On 9 November 2016, the Minister for Finance introduced the European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations, 2016 (S.I. No. 560 of 2016) (the “2016 Regulations”). The 2016 Regulations entered into force on 15 November 2016. The 2016 Regulations purport to transpose Article 30(1) of the European Union’s Fourth Money Laundering Directive (the “4th AMLD”). Broadly speaking, the 2016 Regulations impose obligations on each “Relevant Entity” in connection with the gathering, maintenance and updating of information in respect of its “beneficial owners”. They have immediate implications for Irish registered companies and industrial and provident societies.
What is a Relevant Entity?
“Relevant Entity” is defined widely and captures any corporate or other legal entity incorporated in the State. This includes Irish registered companies and industrial and provident societies. The 2016 Regulations do not apply to a company or other body corporate listed on a regulated market that is subject to disclosure requirements consistent with EU law or subject to equivalent international standards which ensure adequate transparency of ownership information.
Who is a beneficial owner?
Focus on control
The concept of “beneficial owner” under the 2016 Regulations differs from the typical legal meaning of that term in the sense of a division of ownership interests in property between the legal and the beneficial. Instead, the concept of a “beneficial owner” under the 2016 Regulations is focussed on a broad understanding of “control”. Beneficial owner is defined as “the natural person(s) who ultimately owns or controls a legal 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, other than a company listed on a regulated market that is subject to disclosure requirements consistent with Union law or subject to equivalent international standards which ensure adequate transparency of ownership information.”
Indicators of Direct and Indirect Ownership
The 4th AMLD provides for indicators of direct and indirect ownership of a Relevant Entity. Direct ownership will be indicated where a natural persons holds a 25 per cent plus one share in a Relevant Entity or an ownership interest of more than 25 per cent in a Relevant Entity. Indirect ownership will be indicated where shareholding of 25 per cent plus one share or an ownership interest of more than 25 per cent in the Relevant Entity held by a corporate entity, which is under the control of a natural person(s), or by multiple corporate entities, which are under the control of the same natural person(s).
What must be done by a Relevant Entity?
- Take all reasonable steps to obtain and hold adequate, accurate and current information in respect of its beneficial owners (namely each beneficial owner’s date of birth, nationality and residential address and a statement of the nature and the extent of the interest held by him or her).
- Keep and maintain a register referred to as the “beneficial owner register”.
- Enter the information referred to in 1. above in its beneficial ownership register together with the date on which each natural person was entered on said register as a beneficial owner and the date on which he ceased to be a beneficial owner.
- If having exhausted all possible means and provided there are no grounds for suspicion for the Relevant Entity, no natural person within the meaning set out at (i) above can be identified or if there is any doubt that a person so identified is a beneficial owner, details of the “senior managing officials” of the Relevant Entity must be entered in the register as beneficial owners. The non-exhaustive definition of “senior managing officials” in the 2016 Regulations provides that it “includes a director and a chief executive officer”.
- Keep records of the actions taken to identify the beneficial owners.
- Give a notice in the form prescribed in the 2016 Regulations to any natural person whom it has reasonable cause to believe to be a beneficial owner.
- Keep the beneficial owner register up to date by giving notice in the prescribed form to the natural person concerned where the Relevant Entity knows or has reasonable cause to believe that such natural person has ceased to be a natural person or any other changes has occurred as a result of which the particulars in the register in respect of such natural person are incorrect or incomplete.
Other Sources of Information
The Relevant Entity may give to any person a notice in the form prescribed in the 2016 Regulations if it has reasonable cause to believe such person has knowledge of the identity of a beneficial owner or any person likely to have that knowledge. A person to whom such a notice is given is not required to disclose any information in respect of which a claim of legal professional privilege could be maintained in legal proceedings.
Obligations on recipients of notices
It is an offence for a recipient of any notice referred to above to fail to comply with that notice or in purported compliance with a notice make a statement which is false in a material particular, knowing it to be so false or being reckless as to whether it is so false. It is a defence to prove that the requirement to provide information in the relevant notice was frivolous or vexatious.
Notification obligations of beneficial owners
In certain circumstances, a natural person will himself or herself be required to act proactively and notify the Relevant Entity of his or her status as beneficial owner (including his or her relevant particulars) and notify the Relevant Entity of the occurrence of a “relevant change” (being a change of the type referred to in 7. above)
Failures to comply with the obligations set out above will constitute summary criminal offences for which the penalty in each case is a fine not exceeding €5,000.
Access to the Register- Expected Future Developments
The 2016 Regulations provide for no express rights of access or inspection rights. However, it is important to place the 2016 Regulations in context as but a first step in the transposition of the 4th AMLD. Full transposition will necessitate the establishment by the State of a central register of beneficial owner information which must be accessible to competent authorities and EU Financial Information Units, without any restriction, entities obliged to carry out customer due diligence, within the framework of customer due diligence in accordance with the 4th AMLD, and any person or organisation that can demonstrate a legitimate interest. The Companies Registration Office currently anticipates that this central register will be in place mid- 2017.
There is an immediate need for the officers of Irish registered companies and industrial and provident societies to attend to the establishment of a beneficial owner register and the taking of the steps contemplated by the 2016 Regulations for the sourcing of the requisite information to be maintained in it.