Most Irish companies and other incorporated bodies will already have taken 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 November 2016. 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:
- listed on a regulated market that is subject to disclosure requirements consistent with EU law (including the Transparency (Directive 2004/109) Regulations 2007); or
- 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.
The provisions of MLD4 are to be amended by a proposed directive (to be referred to as MLD5) which will, amongst other things, further increase transparency surrounding beneficial owners. Although MLD4 is required to be transposed into Irish law by 26 June 2017 this will not now happen on time (further details below).
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 briefing, 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) or if the Entity does not have any individual who meets the test for beneficial ownership under the AML Regulations?
If an Entity cannot identify the individual who ultimately owns or controls it, or if there is any doubt as to whether an individual so identified is its beneficial owner, 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.
In the AML Regulations, a senior managing official is defined to include “...a director and a chief executive officer...”. The definition seems to include all of the directors of the Irish Entity (so, for example, non-executive directors). It appears that any other officer or employee with sufficient knowledge of the company’s money laundering and terrorist financing risk exposure, and sufficient seniority to take decisions affecting risk exposure, could also be considered as senior management. Examples of such persons may be the Chief Financial Officer, the Risk Officer and the Compliance Officer.
The Entity must keep records of the actions taken in order to identify its beneficial ownership in the above cases.
The AML Regulations do not make express provision for the Entity that does not have any individual who meets the test for beneficial ownership under the AML Regulations. However it seems prudent, in such an instance, to enter the individuals who are its senior managing officials in its beneficial ownership register.
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 person listed as a beneficial owner in the Entity’s beneficial ownership register has ceased to be a beneficial owner of that Entity, or
- 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:
- to confirm whether or not the change concerned has occurred, and
- if it has occurred:
- to state the date of the change, and
- 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). However 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:
- the Entity’s beneficial ownership register does not contain the Recorded Particulars regarding that person; and
- 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 currently 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 (“FIUs”). 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:
- competent authorities and FIUs;
- entities required to carry out customer due diligence;
- any person or organisation that can demonstrate a legitimate interest; and
- competent authorities and FIUs of other EU member states.
The Companies Registration Office (the “CRO”) will be responsible for putting in place and maintaining the central register of beneficial ownership. Additional legislation is needed to provide for the requirement that entities submit this information on beneficial ownership to the CRO. It is anticipated that this additional legislation will be available from the Department of Finance by September 2017 and will appoint the CRO as the Registrar of Beneficial Ownership of Companies and Industrial and Provident Societies. It has not yet been clarified who will have responsibility for other in-scope corporate entities. It is further anticipated that the central register will be operational in October 2017 and that entities will have a period of 6 months, from then, in which to submit beneficial ownership information, without the risk of infringement action.
How will MLD5 affect the AML Regulations?
MLD5, which was first published by the European Commission in July 2016, proposes to amend MLD4 in a number of respects. Among other things it provides for public access to certain essential beneficial ownership information in the case of companies that engage in economic activities with a view to profit. MLD5 is currently being considered by the Commission, the Parliament and the Council.
The Commission originally intended that MLD4 and MLD5 would be transposed into national law at the same time. However, as MLD5 is still under negotiation it is highly unlikely that it will have completed the EU’s legislative process by 26 June 2017, the date by which member states must have transposed MLD4 into national law. National legislatures are therefore faced with the choice of either a) transposing MLD4 by 26 June 2017 and then amending that transposing legislation in light of MLD5; or b) implementing those parts of MLD4 that will not be affected by MLD5 by 26 June 2017 and waiting to implement the parts that will be affected by MLD5 until the MLD5 text is finalised, as Ireland appears to be doing in relation to the central register requirement.