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Maybe the recent events of the worldwide economic breakdown are starting to fade, however the consequences are still notable in businesses. Thus, the importance of addressing corruption and combating illicit financial flows is completely unquestionable. There is international consensus that increased transparency of beneficial ownership information is key to tackle the misuse of companies for laundering the proceeds of corruption, money laundering and terrorist financing. To achieve this goal, important measures are being taken on several fronts, such as by the OECD, the European Union through its Directives and by each EU member state.

Beneficiary – definition/notion

The UBO can be defined as any natural person who ultimately owns or controls a corporate entity or other legal entity and/or the natural person on whose behalf a transaction or activity is being conducted. In respect to corporate entities, the UBO can be more specifically defined as any natural person who ultimately owns or controls a corporate or legal entity through direct or indirect ownership of more than 25 percent (varies according to each local legislation) of the shares or voting rights or ownership interest.

Uncovering the beneficial owner involves piercing through the veil of various intermediary entities and/or individuals until the true owner is found.

CRS – OECD

The Multilateral Convention on Mutual Administrative Assistance in Tax Matters (‘the Convention’) is a multilateral agreement to exchange information and provide other assistance in relation to tax matters.

By 12 July 2016 over 98 countries had already signed the Convention, with more countries expected to sign in the future. Many European countries are signatories including Russia, Switzerland, Greece and Cyprus.

In February 2014 the OECD published initial documents entitled ‘The Standard for Automatic Exchange of Financial Information in Tax Matters’ (‘the Standard’).

The Standard provides for annual automatic exchange between governments of financial account information, including balances, interest, dividends, and sales proceeds from financial assets, reported to governments by financial institutions and covering accounts held by individuals and shell companies, trusts and similar arrangements.

The implementation of the Standard has already taken effect in many countries. Cyprus, along is included in the countries that have declared to automatically exchange information as from 2017.

AML EU Directive

Another step towards transparency is the EU’s anti-money laundering (AML) rules, namely the Fourth EU Anti-Money Laundering Directive (“4AMLD”). What makes the latter a real pioneer, is the introduction of a central UBO registry; a public register that identifies the UBO of a company or trust. Member States have until June 26, 2017 to transpose the requirements of the 4AMLD into national law.

The EU Commission has not proposed that this registry should be publicly available but will be available only to competent authorities based on tax, legal and criminal grounds. However, there is a proposal endorsed by the EU committees, and now by the EU Parliament as a whole, that envisages a publicly-accessible central register that would make available information concerning the UBOs.

Where a company is listed on a stock exchange is expressly excluded from the above. The underlying reason is the fact that such a company is subject to disclosure requirements (by stock exchange rules or local law) which already impose requirements to ensure adequate transparency of the UBO(s).

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).

Each authority has to continuously ensure that the correct information is requested, recorded and verified, due diligence takes place and also that information on beneficial ownership information is regularly refreshed and updated.

As the 4AMLD provides; 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.

Moreover, a new risk-based approach concerning the customer due-diligence procedure is adopted. Entities under the 4AMLD are now obliged to to check the identity of their customers and to report suspicious transactions.

The 4AMLD, however, applies only to corporate entities and not to trusts. Netherlands MEP Judith Sargentini commented: “If we had decided to leave trusts, for example, out of the scope of the new legislation, then it would immediately have made them a perfect vehicle for criminals wishing to avoid taxation or launder their illegal money into the financial system”.

As stated above the EU Parliament and other countries, such as the UK, wish to extend the above registry to a public one. They argue that it has a number of potential benefits for all countries in the developing world. For instance, it will make available beneficial ownership information on foreign companies active in each country which the relevant law enforcement authorities can use to tackle corruption overseas. Moreover, it would enable overseas governments, civil society and businesses to use the information to expose corruption impacting on their countries.

Nevertheless, it is argued that It is doubtful whether a publicly accessible registry provides the best outcome for sound corporate behavior. The notion of the beneficial owner will eventually fade. The right to privacy for law-abiding citizens, as a fundamental principal of common law, will be breached. Additionally, the power of having such a registry will give rise to the danger for abuse of the system. How can confidentiality on personal data of UBOs be safeguarded?

The above proposals are designed to help prevent jurisdictions from being a safe haven for corrupt money from around the world. The creation of UBO registry is a big step forward to help to further strengthen confidence in business and deliver real benefits to economy as a whole. While it remains to be seen whether a significant number of jurisdictions will line up behind the UK’s plan for a public registry, EU will continue taking steps to enhance its method of collecting and verifying data and will ensure that it provides an efficient platform for legitimate international business.

Your contact for further queries is:

Mattheos Hadjimatheou,Eurofast Taxand Cyprus
Tel:  +357.22.699.231
Email: matheos.hadjimatheou@eurofast.eu