Pressure from some parts of Westminster to persuade the Crown Dependencies to adopt publicly accessible registers of company ownership may have borne fruit, though adoption of these registers looks to be somewhat uncertain
In a joint statement on 19 June, Guernsey, the Isle of Man and Jersey announced a three-stage plan culminating in public access to their registers of beneficial ownership. However, the devil may very well lie in the detail, which says public access will be aligned to the approach taken by the European Union (EU).
The UK was the first G20 country to introduce a fully public register of what it terms “persons with significant control” of companies and limited partnerships. That was in April 2016. Meanwhile, the EU’s Fourth Anti-Money Laundering Directive (AMLD4), which came into force in July 2017, required member states to establish central registers of beneficial owners of corporate entities and trusts.
However, many EU countries have not yet implemented AMLD4, which provided for access to data “to any person or organisation that can demonstrate a legitimate interest”. How exactly this was to be interpreted would be down to individual member states to decide, but would almost certainly include the competent authorities and financial intermediaries or members of regulated professions performing customer due diligence.
This remains the case, so aligning the Crown Dependencies’ public registers with those of EU member states’ interpretation of AMLD4 looks to be far from straightforward because they could be inconsistent with each other. This is the first of many potential obstacles to full implementation of public registers in Jersey and Guernsey.
The UK and Jersey models
Currently, there are significant differences between the UK and Jersey models. While the UK register maintains records of ownership supplied by companies themselves, the Jersey approach requires trust and company service providers (TCSPs) – who register companies on behalf of overseas persons and businesses – to carry out independent checks of their own into beneficial ownership and supply their data to the registry.
The registry itself also uses public and private information sources to carry out its own due diligence. The result provides a double lock against potential wrongdoing.
In December 2015, Moneyval, the Council of Europe’s expert committee on anti-money laundering measures and the financing of terrorism, endorsed the World Bank’s view of the Jersey model following its fourth assessment visit to the island.
It said: “Jersey’s combination of a central register of the UBO [ultimate beneficial owners] with a high level of vetting/evaluation not found elsewhere, and regulation of TCSPs of a standard found in few other jurisdictions, has been widely recognised by international organisations and individual jurisdictions as placing Jersey in a leading position in meeting standards of beneficial ownership transparency.”
Guernsey has a similar register to Jersey’s; it is centralised but not public. The islands have, until now, continued to resist pressure from the UK Parliament to toe the UK line on this. First, the constitutional position is that the islands are not represented in the UK Parliament and they have their own legislatures. Second, they have said for some time that their own registers are simply better.
As recently as March of this year, Lyndon Trott, former Chief Minister of Guernsey and currently the island’s Deputy Chief Minister, said: “Public scrutiny of beneficial ownership registers is irrelevant to their effectiveness, and undermines the normal standards of privacy of personal affairs in a way that is as unreasonable as it is ineffective. What is important is that registers are maintained and the data verified in real time, and that the data is available to appropriate tax, law enforcement and security authorities in a timely manner.
“Guernsey’s register meets all of these criteria to standards in excess of the UK’s register and clearly complies with accepted international standards.” So why the apparently sudden volte-face?
The three stages
On closer inspection, the volte-face may not be as sudden as it seems. Despite the recent announcement, in reality, the adoption of public registers in the Crown Dependencies and in other jurisdictions could take a very long time. And perhaps they may still not be adopted.
This is because of the three clear stages, set out in the joint statement from the governments of the Crown Dependencies, that need to be met before public access can be granted. These are: first, “the interconnection of the islands’ registers of beneficial ownership of companies with those within the EU for access by law enforcement authorities and Financial Intelligence Units”; followed by “Access for financial service businesses and certain other prescribed businesses for corporate due diligence purposes”; and then “Public access aligned to the approach taken in the EU Directive” (our italics).
Although the Crown Dependencies have for a long time said that they will comply with public access to their registers, provided this has become the global standard, Steve Le Seelleur, Managing Director of Equiom Jersey, points out that this is a long way off. “Apart from the UK, Denmark is one of the few countries (the others being Ghana, Nigeria, Ukraine) that has already implemented a public register of beneficial ownership,” he says. “And it’s gone one step further by making this information structured and available under an open licence.”
However, even though the Channel Islands are not members of the EU, in order to support their case for having access to EU markets, they will probably need to demonstrate the equivalence of their practices to those of the EU. Moreover, a new move is under way; the Fifth Anti-Money Laundering Directive (AMLD5). Le Seelleur explains: “AMLD5 requires public access to data on the beneficial owners of legal entities such as companies. EU member states have until 10 January 2020 to implement AMLD5 into national law.”
Given that most jurisdictions have yet to implement AMLD4, it remains to be seen what actions they will take with regard to its successor.
