Beneficial ownership registers: a global fight against corruption
September 2017 | LEGAL & REGULATORY | FRAUD & CORRUPTION
Financier Worldwide Magazine
September 2017 Issue
The UK government is continuing its push for corporate transparency with the launch of beneficial ownership registries in the UK overseas territories and crown dependencies. The new register system will allow the countries’ law enforcement and taxation authorities to work together to crack down on money laundering, fraud and other white-collar crime.
Baroness Williams of the House of Lords noted that fraudsters will no longer be able to hide “behind anonymous shell companies incorporated in the overseas territories and crown dependencies”, and the new systems will ensure “that these jurisdictions are not open to exploitation by those seeking to hide the proceeds of their crimes”.
Beneficial ownership’s role in white-collar crime
Beneficial ownership has been historically problematic as it hides the real owner of a corporate entity, which can facilitate money laundering, white-collar crime and terrorism financing. The real owner of a company can legally hire a nominee to be listed on paper as the owner of the company. The nominee holds the company for the benefit of the hidden owner. The name of the true owner is not found on any company documents, allowing them to run the company behind the scenes and away from scrutiny by the authorities.
According to the European Union Fourth Anti-Money Laundering Directive, access to information about the beneficial owner of a company is a “key factor in tracing criminals who might otherwise hide their identity behind a corporate structure”.
In April 2016, the UK created a register of beneficial ownership. The People with Significant Control (PSC) register contains information about the beneficial owners of UK companies. This register is accessible by the public.
Showing fraudsters who’s BOSS
The UK government initially proposed a public beneficial ownership register for the UK overseas territories and crown dependencies, including the British Virgin Islands (BVI). Many countries are opposed to public registers for privacy reasons. Ultimately, the territories agreed to a compromise that allows for access to information by law enforcement while still maintaining privacy.
The BVI’s beneficial ownership register, called the Beneficial Ownership Secure Search (BOSS) system, went live as of 1 July 2017. New BVI laws require companies to provide the name, nationality, birth date and address of any beneficial owners. Under the new laws, beneficial owners required to give information include people with 25 percent or more of the shares or voting rights in the company.
Companies listed on an approved stock exchange are not required to submit information on their beneficial owners to the BOSS system.
Information in the BOSS system can only be accessed by certain BVI government officials. Currently, the BVI government only has an agreement with the UK to share information in the BOSS system outside the BVI. Urgent requests for information from the UK government can be processed within one hour. A spokesperson for the BVI government called the BOSS system “a truly innovative platform that puts the BVI at the helm of global initiatives to combat trans-border crime and illicit financial activity”.
The new BVI laws created stiff penalties for failing to provide beneficial ownership information. Entities that fail to comply face fines up to $250,000 and up to five years’ imprisonment.
Other territories follow suit
Similar beneficial ownership registers have been set up in other overseas jurisdictions. All UK overseas territories and crown dependencies agreed to create their registers by 1 July 2017. The Cayman Islands, Turks and Caicos, Isle of Man and Jersey all have operational registers. UK law enforcement officials will be able to access these registers to further investigate money laundering, white-collar crime and terrorism financing.
These registers have privacy measures in place, including encrypting the data and restricting the individuals who are able to access the information. For example, the Cayman Islands have introduced penalties for anyone who unlawfully accesses the register. Under the Cayman Islands Companies Law, they can be fined up to $12,000 or receive 12 months imprisonment.
Not all UK Crown Dependencies have met the 1 July 2017 deadline. Guernsey had committed to having its beneficial ownership register ready by 30 June 2017. However, The Beneficial Ownership of Legal Persons (Guernsey) Law, 2017 was expected to receive Royal Assent on 24 July 2017.
Early versions of the UK legislation would have required overseas territories and crown dependencies to make their beneficial ownership registers public by 2019. That is no longer the case. However, the UK government is conducting a formal review of the project, with an aim to publish a report on its effectiveness in early 2019.
Future beneficial ownership registries?
More countries may join the UK overseas territories and crown dependencies in moving toward transparent corporate ownership. Australia and Canada are both contemplating similar action to combat money laundering.
Beneficial ownership is alive and well in both Canada and Australia. In January 2017, the Toronto Star reported on two Canadian women who served as nominee directors of nearly 200 companies. The nominee directors knew nothing about those companies’ business activities.
The Canadian Finance Minister said in an interview in July 2017 that he is considering implementing a beneficial ownership register. Under Canadian law he requires cooperation from Canada’s 10 provincial governments.
In Australia, the Open Government National Action Plan released a consultation paper about a possible beneficial ownership register. The Australian government is considering several reforms to improve transparency, including the central register model used in the UK. Public consultation closed in March 2017.
Global cooperation to combat money laundering
The Financial Action Task Force and G20 High-Level Principles on Beneficial Ownership Transparency both state the importance of beneficial ownership registers in the battle against white-collar crime. But cooperation between countries is equally important. Time is of the essence when investigators are trying to ‘follow the money’. Delays in obtaining information from other jurisdictions can severely hamper an investigation.
Many countries are concerned with the privacy issues of making register information public. Currently, the UK overseas territories and crown dependencies have only agreed to share their beneficial register information with the UK government. Eventually, countries could create agreements to share beneficial ownership information with law enforcement authorities from around the world.
Global efforts are vital to militate against corruption and white-collar crime. Robert Barrington, executive director of Transparency International UK, has praised the move toward public registers as a major step forward in the battle against global corruption. “At the moment, it is kind of a global free for all on corruption,” Barrington publicly stated. “You can steal the money from a health budget from a country in Africa and park it wherever you want around the world with total secrecy.”
Despite the obvious benefit and necessity of public registers or information-sharing agreements, the US is far behind the pack. “The US is the elephant in the room,” Allan Bell, the Chief Minister of the Isle of Man, has stated. He pointed out that one building in Delaware is home to 285,000 registered companies and the US has neglected to keep up with the global push toward greater transparency. “We need action (from the US), not fine words,” he said.
Jessica L. Lewis is an associate and Sophie Marshall is a student at Bennett Jones. Ms Lewis can be contacted on +1 (604) 891 5100 or by email: email@example.com. Ms Marshall can be contacted on +1 (604) 891 5176 or by email: firstname.lastname@example.org.
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Jessica L. Lewis and Sophie Marshall