Over recent years, the UK has legislated to increase corporate transparency in its fight to combat criminal activity and to investigate bribery and corruption, money laundering and tax evasion. This is in line with its EU obligations under the Fourth Money Laundering Directive and commitments made at last year’s London Anti-Corruption Summit.
Since 6 April 2016, under the Small Business, Enterprise and Employment Act 2015, most UK companies have been required to keep and update a register of people who have significant control over the company (a ‘PSC’ register). This register is maintained and reviewed by Companies House. Failure to provide accurate information on the PSC register, as well as failure to comply with notices to provide information are criminal offences punishable by a fine and/or a prison sentence of up to two years.
The Statutory Instrument entitled ‘Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017’ (2017 No 692), which came into force on 26 June 2017, makes some important changes to the PSC register.
1. A requirement for unregulated UK body corporates to report PSC changes to Companies House on an ‘as and when’ basis (specifically within 14 days of any change occurring).
2. A requirement for other types of companies (previously excluded) to adhere to the PSC regime, including, for example, Scottish limited partnerships.
3. A requirement that trustees of UK trusts (or non-UK trusts with a UK connection) provide HMRC with information relating to the beneficial owners of a trust (to include the settlor, the trustees, the beneficiaries and those in control of the trust) and any other individual referred to in any document such as a letter of wishes relating the trust. They are also required to report PSC changes to HMRC on an ‘as and when’ basis (specifically within 14 days of any change occurring).
Criminal penalties will apply if any of these requirements are contravened.
But the drive for corporate transparency is going far wider than the UK’s shores. The Fifth Money Laundering Directive, which is currently making its way through the EU legislative process, is likely to make further changes to the PSC register. These changes are said to seek to enhance “the transparency of beneficial ownership information”, including by improving how national registers should be interconnected across the EU.
In a related development, section 9 of the Criminal Finances Act 2017 inserted section 445A into the Proceeds of Crime Act 2002, in force from 27 June 2017, in recognition of the importance of the sharing of beneficial ownership. This section requires the Secretary of State or Minister for the Cabinet Officer to prepare a report about the effectiveness of arrangements (so called ‘exchange of notes’) signed between the UK Government and British Overseas Territories (Anguilla, Bermuda, Gibraltar, the BVI, the Cayman Islands and the Turks and Caicos Islands) and Crown Dependencies (Alderney, Jersey, Guernsey and the Isle of Man) in 2016. Each arrangement refers to a commitment between the Government of the UK and the counterparty “in respect of the ongoing sharing of beneficial ownership information”.
These arrangements agree, in terms:
1. To provide the law enforcement authorities (including tax authorities) with beneficial ownership information for corporate and legal entities incorporated in their respective jurisdiction.
2. To hold adequate, accurate and current beneficial ownership information for corporate and legal entities incorporated in their jurisdictions. This information will be held in a secure central electronic database or similarly effective arrangement.
3. That law enforcement authorities of the UK Government or relevant British Overseas Territories and Crown dependency will have an automatic right to the unrestricted and timely (where urgently required, within one hour) provision of beneficial ownership information held in the other jurisdiction for the prevention and detection of corruption, money laundering, terrorist financing, financing of the proliferation of weapons of mass destruction and other serious and organised crime.
4. A Technical Protocol in respect of the sharing of beneficial ownership information.
The arrangements are due to come into effect by 30 June 2017.
The requirement for a report on the effectiveness of these arrangements was proposed by Baroness Williams in the House of Lords to provide “further assurance that careful parliamentary scrutiny will be given to their effectiveness and demonstrate that they are being implemented properly, working effectively and meeting our law enforcement objectives”. Baroness Williams hopes that the arrangements will encourage these territories to “up their game” and “deliver on what they have promised”.
What impact these arrangements will have in reality is yet to be seen but changes can already be observed; the BVI Government has passed legislation which comes into force on 30 June 2017 and enables the creation of a new Beneficial Ownership Secure Search System (“BOSS system”). Certain Cayman Islands companies and Cayman Islands limited liability companies are also now required to maintain a beneficial ownership register under recently passed legislation. The Premier of Turks and Caicos Islands has recently confirmed his commitment related to beneficial ownership. The Government of Guernsey has also introduced legislation requiring a closed beneficial ownership register. Those in the UK therefore seeking to use offshore companies may find themselves exposed and answering questions as to why such companies were used. In the words of Baroness Williams, they will no longer be able to hide “behind anonymous shell companies incorporated in the overseas territories and Crown dependencies, ensuring that these jurisdictions are not open to exploitation by those seeking to hide the proceeds of their crimes.”
The amendment to the Proceeds of Crime Act 2002 states that the Minister’s report must be published and laid before Parliament before 1 July 2019. So we have a long wait until we can see the Minister’s view of the situation and whether the arrangements have been fully complied with. Nevertheless, there is little doubt that beneficial owners wanting secrecy will be driven to jurisdictions which are even further offshore, and where their money may not be particularly safe.