Individuals who have exerted “significant control” over a UK company through nominees, other third parties and complex legal structures need to prepare themselves for a brave new world of full disclosure. The UK government is leading the way in the G20 in publicising the beneficial ownership of companies in order to increase trust in, and enhance the transparency of, UK companies. International concerns over the misuse of companies and other structures in the commission of money laundering, tax evasion and bribery have led to the UK’s innovative approach.
The new measures which are to come into force on a phased basis up to October 2016 are meant to make it easier to identify the individuals who influence the decisions about how a company is run and/or ultimately own that company. The key development is the requirement for all companies that are not currently subject to a public disclosure regime to maintain a “register of people with significant control” – to be known as the “PSC Register”.
The PSC Register will contain information on individuals who ultimately own or control more than 25% of a company’s shares or voting rights, who have the right to appoint and remove a majority of the board, or who otherwise exercise control over a company. Companies will have to prepare this register in time for an anticipated January 2016 commencement date. Then, from April 2016, companies will have to provide the information contained in the PSC Register to Companies House.
Crucially and most controversially, that information filed at Companies House will be searchable by the public and not just the authorities. Companies House will maintain an online system much like its current arrangements for corporate information.
In addition, persons with significant control will be under a corresponding duty to disclose their status to the company (whether in response to a request for disclosure from a company or if the company has simply failed to identify their status). Criminal sanctions will apply to companies, their directors, and relevant individuals or legal entities who fail to comply.
This sea change in corporate reporting stems from a global initiative designed to tackle economic crime. For example:
- In October 2014 the Financial Action Task Force (FATF) published guidance on transparency and beneficial ownership intended to help countries design and implement measures to deter the misuse of corporate vehicles in money laundering, terrorist financing and other financial crime.
- Following the summit of the G20 leaders in November last year, the group issued a declaration which included a statement endorsing a number of core principles in this area. The statement suggested that a central registry of beneficial ownership of legal persons (such as companies) may be the way for countries to meet some of the requirements.
- On 21 July 2015 the World Bank’s board of executive directors approved a “once-in-a-generation” reform package for procurement in projects financed by the Bank. In the new Procedural Framework, the World Bank said its management “will examine options to collect, and make available the beneficial ownership information for legal entities participating in Bank-financed procurements”.
It will be interesting to see how the UK approach plays out and whether any other members of the G20 approach this issue in the same way. But, before any lessons are learned, companies with complex ownership structures will face a time-consuming, expensive and sensitive operation in identifying exactly who should be listed on the PSC Register and individuals who have, to date, guarded their privacy carefully, whether for tax or other reasons, should take legal advice.