The European Union (Anti-Money Laundering: Beneficial Ownership of Trusts) Regulations 2019 were signed into law and came into force on 29 January 2019. The 2019 Regulations transpose into Irish law the requirements under the Fourth Anti-Money Laundering Directive (as amended), also known as 4AMLD, regarding the creation and holding of beneficial ownership registers (BOR) for trusts
Trusts caught by the 2019 Regulations
The 2019 Regulations apply to express trusts whose trustees are resident in Ireland or which are otherwise administered in Ireland and has a very broad application. This article focuses on the potential application to the aircraft leasing and financing sector.
See further details of the 2019 Regulations here
There are two keys areas where trusts are used in aviation financing and leasing transactions: (1) share ownership (see below) and (2) ownership and title to aircraft and other assets. The owner of an aircraft may wish to transfer title on trust to a professional trustee and retain beneficial ownership. This is very common with aircraft registered with the FAA and becoming increasingly popular in Ireland with portfolio and warehouse financing arrangements.
The structural advantages to the use of a trust include minimum impact to public filings and registration of aircraft where the legal title holder is recorded as owner. This does not change in the event of an assignment of trust or amendment to the trust. Also where the trustee is the named lessor or contract counterparty, a change to the trust or assignment of beneficial interest should have a reduced impact on the lessee/operator and reduce the need for costly and time consuming novations.
Structured finance transactions
Structured finance transactions often use special purpose vehicles (‘SPV’) and it is common practice for the SPV to be ‘orphaned’. This means that the legal title in shares in the SPV are held by a person, usually a professional corporate services provider, on trust for a charitable purpose or an undisclosed beneficiary. The trust is established by means of a Declaration of Trust. Under the provisions of the Companies Act 2014 (Ireland) details of the trust are not to be entered on the register of members.
The use of trusts relating to shareholding in SPVs is common in aviation finance, securitisation, loan sale and project finance transactions. The use of a trust facilitates structural advantages such as bankruptcy remoteness from other participants and transaction sponsors, ease of asset recovery and enforcement and/or may also facilitate balance sheet de-recognition. The trust created pursuant to a declaration of a trust over the SPV shares is caught by the 2019 Regulations.
The 2019 Regulations impose obligations on trustees to obtain information on beneficial owners. The onus is on the trustee to conduct a review and satisfy itself as to identify for the purposes of amongst other things, AML legislation, sanctions provisions and financial transfer legislation. Further Irish legislation relating to the beneficial ownership register of trusts is still required and is a future action item.
Under 4AMLD, Ireland will also have to establish a central register for keeping the beneficial ownership information of trusts. We have no current visibility on what governmental or regulatory body will be responsible for establishing and maintaining this central trust UBO register. Access to the central register of the beneficial ownership of trusts will be granted to:
- Competent authorities and financial intelligence units (without restriction)
- Obliged entities, and
- On a more limited basis, any natural or legal person that can demonstrate a legitimate interest
The deadline set by the EU for setting up the central register is 10 March 2020.
Due to the broad scope of these Regulations it important to consider if your business is impacted by these Regulations. All trustees of trusts who are resident in Ireland or where the trusts are otherwise administered in Ireland should be aware of their duties under the Regulations and all beneficiaries of such trusts should be aware that their details will be recoverable from the central register and made available to certain types of person on request.