Disclosure of beneficial owners as obligatory requirement becomes norm
In recent years, the world community has realized the importance of the corporate transparency. The Panama Papers, high scandals with corruption and tax evasion have caused a radical shift in the attitude towards anonymous companies. The creation of the registers of beneficial owners (hereinafter referred to as "the UBO registers") is considered as the main instrument for increasing transparency. This idea underlies the EU legislation, FATF recommendations, G20 initiatives, the OECD project to combat on Base Erosion and Profit Shifting.
For the EU Member States, the obligation to establish the UBO registers, stipulated by the fourth Anti-Money Laundering Directive (AMLD IV), entered into force on June 26, 2017. However, there are still many questions about how the UBO registers will work in practice. The European states independently define in the national legislation such terms as "legal entity", "legal structure" and "UBO". The concern about data confidentiality is also increasingly growing in Europe, as the countries are discussing who should be allowed access to the registers and for what purpose. Will they provide information only to law enforcement and regulatory authorities, or yet to financial institutions within the framework of the client verification procedure? Each country also decides independently whether the register will be public. At present, it boils down to an interpretation of that idea who has "legitimate interests".
For example, in Germany, since October 1, 2017, the Transparency Register has been introduced. It contains the information on the identity of beneficial owners and detailed information on the share held by the legal entities, partnerships, as well as with respect to the foreign trusts and funds without legal capacity, which purpose is to serve their founders. The register will be available to the government agencies, individuals who are required to verify the clients and the third parties, such as journalists, public organizations and potential commercial partners, provided that any such third party can demonstrate a legitimate interest in the access to the information.
Great Britain has introduced a register of people with considerable control. This register was introduced one of the first - April 6, 2016, but it contains less information than the UBO register (for example, it does not include information about the beneficial owners of the trusts). The registry data is publicly available, but the British law provides for the ability to close registry data in cases when a company or partnership has reason to believe that the disclosure of the controller may endanger the controller or his relatives.
Following the UK, the UBO registers are being introduced in the British-dependent territories. All crown lands and overseas territories have signed an agreement to enhance the exchange of information on the beneficial owners and controllers between the law enforcement agencies. Thus, only this year such commitments in the national legislation have been introduced by the Governments of Jersey, Guernsey, the Isle of Man, the British Virgin Islands and the Cayman Islands. In these countries, the requirements for the companies to maintain the UBO register have already been introduced. The rest offshore British-dependent territories are ready to provide the British authorities with information on the beneficial owners upon request.
As a result of pressure from the Organization for Economic Cooperation and Development, other offshore jurisdictions also introduce into their legislation a requirement for the companies to maintain the UBO registers. So, in the Seychelles, the amendments to the Law on International Business Companies have been adopted in July 2016. The amendments provide for each Seychelles company to maintain the UBO register, keep it at the registration address in the Seychelles and provide data from the register to law enforcement and regulatory authorities upon the request. The similar requirements have also been introduced into the legislation of Belize, having adopted the amendments in the Law on International Commercial Companies, which came into effect from July this year.
In March 2017, the Companies Act has been amended in Singapore, demanding to keep the registers of the beneficiaries and nominees not only for the companies registered in Singapore, but also foreign companies operating in Singapore. Following Singapore, the government of Hong Kong plans to introduce the relevant changes into its legislation. According to the results of public hearings held by the State Financial Services Bureau, the Parliament has developed the amendments to the Companies Act, which were published in the form of a bill in the official newspaper in June 2017. After the adoption of this law, the companies established in Hong Kong will have to provide the information on beneficial owners only to the competent authorities.
In Russia, the requirement to maintain the UBO register came into force at the end of 2016. The companies must keep the information on the beneficial owners for five years. They are obliged to provide this information at the request of “Rosfinmonitoring”, tax authorities and other authorized state bodies.
In Russia, the requirement to maintain the UBO register came into force at the end of 2016. Companies must keep information on beneficial owners for five years. They are obliged to provide this information at the request of “Rosfinmonitoring”, tax authorities and other authorized public authorities.
Ukraine was among the leaders in this race to disclose the ultimate beneficiaries. The Law on amendments to certain legislative acts of Ukraine regarding the determination of the ultimate beneficiaries of the legal entities and public figures was adopted in 2014, and the May of 2015 was established as the deadline for the fulfillment of the obligation to provide the data on the ultimate beneficial owners to the state register. Moreover, all the data provided were entered in the open register.
The UBO registers simplify the process of customer verification, so they could be extremely valuable for a number of organizations conducting detailed inspections (for example, banks and other financial institutions). But there must be a 100% certainty for this that data can be relied on from the register without being exposed to an increased risk. Unfortunately, the request for additional information from the individuals when creating a company does not guarantee the accuracy, timeliness and completeness of the information provided. To reduce the chances for those who wish to provide false or inaccurate information about the beneficial owner in state registers, special technologies that are already used in the private sector should be used (for example, cross-checking, large data, artificial intelligence used to prevent fraudulent Internet purchases).
Currently, there are many other gray areas around how each state implements the requirement to introduce the UBO registers into the national legislation. On the main issues - who is the beneficiary owner, who is the administrator of the register, its controller - each state has a certain freedom in interpretation. All this complicates the use of the information from the official sources, which is rather scattered. It should also be taken into account that state authorities can be also corrupt and protect a certain business or politicians, and no one will ever know about it unless a leakage similar to the Panama Papers occurs.
The real value of the information about the beneficial owners of the companies is the creation of one centralized register. Thus, the Article 30 of the AMLD IV suggests that by 2019 the UBO registers of the EU member states can be linked through the European Central Platform, providing an integrated source of the UBO information throughout the EU. It is still not clear how exactly this will work, but the European Commission is tasked with drawing up a report on the assessment of the technical conditions and the order of ensuring the interconnection by June 2019.
As for the rest of the countries, unlike the EU, it is, of course, impossible to establish universal obligations for all of them. However, the voluntary initiatives already exist, and the countries will join them under the pressure of international and public organizations. After the Global Anti-Corruption Summit in London in May 2016, the OpenOwnership was created - a project to create an open Global Register of Property Rights, the data from which will be interconnected between jurisdictions, industries and with other data sets. The creator and manager of the Global Registry is a consortium consisting of leading international organizations for the struggle for transparency: Transparency International, OpenCorporates, Global Witness, Worldwide Web Foundation, Open Contracting Partnership, ONE Campaign and B Team. The first country that officially confirmed its readiness to integrate data on the beneficial owners of companies into the Global Register was Ukraine in April of this year.
Only in the last year the mankind has significantly advanced in the direction of increasing the transparency of corporate ownership. And this trend is only increasing. The most civilized countries either have already introduced the requirements for the maintenance of the UBO registers, or they are at a certain stage of consultations on this issue. While access to the data remains one of the most controversial issues, the countries are striving to find the right balance between maintaining the principle of transparency and fears about the safety of the potentially vulnerable individuals and cyber security. However that may be, it is becoming increasingly difficult to hide the information about the owners of the company through offshore zones and nominal shareholders. The business will have to revise its corporate structures and learn to work in full transparency, including the ability to track any transactions. The companies need to create a literate history today for both enterprises and their beneficiaries.