Focus on transparency of ownership
Companies and other legal entities are increasingly being asked to reveal details of their underlying beneficial owners i.e. not just their legal owners. Globally, the move towards greater transparency partly stems from international standards and initiatives such as the G20's "High-Level Principles on Beneficial Ownership Transparency," intended to combat criminal behaviours such as money-laundering.
In Europe, from 26 June 2017, member states are obliged by the EU's Fourth Money Laundering Directive (MLD4) to maintain a central register detailing the ultimate beneficial owners of their corporate and other legal entities. All corporate groups with EU entities will need to comply with the obligation and identify their beneficial owners (regardless of whether those individuals are located within or outside the EU).
Although the directive applies to all EU member states, each jurisdiction must adopt national implementing legislation. The regime may therefore look slightly different in each jurisdiction. Countries can choose, for example, whether they make the register of beneficial owners publicly available (it must, in any event, be made available to anyone with a "legitimate interest").
What is the obligation?
MLD4 contains a number of obligations with which member states must comply, one of which, detailed in article 30, requires member states to ensure that:
- corporate and other legal entities incorporated within their territory obtain and hold adequate, accurate and current information on their beneficial owners, including details of the beneficial interests held (the Information); and
- Information is held in a central register (in the relevant member state) which is accessible to certain authorities, firms carrying out customer due diligence and any person or organisation who can demonstrate a legitimate interest.
- A comparable requirement applies to the disclosure of beneficial ownership of trusts and similar arrangements.
Which entities does the obligation apply to?
The obligation applies to "corporate and other legal entities". Member states are encouraged to include "the widest possible range of legal entities incorporated or created … in their territory". Entities listed on an EU regulated market, which already have to provide similar information, fall outside the scope of the regime. There is no exception for entities belonging to groups headquartered outside the EU.
Who is a beneficial owner of a corporate entity?
A beneficial owner of a corporate entity includes at least the natural person who ultimately owns or controls the entity through direct or indirect ownership of a "sufficient percentage" of the shares or voting rights or ownership interest in that entity, including through bearer shareholdings, or through control via other means.
What should businesses be doing now?
Baker McKenzie has surveyed each EU member state to gain an overview of implementation of the transparency requirement across the EU. Key Q&A include: the status of implementation; the date by which entities will need to comply; details of which entities are covered; the test for beneficial ownership; the entity's obligations; penalties for failure to comply and whether the Information will be publicly available.