New EU Rules on Disclosure of Ultimate Beneficial Owners

On June 5, new EU’s anti-money laundering (AML) rules, namely the Fourth EU Anti-Money Laundering Directive (“4AMLD”) and a new Regulation on the information accompanying transfer of funds were published in the Official Journal of the European Union. Together, this legislation represents the revised EU framework on anti-money laundering and terrorist financing. Member States have until June 26, 2017 to transpose the requirements of the 4AMLD into national law.

The main novelty of the new Directive is the introduction of a central UBO-register, a public register which identifies the ultimate beneficial owners (UBOs) of companies and trusts. This could have far reaching consequences for the privacy of UBOs of EU entities (such as the owners of family businesses).

The AMLD defines a UBO is any natural person(s) who ultimately owns or controls the customer (i.e. a corporate entity or other legal entity) and/or the natural person(s) on whose behalf a transaction or activity is being conducted. In respect of corporate entities this definition of a UBO is further specified as a natural person who ultimately holds a shareholding, controlling interest or ownership interest over 25% of the shares or voting rights in a corporate entity. If no UBO can be identified, the natural person(s) holding the position of senior managing official are in principle registered as UBO. At least the following information on the UBO would be included in the UBO-register:

-name;

-month and year of birth;

-nationality;

-country of residence; and

-nature and extent of the beneficial interest held.

The UBO-register will be accessible to:

-competent authorities and EU Financial Intelligence Units, without any restriction;

-obliged entities (such as banks, notaries and lawyers conducting their “customer due diligence” duties); and

-a member of the public that can demonstrate a “legitimate interest” (i.e. in respect of money laundering, terrorist financing and the associated predicate offenses – such as corruption, tax crimes and fraud).

EU member states are authorized to deny access to obliged entities or the public to part or all of the UBO-information in exceptional circumstances on a case-by-case basis, e.g. when there is a high risk of fraud, kidnapping, blackmailing, etc.

In case of trusts a separate arrangement will apply, whereby the EU member states must provide for a central register for UBOs of trusts governed by their law that will, in principle, only be accessible to competent authorities, EU Financial Intelligence Units and obliged entities that are conducting customer due diligence, but not to the public. EU member states must include UBO-information in this register in respect of trusts and comparable legal arrangements that are governed under the law of this respective EU member state if the trust generates tax consequences. However, the meaning of the term “tax consequences” has not been clarified yet.

The information included in this trust register should include the identity of:

-the settlor;

-trustee(s);

-protector(s) (if any);

-beneficiaries or class of beneficiaries; and

-any other natural person exercising effective control over the trust.

It is anticipated that in due course both these national UBO-registers and trust registers will be linked at EU level through a central European platform. The European Commission will have to publish reports and where appropriate accompanying legislative proposals in this respect within four years after the entry into force of the AMLD.

Other elements of the 4AMLD include, for example, a reshaping of the risk-based approach for customer due diligence concerning the obligation of obliged entities to check the identity of their customers and to report suspicious transactions; new and increased administrative sanctions for serious, repeated or systematic breaches of the 4AMLD’s requirements; and, new requirements for traceability of fund transfers, including information on the payee (and not only the payer).

These new rules enter into force after long and intensive discussions between the stakeholders. It was the intention of the EU to introduce tougher rules on money laundering to combat tax evasion and terrorist financing. The central register was introduced at a late stage in the legislative process by members of the European Parliament, and stakeholders should monitor the transposition of 4AMLD’s requirements and use any opportunity to raise concerns that have not been addressed to date.