For businesses operating in the European Union, the reporting of the transfer of funds between banks and non-bank deposit takers has now substantially changed with the Fourth EU Anti-Money Laundering Directive coming into operation from the 27 June 2017. Australian businesses currently operating or intending to operate in the Eurozone, will likely be affected by the new regulations.
Introduced to European Union (EU) member states in June 2015, the Fourth EU Anti-Money Laundering Directive (4AMLD) and associated regulations are designed to tackle issues involving money laundering, tax avoidance and terrorism funding by standardising the information which accompanies the transfer of funds between banks and non-bank deposit takers. The introduction of the 4AMLD has resulted in a new public register being introduced to identify the ultimate beneficial owners (UBO) of companies and trusts.
Companies will now be required to list the names of natural persons with direct and indirect interests of 25% or more, along with personal details including date of birth, nationality and country of residence.
In addition, trusts will be required to disclose the trustee(s) or any other natural person(s) exercising effective control over the activities of the trust as the beneficial owner(s) of the company, along with details of the settlor, protector and beneficiaries (or classes of beneficiaries).
Who can access the UBO information?
Given the nature of the information being collected, it raises the question of how the information will be handled and who will be able to obtain access. At this stage, the UBO register will be available to:
- Competent authorities
- “Obliged entities”, being banks and lawyers who are obliged to undertake customer due diligence duties; and,
- Members of the public that can demonstrate a “legitimate interest”.
There is some scepticism as to what a “legitimate interest” might entail, with some commentators suggesting that a person willing to pay the fee to access the register is, by paying the fee, demonstrating a legitimate interest.
Initially there is unlikely to be public access to the trusts register, however, it is worth questioning how long this will remain in place as different countries within Europe have vastly different attitudes regarding the privacy of this type of information and its availability to the general public.
Ultimately, one does have to consider whether at some stage Australian authorities and others with a “legitimate interest” might be able to obtain access to the UBO registers.
What is the current state of play regarding the implementation of the UBO regime?
Whilst the UBO regime was meant to be implemented by each EU member by 27 June 2017, there have been delays across the board that mean that the data collection process may not begin until later in the year.
Notwithstanding this, it is reasonably certain that the UBO regime will commence. Accordingly, businesses and individuals with economic or financial ties to Europe need to understand what this regime means for them.
What does this mean for Australian businesses operating in Europe or planning to in the near future?
In Australia, it is common for businesses to be held directly or indirectly in discretionary trusts with a wide range of potential beneficiaries, a concept that many European countries find unfathomable. However, unlike in many EU countries, trust structures in Australia are viewed as completely legitimate and non-controversial trading and investment structures.
Due to the nature of the discretionary trust structure, most Australian businesses with trust ownership currently operate with a certain level of privacy. This is likely to change for businesses operating in the Eurozone. In order to satisfy these European anti-money laundering rules, Australian businesses operating, or intending to operate in Europe will now likely be required to register the business’ underlying ownership details with the central register and, in so doing, give away some or all of the privacy they may have previously had.
If your business currently operates in Europe or is planning to, some serious thought needs to be given to whether your current level of business privacy is appropriate for your business and what a higher level of public disclosure might mean both in Europe and other places in which you operate.
If the UBO regime is successful, there will be greater transparency and trust in business alliances. However, there are enormous logistical difficulties to overcome to ensure all EU member states are accurately providing information to the UBO registers, along with aligning the differing views on what constitutes a ‘legitimate interest.’
For Australian businesses that currently operate or plan to operate in Europe, some thought should be given how the UBO regime will affect you and whether your business structure should be modified.