There are further, legal, obstacles. In his 1 May article in the IFC Review – ‘Are public registers of beneficial owners in breach of the GDPR?’ – Paolo Panico, a lawyer practising in Luxembourg and Scotland, points out that Brussels lawmakers may have hamstrung themselves through apparently conflicting legislation.
He points out that the public registers required by AMLD5 may conflict with the right to personal and family privacy under Article 7 of the EU Charter of Fundamental Rights – while Article 8 of the charter provides that “everyone has the right to the protection of personal data concerning him or her”.
Furthermore, Panico points out: “Public access to beneficial ownership registers appears to be directly in breach of some relevant provisions of Regulation 2016/679 of the General Data Protection Regulation (GDPR), which came into force across the European Union on 25 May 2018.
“Article 5 provides some basic principles for the processing of personal data. These include ‘purpose limitation’ – ‘personal data shall be collected for specified, explicit and legitimate purposes and not further processed in a manner that is incompatible with those purposes’.”
Global standard
While Europe wrestles with conflicts in its legislation, other jurisdictions have a very long way to go if they are to provide any degree of transparency.
Take the US. Individual states would need to legislate, but some – notably Delaware and Wyoming – regard their secrecy and freedom from prying eyes as competitive advantages that encourage businesses to incorporate in their states.
“The US does not operate a beneficial ownership register,” explains Louise Bracken-Smith, CEO of Fairway Group, which provides trust, fund and pension services. “The US is the most opaque country of all, and there does not seem to be a global body that can tackle this issue of transparency to ensure that we are all operating on a level playing field.”
Geoff Cook, until recently head of Jersey Finance and now a Non-Executive Director and Consultant, agrees. “In many states in the US, they don’t capture beneficial ownership information at all, never mind have a register. To go from where they are now to capturing that information on every company director and then publishing it is inconceivable. I just can’t see it happening in any foreseeable timeframe, certainly not in line with the European intent.”
He is sceptical about other jurisdictions too. “I can’t see it happening either in the Middle East nor in Asia. Culturally, their family business is still the primary business unit. They tend to keep their business affairs private for family reasons, and also for commercially competitive reasons.”
Cook continues: “I can’t see China or Africa adopting it either. To me, this isn’t a global trend; it’s something that certain groups in the UK are agitating for that Europe may adopt. But I can’t see many other countries joining the party.”
This makes the statement on the newly announced measures from Chief Minister of Guernsey, Deputy Gavin St Pier, sound a little hollow – unintentional though that may be. He said: “Guernsey has stated repeatedly that we would move to a public register of beneficial ownership as that becomes an international norm. We are publishing a detailed action plan to demonstrate how Guernsey will respond to global developments in regard to beneficial ownership over the next couple of years. It will also help understanding of our commitments and approach.”
The future
So how does the future look for global adoption of beneficial ownership registers? Claire Weeks, Counsel at London-based law firm Maurice Turnor Gardner, says: “The starting point is that the global benchmark is currently set by the Financial Action Task Force, the intergovernmental organisation. Their current recommendations require that the information is accessible by competent authorities, but does not require the making of that information available to the public. So, that’s the [current] Jersey model rather than the UK model.”
That could be a likely path, but, as Weeks points out: “Every time we have a scandal like the Panama Papers and the Paradise Papers, it adds pressure onto governments to do more.”
Fairway’s Bracken-Smith point out that more than 100 countries around the world already cooperate under the OECD’s Common Reporting Standard, so most information is already available to those who need it.
She sees Jersey continuing to lead the way in terms of regulation and transparency as an international finance centre and, through its years of experience in the matter, also advising others as they look for their own solutions.
Next steps
Will that leadership position eventually include public access? If the three-stage action plan were to take effect, the earliest that the Crown Dependencies could adopt public registers would be in early 2022. This is because the interconnection of the Crown Dependencies’ registers with those of other EU jurisdictions will take place during 2021.
Whether those jurisdictions will be ready is a moot point. Then the EU is to publish an Implementation Review of AMLD5 in January, after which the Crown Dependencies will bring forward legislative proposals for implementation of public registers in line with the directive “within 12 months”.
In summary then, the new and unexpected move towards publicly accessible registers looks, on the face of it, to be the start of the endgame for the Crown Dependencies’ heretofore more discreet and controlled approach to beneficial ownership data.
In practice, it will take a successful EU-wide adoption of AMLD5, which could prove to be the legislative equivalent of herding cats. Furthermore, with risks to individuals, GDPR may hold sway and force adoption of less public accessibility.
In the broader picture, those with knowledge of the issues surrounding publicly accessible beneficial ownership registers are highly sceptical that the big-hitting jurisdictions – including China and the US, as well as a host of countries in the Middle and Far East – will come on board.
The Crown Dependencies’ position has always been that they will fall in with global best practice and the latest announcement appears consistent with this, stressing, as it does, alignment with the EU’s approach – but what shape this approach will actually take is by no means clear.