Most Irish companies and other incorporated bodies will need to take immediate measures to compile a beneficial ownership register, following the adoption of the European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016 (the "AML Regulations"). In addition to imposing new obligations on corporates, the AML Regulations also impose obligations on individuals who are beneficial owners in certain circumstances.
Any in-scope company or other incorporated body that does not have a beneficial ownership register is currently in breach of the AML Regulations.
Who must keep and maintain a beneficial ownership register?
Every company or other legal entity incorporated in Ireland ("Entity") must keep a beneficial ownership register, with the exception of those that are:
(a) listed on a regulated market that is subject to disclosure requirements consistent with EU law (including the Transparency (Directive 2004/109) Regulations 2007); or
(b) subject to equivalent international standards which ensure adequate transparency of ownership information.
What is behind the requirement to keep and maintain a beneficial ownership register?
The AML Regulations are the latest measure adopted to combat money laundering and terrorist financing and are rooted in the EU's Fourth Anti-Money Laundering Directive 2015/849 ("MLD4"). MLD4
requires each member state to ensure that an in-scope legal entity incorporated within its territory obtains and holds adequate, accurate and current information on its beneficial ownership, including details of the beneficial ownership interests held. Although MLD4 does not need to be transposed into Irish law until 26 June 2017, early action has been taken to introduce the AML Regulations with immediate effect. See our related briefing (here).
Who is a beneficial owner?
For the purposes of the AML Regulations, the term "beneficial owner" is as defined in Article 3(6)(a) of MLD4, namely, 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, or through control via other means. A shareholding in excess of 25% or a share of an ownership of more than 25% held by an individual is an indication of direct ownership.
What is a beneficial ownership register?
A beneficial ownership register is a register which records certain particulars regarding an entity's beneficial owners, including:
a) the name, date of birth, nationality and residential addresses of each of the Entity’s beneficial owner(s);
(b) a statement of the nature and extent of the interest held by each such beneficial owner;
(c) the date on which each individual was entered into the register as a beneficial owner of the Entity; and
(d) the date on which each individual who has ceased to be a beneficial owner of the Entity ceased to be such an owner.
For the purpose of this biefing the information in (a) and (b) is referred to as "Recorded Particulars".
From when does the duty to keep and maintain a beneficial ownership register apply?
An Entity is required to keep and maintain a beneficial ownership register since 15 November 2016.
How should an Entity go about compiling a beneficial ownership register?
The AML Regulations require every Entity to take “all reasonable steps” to obtain and hold adequate, accurate and current information in respect of its beneficial owners. These steps must generally include giving a notice to any individual that the Entity has reasonable cause to believe to be a beneficial owner, requiring the addressee to state whether or not he or she is a beneficial owner of the Entity (“Regulation 6 Notice”). If the addressee is a beneficial owner, he or she must also confirm or correct any particulars included in the Regulation 6 Notice that are relevant to that addressee and supply any that are missing.
An Entity may also give notice to any other person if it has reasonable cause to believe that that person knows the identity of any individual who is a beneficial owner of the Entity or any person likely to have that knowledge (“Regulation 8 Notice”).
What happens if an Entity cannot identify its beneficial owner(s)?
The AML Regulations make specific provision for instances where an Entity cannot identify the person who ultimately owns or controls it or if there is any doubt as to whether an individual so identified is its beneficial owner. In such circumstances, the Entity must enter the individuals who are its senior managing officials in its beneficial ownership register. Before doing so, the Entity must have exhausted “all possible means” and have no grounds for suspicion as to the identity of the relevant individual.
The Entity must keep records of the actions taken in order to identify its beneficial ownership in the above cases.
What measures must an Entity take to maintain a beneficial ownership register?
An Entity must take measures to update its beneficial ownership register where it has reasonable cause to believe that there has been a “relevant change” meaning either:
(a) a person listed as a beneficial owner in the Entity’s beneficial ownership register has ceased to be a beneficial owner of that Entity, or
(b) there has been a change as a result of which the particulars set out in the register are incorrect or incomplete.
Specifically, where the Entity has reasonable cause to believe that a relevant change has occurred it must give notice to the individual concerned (“Regulation 10 Notice”) requiring the addressee:
(a) to confirm whether or not the change concerned has occurred, and
(b) if it has occurred:
(i) to state the date of the change, and
(ii) confirm or correct the particulars included in the notice and supply any that are missing from the notice.
Where an Entity gives notice to a person seeking beneficial ownership information, how long does the person have to comply with the notice?
A person has one month, from the date of the notice, to comply with a notice from an Entity seeking beneficial ownership information.
What are the consequences if a person fails to respond to a notice from an Entity?
Where a person has received a Regulation 6 Notice, a Regulation 8 Notice or a Regulation 10 Notice, it is an offence if that person either a) fails to comply with the notice or b) makes a statement that is false in a material particular, knowing or being reckless as to whether this is the case. A person that commits such an offence is liable on summary conviction to a class A fine (not exceeding €5,000).
What are the consequences for an Entity that does not keep and maintain a beneficial ownership register?
It is an offence for an Entity to fail to keep and maintain a beneficial ownership register as required by the AML Regulations. It is also an offence for an Entity to fail to send a Regulation 6 Notice and/or a Regulation 10 Notice if required to do so. An Entity that commits these offences is liable on summary conviction to a class A fine (not exceeding €5,000) but there is nothing in the AML Regulations to suggest that sanctions could affect the ability to sell or to deal in any way with the shares of the Entity.
Do the AML Regulations impose any requirements on persons who are beneficial owners?
In certain circumstances, an individual must notify an Entity that he or she is its beneficial owner. Specifically, where a person is a beneficial owner of an Entity and knows or ought reasonably to know that this is the case, he or she must notify the Entity if:
(a) the Entity’s beneficial ownership register does not contain the Recorded Particulars regarding that person; and
(b) the individual has not been given a Regulation 6 Notice.
The duty to notify the Entity arises where the above circumstances have continued for a period of at least one month. The individual then has one month in which to send the notice in which he or she must confirm his or her status (as beneficial owner), the date on which the person acquired that status and the information required under the AML Regulations.
An individual must also notify an Entity of a relevant change in his or her Recorded Particulars in similar circumstances to those outlined above.
These obligations under the AML Regulations are separate from the obligation under company law on the company secretary and directors to disclose interests in shares once they exceed 1% in nominal value of shares carrying voting rights.
Must the information in the beneficial ownership register be made public?
The AML Regulations do not deal with this issue. MLD4 states that member states must ensure that an Entity’s information on its beneficial ownership can be accessed in a timely manner by competent authorities and financial intelligence units (“FIU”). In addition, information on an Entity’s beneficial ownership must be held in a central register of beneficial ownership which must be accessible in all cases to:
(a) competent authorities and FIUs;
(b) entities required to carry out customer due diligence; and
(c) any person or organisation that can demonstrate a legitimate interest.
While work has commenced on putting in place the central register of beneficial ownership, this is unlikely to be in place until the middle of next year. Last March, the Department of Finance and the Department of Justice and Equality issued a consultation paper which asked, among other things, whether the public should be able to access beneficial ownership information without restriction. In July 2016, the European Commission published a proposal to amend MLD4, which seeks to provide public access to essential beneficial ownership information in the case of companies that engage in economic activities with a view to profit.