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Insights & Trends

The CLEAR Picture

July 2016 edition

U.K. pushes forward with beneficial owner register; EU to follow suit

Jeremy Byellin, JD

Jeremy ByellinThe U.K. is taking a big step toward financial transparency as its People with Significant Control (PSC) register will become operational by the end of June. Under the PSC, all U.K.-registered companies (with minor specific exceptions) are required to furnish the register with data on their beneficial owners (BOs). The register will be available to both the public and regulatory authorities, in an effort to promote corporate transparency and to further ensure that BOs, along with their roles within their respective companies, are open to scrutiny.

Bringing beneficial owners into view

With the “Panama Papers” bringing concerns over shell companies and hidden assets to the forefront, there has been a worldwide outcry for transparency. This includes a call for those who are actually benefitting from a company to no longer be able to conceal their ties with that company from public scrutiny.

The U.K.’s PSC register defines a BO as an individual who:

  1. Directly or indirectly owns more than 25% of a company’s shares;
  2. Directly or indirectly controls more than 25% of a company’s voting rights;
  3. Exercises the right to appoint or remove a majority of a company’s board of directors;
  4. Exercises significant influence or control over a company; or
  5. Exercises significant influence or control over activities of a trust or firm, which meets one or more of the preceding four conditions

U.K.-registered companies must submit personal data about BOs to the register, including the individual’s name, date of birth, nationality, residential and service addresses, and the date on which the individual became a BO of the company. In addition, companies must detail each BO’s interest in the company and the nature of the individual’s control over the company. What’s more, this information is not only to be initially provided to the register, but must also be updated as soon as any changes occur with regard to beneficial owners.

Indeed, this attaches a host of new responsibilities to U.K. businesses. Company directors are now expected to determine which individuals have significant influence over the company – a determination that may be relatively simple in some cases, but may entail onerous investigations in others. In addition, once BOs are identified, companies will need to gather all of the required information about them, and inform those BOs that this data will be available to the public through the register. This all amounts to no small task, and U.K.-registered companies will no doubt be feeling the burden of all these new obligations.

Other EU nations will follow suit

The U.K.’s decision to operate the PSC register cannot be linked solely to the emergence of the “Panama Papers.” Although the document leaks may have certainly provided a strong and fresh impetus that propelled the initiative forward, the creation of the register was a provision included in the U.K.’s Small Business, Enterprise and Employment Act (SBEE) of 2015. Furthermore, the requirement for a beneficial ownership registration was included in the EU’s Anti-Money Laundering Directive IV (AMLD IV), which was passed by the European Parliament on May 20, 2015.

The AMLD IV laid out minimum requirements for BO registers, but it was left up to the member states to design and implement their respective registers. It’s worth noting, though, that the AMLD requirements state that the registries would only be accessible to national authorities or individuals with a “legitimate interest” in the information. As such, with the register being open to the public, the U.K. is opting for broader access to the information.

Other EU nations are expected to be unveiling their own versions of a BO register, and as they do, it should be interesting to see the level of public access each country chooses for its respective register.

Beneficial owner transparency in the U.S.

With all this attention to beneficial owners in the EU, it begs the question of what the U.S. is doing to address this issue. To be sure, the U.S. has felt pressure from both the public and watchdog groups to respond to the “Panama Papers.” President Obama responded on May 5, 2016, with an executive plan to combat tax evasion and money laundering. This included a call to Congress to pass relevant legislation and also prompted the U.S. Treasury’s May 11, 2016, publication of the Customer Due Diligence Requirements for Financial Institutions.

The Customer Due Diligence rules strengthen regulations for banks and brokers under the Bank Secrecy Act. Included in these rules is a new obligation for banks and brokers to verify and identify beneficial owners and maintain records on such. These records need not be published in any way, though, and banks are allowed to rely on customer-given information in determining beneficial owners. In short, while the U.S. is apparently aware of the need for increased transparency on beneficial ownership, nothing resembling a publicly accessible register akin to the U.K.’s is expected anytime soon in this country.

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