With corporate transparency high on the international agenda, global Anti-Money Laundering (“AML”) standards have been strengthened by the Financial Action Task Force (“FATF”) and the United Nations Convention against Corruption. Despite this, people continue to be able to launder and hide proceeds of crime and corruption around the world. Illegitimate proceeds are often concealed using shell or holding companies, foundations and trusts. European Union (“EU”) financial centres continue to attract dirty money, posing risk to the stability, integrity and reputation of EU financial sectors and markets, as well as having wider adverse economic implications.
The proposed Anti-Money Laundering Directive (“AMLD”)
The European Parliament has recently endorsed the proposed AMLD to clamp down on money laundering loopholes in order to ensure a consistent minimum AML standard is adopted at the national level across the EU. The proposed EU rules are to a large extent based on international standards adopted by FATF.
The proposed AMLD falls short of requiring full public disclosure, but will require disclosure of information about ultimate beneficial owners, i.e. individuals who ultimately control more than 25% of a company’s shares or voting rights, or who otherwise exercise control over the company or its management. All companies, legal entities and trustees would be required therefore to hold adequate, accurate and up to date information about their ultimate beneficial owners. This information must be accessible in a timely manner by competent authorities and by “obliged entities,” which include financial institutions, auditors, independent legal professional acting in certain capacities, accountants, tax advisers, asset managers, and real estate agents. Casinos are also included (though low risk gambling services may be excluded by Member States).
Michael Barnier, Internal Market Commissioner at the European Commission welcomes the Europe’s progress: “Enhancing beneficial ownership transparency has been at the heart of the international agenda and I particularly welcome the ambition of both the Parliament and Member States to introduce new investigative tools.” (European Commission statement, dated 18 June 2014).
Obliged entities will also be required to put in place customer due diligence and AML systems and controls, including whistle-blower protections. This will encourage greater vigilance towards suspicious transactions. The level of customer due diligence required will depend on the level of risk - “enhanced” due diligence must be conducted in situations of high risk, whereas “simplified” due diligence will be permitted in lower risk situations.
The proposed AMLD will make it much harder to conceal illicit financial flows behind, or launder corrupt funds through, anonymous companies and trusts and takes into consideration the need to strike a balance between allowing robust systems, controls and preventative measures against money laundering on the one hand, and protecting the rights of data subjects on the other. EU Member States will have 2 years from the date of adoption to implement the AMLD into national legislation.
The United Kingdom’s intentions
The UK government plans to implement a central registry for company beneficial ownership information. UK bodies corporate will be required to obtain, hold and provide to the registrar of companies at Companies House beneficial ownership information. This means ultimate beneficial owners (as defined above) shall be listed on a public register at the UK’s Companies House. Where a qualifying beneficial interest in a company is held through a trust arrangement, the trustee(s) or persons exercising control over the trust activities will be required to be disclosed as the beneficial owner. Although the Law Society of England and Wales accepts that public registers may assist competent authorities and obliged entities, they feel that to require all trusts to be registered could have unfortunate unintended consequences for citizens' privacy, especially in the UK.
The central register will be available for public access and inspection (excluding residential addresses), and interconnected with other similar EU Member State registers. To tackle individuals or companies who break the rules, company law criminal offences will be extended and/or replicated.
Time for the United States to act?
The widely praised European developments towards cracking down on anonymous companies are, however, in stark contrast to the lack of progress made to date in the United States. The US has developed a reputation as an easy place in the world for someone to create an anonymous shell company and launder illicit proceeds. While the White House has endorsed the need for legislative developments similar to Europe, there has unfortunately been slow progress to date.