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.
The Regulations are separate to the 2016 Regulations which relate to corporate entities obtaining and holding information in relation to their beneficial ownership registers which we previously wrote about – click here for briefing note.
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. This has a very broad application and we highlight some of the various types of trusts that fall within the ambit of the 2019 Regulations below.
What information needs to be obtained and held in the BOR
As a result of the 2019 Regulations the trustees are obliged to take all reasonable steps to obtain and hold adequate, accurate and current information in respect of the trust’s beneficial owners.
The following information of the beneficial owners of trusts is required for the BOR:
- Date of birth
- Residential address.
In addition, the following information must be included in the register by the trustee:
- The date each natural person was entered into the register as a beneficial owner, and
- The date when each such natural person ceased to be a beneficial owner
If any changes to the particulars of a beneficial owner in the BOR occur, including where any particulars are incorrect or incomplete, then the trustee must, as soon as practicable after it learns of the change, make the appropriate alteration or deletion of information in the BOR to reflect the change.
Who is a beneficial owner of a trust?
The 2019 Regulations use the definition of the beneficial owner of a trust set out in 4AMLD, being a natural person(s) who ultimately owns or controls the customer and/or the natural person(s) on whose behalf a transaction or activity is being conducted and includes in the case of a trust, at least, all of the following persons:
- The settlor(s)
- The trustee(s)
- The protector(s)(if any)
- The beneficiaries, or where the beneficiaries have yet to be determined, the class of persons in whose main interest the trust is set up or operates; and
- Any other natural person exercising ultimate control over the trust by means of direct or indirect ownership or by other means.
Access to the BOR and information on the identity of the beneficial owners
In addition to obtaining and holding the above information in the BOR, the trustees are obliged, on request, to provide the Revenue Commissioners and any other “State competent authority”, ie the Central Bank, the Financial Services Authority, etc., with timely access to the BOR.
The 2019 Regulations permit State competent authorities to disclose the information in a BOR to any corresponding competent authority of another requesting Member State.
If the trustee of a trust enters into an “occasional transaction” with a “designated person” or forms a business relationship with a designated person then the trustee must notify them that they are acting as trustee. In addition, on request, the trustee must provide them with the information identifying all the beneficial owners of the trust. They must also notify the designated person of any changes to the beneficial owners of the trust within 14 days of any change. A designated person is defined under section 25 of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 and includes credit institutions, banks, accountants, solicitors, etc. An occasional transaction is a transaction for which a designated person must apply customer due diligence.
Retention of the records
The trustee must retain the records of the BOR for five years after the date on which the final distribution is made under the trust and make arrangements to delete them after five years. Trustees should be particularly vigilant of the document retention requirements under the 2019 Regulations and if necessary seek advice on how they interact with data protection compliance.
Remedies and sanctions
- Any details are entered incorrectly in or omitted from the BOR, or
- A default is made or unnecessary delay takes place in updating the BOR to reflect that a person has ceased to be a beneficial owner
then the aggrieved person or any other interested person may apply to the High Court for the BOR to be amended. The High Court may refuse the application or it can order for the BOR to be amended or require the trustee to compensate the aggrieved person for any loss sustained.
The Regulations confirm that “any other interested party” means any other person who is a beneficial owner of the trust.
A trustee who breaches the 2019 Regulations may be liable to a class A fine which is a fine of up to €5,000.
Impact of the 2019 Regulations
The broad scope of the 2019 Regulations captures many trust structures in common commercial use including the following:
Regulated investment fund
The 2019 Regulations are applicable to collective investment undertakings, and specify that a reference to the trustee of such trust includes the manager or operator of the collective investment undertaking.
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. 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, it facilitates ease of asset recovery and enforcement and/or may also facilitate balance sheet de-recognition.
There are two keys areas where trusts are used in aviation financing and leasing transactions: (1) shares; and (2) ownership and title to aircraft. 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 is 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 as the legal title holder as owner does not change in the event of an assignment of trust or amendment to the trust; and 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.
Syndicated lending transactions
In syndicated lending transactions, it is common for a lender from the syndicate to be appointed as security trustee where the loan is provided on a secured basis. The security trustee holds any security on trust for the benefit of all lenders in the syndicate and any other parties entitled to benefit from the security. Under the 2019 Regulations, the security trustee is now obliged to record information on the beneficial ownership of the trust.
Trust based pensions
Employers who operate, and trustees of, trust based pension schemes should be fully aware of the 2019 Regulations as they appear to apply to all such schemes. This is in spite of certain responses to consultation on this matter in 2016 which sought to exempt occupational pension schemes from these provisions.
While the relevant obligations ultimately lie with the trustee, employers will obviously be concerned that their pension trustees are in compliance with the obligations and concerned with the likely additional financial cost of reaching and maintaining compliance. Many trustees will find that ensuring compliance with certain obligations may prove quite difficult e.g. identifying certain beneficiaries and changes in their details.
The 2019 Regulations place additional regulatory burdens on pension trustees who are already trying to anticipate and prepare for IORP II compliance. Trustees must now take time to understand these specific obligations, what action they need to take to comply and to formulate an action plan to achieve and maintain on going compliance. This could possibly dovetail with initial plans for IORP II preparations.
Nominees holding shares in companies
The Regulations will apply to a nominee that agrees to hold shares in trust for the beneficial owner of shares in a company. As previously stated, the company in whose capital the shares are issued is already subject to the 2016 Regulations and the requirement to keep its own beneficial ownership register is a separate obligation.
The trustees of any charitable trust should ensure that they are aware of the Regulations. In the context of charitable trusts, careful thought will have to be given to the description of the beneficiaries. Our Charity Law & Not-for-Profit team has issued a detailed briefing on this topic.
Unlike the 2016 Regulations, the 2019 Regulations do not oblige the trustees to issue notices and do not oblige the beneficial owners to provide the trusts with information relating to them. Further Irish legislation relating to the beneficial ownership register of trusts is still required. Under 4AMLD, Ireland will also have to establish a central register for keeping the beneficial ownership information of trusts. We have no visibility to date on what body will be responsible for establishing and maintaining this central 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 is 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.