As we outlined in our previous briefing, there is an international trend towards promoting and implementing publicly accessible registers of company beneficial ownership.
The UK Government has announced that all inhabited UK Overseas Territories (OTs) have committed to adopting publicly accessible beneficial ownership registers.1 This includes major financial centres such as the Cayman Islands and the British Virgin Islands.
- Unanimous action from OTs in adopting publicly accessible registers of company beneficial ownership is an important step forward in tackling the use of major financial centres as conduits for illicit finance and corruption.
- Improved beneficial ownership transparency is required to complement the adoption of publicly accessible registers in OTs. Important developments are undermined by inconsistent uptake in the promotion and implementation of publicly accessible registers internationally.
- There are clear signs that the UK Government and OTs are committed to verifying the information that is entered into registers of beneficial ownership. Robust means of ensuring verification is carried out will be a determining factor of the overall effectiveness registers.
Publicly accessible registers of company beneficial ownership are expected to be implemented in OTs by the end of 2023. The UK Government has stated that it will provide both financial and advisory assistance to support their implementation, such as funding Open Ownership, a not-for-profit organisation that supports countries in implementing beneficial ownership registers, to provide individualised assistance to all OTs.2
Bilateral Exchange of Notes arrangements currently exist between the UK and OTs with financial centres (the UK and the Crown Dependencies currently also participate in similar arrangements). These arrangements enable information on company beneficial ownership and tax information to be shared with UK law enforcement bodies in real time. A statutory review of these arrangements last year found that they are effective and provide invaluable information to support ongoing investigations.3
Draft Order in Council
The UK Government has published a draft Order in Council in accordance with Section 51 of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA). Under Section 51 of SAMLA, the UK Government was required to “prepare a draft Order in Council requiring the government of any British Overseas Territory that has not introduced a publicly accessible register of the beneficial ownership of companies within its jurisdiction to do so” by the end of 2020.
The draft Order sets out minimum requirements as to what the UK Government deems to be a compliant publicly accessible register of company beneficial ownership. Those provisions are broadly equivalent to the requirements of Part 21A of the Companies Act 2006, which enshrines the Persons of Significant Control (PSC) regime.
The draft Order provides a minimum definition of 'beneficial ownership'. This encompasses both direct and indirect control over companies and includes, but is not limited to, control through shareholdings, voting rights or the right to appoint or remove a majority of directors. Where an OT attaches a percentage threshold to the type of control, the draft Order sets out that this cannot be higher than 25%.
Similarly reflective of the PSC regime, the draft Order also provides that the information on an individual must include their name, country of residence, nationality, month and year of birth and the nature of their control over the company. Where the public release of personal information would reasonably put a person at risk of violence, kidnapping, intimation or other similar harm the information can be withheld.
The UK Government said it expects OTs' registers to be proportionate to their circumstances. It would not be proportionate to expect the Pitcairn Islands to produce a register as sophisticated as the Cayman Islands, as long as they make the required information available in a manner that conforms to the minimum standards set out in the draft Order.4
The UK Government has decided that it is now not necessary to make the Order due to the firm commitments from all OTs to adopt publicly accessible registers – a decision which it has said it will keep under review.
The International Landscape
The Financial Action Task Force (FATF) sets out the current international standards related to beneficial ownership transparency. FATF recommends that countries ensure that there is adequate, accurate and timely information on the beneficial ownership of a company.5 As such, by implementing publicly accessible registers in accordance with the provisions of the draft Order, OTs will be adhering to the most pervasive international standards.
The UK is spearheading an international campaign to make publicly accessible registers a global norm by 2023. The unanimous commitments made by OTs, along with similar commitments made by the Crown Dependencies to make beneficial ownership publicly accessible, means that some of the most significant financial centres in the world have committed to improving beneficial ownership transparency.
Nevertheless, publicly accessible registers of company beneficial ownership are not yet a global standard and a relatively small number of jurisdictions have adopted or committed to them. A total of 81 jurisdictions worldwide have passed laws requiring beneficial ownership to be registered with a government authority.6 Despite a growing number of countries introducing beneficial ownership transparency legislation, international efforts are undermined by the slow implementation of publicly accessible registers globally.
The fifth update to the EU Anti-Money Laundering Directive (5AMLD) required European Union Member States to establish publicly accessible beneficial ownership registers by January 2020. Global Witness, an international non-governmental organisation, found that 17 of 27 Member States (63%) are yet to fulfil their obligation to implement a publicly accessible register under 5AMLD.7
Verification of information
One of the key challenges of implementing effective registers of beneficial ownership is the verification of the information that is entered into the register. Without robust and reliable systems of verification, registers are vulnerable to being populated with self-declared and inaccurate information.
The UK Government expects OTs’ registers to follow “international best practice and global norms” on the collection and verification of beneficial ownership information.8 However, it is not clear exactly what is required of OTs in order to achieve this. The draft Order does not prescribe how information entered into the registers should be verified.
OTs may adopt the UK’s approach to verifying information. Companies House has introduced changes permitting only properly supervised agents to file information with the registrar, as well as requiring companies with obligations under the anti-money laundering regulations to report discrepancies between the PSC register and the customer information which they hold. Adopting such measures would satisfy Transparency International, a non-governmental organisation which has called for beneficial ownership information entered into OTs’ registers to be verified either by the registrar or a professional regulated industry.9
Some OTs have already implemented means of verifying information entered into their registers. Bermuda registered companies were set a deadline of 30 April 2019 to update or verify beneficial ownership information under Bermuda’s beneficial ownership legislation. Where no individual directly or indirectly owning or controlling more than 25% of shares, voting rights or interests can be identified, the senior managers of Bermuda registered companies will be regarded as beneficial owners. In the British Virgin Islands only licensed and regulated corporate service providers can verify ownership and incorporate companies and input this data into the register. The UK Government has committed to providing all reasonable assistance to OTs as they develop their registers.10
1 The OTs are, namely: Anguilla, Bermuda, the Cayman Islands, the Falkland Islands, Montserrat, the Pitcairn Islands and St. Helena, Ascension Islands and Tristan de Cunha, the Turks and Caicos Islands and the British Virgin Islands.
2 Foreign, Commonwealth & Development Office (FCDO) policy paper, Overseas Territories: progress made on improving transparency and addressing illicit finance flows – explanatory note, 14 December 2020, available at: https://www.gov.uk/government/publications/overseas-territories-adopting-publicly-accessible-registers-of-beneficial-ownership/overseas-territories-progress-made-on-improving-transparency-and-addressing-illicit-finance-flows-explanatory-note.
5 The FATF Recommendations, available at: https://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/fatf%20recommendations%202012.pdf.
6 Tax Justice Network, State of Play of Beneficial Ownership, 1 June 2020, available at: https://www.taxjustice.net/wp-content/uploads/2020/06/State-of-play-of-beneficial-ownership-Update-2020-Tax-Justice-Network.pdf.
7 Global Witness, Patchy progress in setting up beneficial ownership registers in the EU, available at: https://www.globalwitness.org/en/campaigns/corruption-and-money-laundering/anonymous-company-owners/5amld-patchy-progress/.
9 Transparency International, Resist or Reform? Assessing Progress Towards Corporate Transparency in the UK’s Overseas Territories and Crown Dependencies, available at: https://www.transparency.org.uk/corporate-secrecy-reform-overseas-territories-crown-dependencies-latest.