especially with regard to entities held by trusts, is yet to be defined.
The international legislative landscape on the field of beneficial ownership registers is in many countries moving in the same direction and closely aligned with the FATF recommendations, but there are still considerable differences and loopholes. Especially when it comes to the question of who a beneficial owner is – in this regard often whether actual control is required or whether a certain category or persons are deemed to beneficial owners, and whether or to what extent legal arrangements such as discretionary and irrevocable trusts are to be looked through – as well as who should have access to the register, ranging from competent authorities only to the broad public – the rules still differ considerably. The FATF expects that by sharing best practices among countries, they will continue to improve the system to ensure transparency of beneficial ownership. We will continue to monitor the developments with great interest and keep you informed.
Do you have questions with regard to beneficial owner registers? Please do not hesitate to contact us.