Beneficial ownership of companies and trusts is at the top of the international agenda right now, but will legitimate rights to privacy lose out to the demand for public registers?
The United Kingdom’s announcement in April that companies will be required to hold a register of people who exercise ‘significant control’ over them highlighted the way in which jurisdictions around the world are closing loopholes to criminal activity.
The move was the latest in a series of measures taken by multilateral agencies, governments and financial regulators to combat money laundering, terrorism funding and tax evasion. Yet there is still a lack of global coordination to stamp them out. Meanwhile, the revelations in the Panama Papers have brought further intense scrutiny, giving all jurisdictions fresh impetus to tighten up their controls.
One of the chief debates that surrounds the issue of beneficial ownership of companies and trusts is what level of privacy people should legitimately have in their financial affairs.
Hiren Mistry, a Barrister and Legal Counsel at international trust and corporate services provider Equiom (Jersey), says: “Why do clients want that level of secrecy? Tax avoidance is a no-no. There is no need for it. However, for PEPs [politically exposed persons] sometimes because of their line of work and who they are, they don’t want to expose themselves or to have their ownership structures ‘out there’.
“If a high-profile person owns a yacht, for example, they may not wish it to be widely known because it could expose them to terrorists, kidnappings and so on. There can be legitimate reasons to keep beneficial ownership concealed.”
This is why the so-called ‘Jersey Model’ of beneficial ownership registration has been hailed as a balanced, secure way of responding to the issue, notably by the World Bank in its 2011 report The Puppet Masters – How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It.
While the new UK approach allows the public to have access to the beneficial ownership register, Jersey has, since 1989, kept such a register but shares the information only with appropriate authorities, such as those involved in law enforcement and tax collection. This is aimed at preserving the privacy of individuals.
Focus on due diligence
There is a second significant difference 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) that 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.
Earlier this year, 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 UBOs [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 approach
Guernsey doesn’t yet have such a register. But, having also received a positive report from Moneyval, the island does place the onus of thorough due diligence on TCSPs and is developing a register of its own that’s likely to follow the Jersey model.
In April, the island’s then Chief Minister Jonathan Le Tocq announced: “Guernsey is committed to ensuring enhanced co-operation between law enforcement authorities on information sharing for the prevention, detection and investigation of corruption, economic crime, money laundering and terrorist financing.” The government has also set a target of 30 minutes for responding to UK authorities’ requests for information, and it aims to have a register in place by 2018.
Jersey has committed to exchange information with UK authorities, but recognises that even its own much-praised beneficial ownership registration model is not perfect.
“We published a consultation in March that addressed one area where we felt we could improve on our leading position and that’s by ensuring that the register is as up to date as possible,” explains George Pearmain, Jersey’s Lead Policy Adviser on private wealth and financial crime in the Financial Services Unit of Jersey’s Chief Minister’s Department. “We want to ensure that when there’s a change in beneficial ownership, a TCSP transmits the new information to the central registry as quickly as possible.
“We’ve signed an exchange of notes with the UK, which enhances our position on sharing information with their law enforcement authorities. What we’re seeing now is the need by such authorities to have the information on beneficial ownership available to them very quickly in certain circumstances.
“In terrorism financing matters, for example, the security services may need to obtain information very fast – in some cases within an hour of a request being made. We expect to issue our consultation feedback paper in the near future.”
The bigger picture
This push towards transparency on beneficial ownership does lead one to ask whether we’re heading towards a worldwide standard. One proposal that’s been mooted is that there should be a global register with buy-in from all nations and access for all appropriate authorities and possibly the public too, but this is looking remote to say the least, and may not be appropriate.
Colin Powell, Adviser on International Affairs to the Chief Minister of Jersey, points out that there is, as yet, no international standard on automatic exchange of beneficial ownership information with law enforcement authorities.
“It also appears unlikely that jurisdictions such as the US, Singapore and China will agree to an international standard calling for a public register of beneficial ownership of companies,” he says. “There is no indication from them at all that they are contemplating the implementation of such a public register.
“If you look at the G20 high-level principles on beneficial ownership transparency, the Financial Action Task Force recommendations on anti-money laundering and the OECD recommendations on tax transparency, they don’t include a requirement for a public register of beneficial ownership.”
“One size of regulation and registration does not fit all,” says Andrew Whittaker, Managing Director of Ipes in Guernsey, who has been closely involved with the development of Guernsey’s beneficial ownership register. “Registration and the pursuit of transparency of beneficial ownership should coalesce around global standards. These should include, among other things, common accounting standards on taxation prepared by the OECD.”
He adds that different financial markets and financial structures require different regulatory approaches.
Back in Jersey, John Harris, Director General at the Jersey Financial Services Commission, which runs the island’s beneficial ownership register, says: “It would be very difficult to get all countries to agree on actually pooling their information. There are 200 countries in the world, some with better systems than others.
“At the same time, the security of that data is critical. Centralising all the world’s data would be too much of a concentration risk, in our view. So we support the idea of global standards to be met by countries around the world [as opposed to a global register].”
Level playing field
Moreover, while there are moves afoot to compel jurisdictions to be equally transparent, being an early adopter isn’t necessarily an advantage, according to Steve Meiklejohn, Global Senior Partner at law firm Ogier.
“If we’re going to have to go further than a commitment to make registers open to law enforcement, so far as companies are concerned, and to make them publicly accessible, then Jersey’s position will be that we will only consider that when there is a level playing field. And clearly, there’s a lot of water to go under the bridge in terms of relationships with the EU.
“For trusts, France already has a public register of trusts. The EU seems to be requiring that the obligation applies only to trusts that are taxable in your jurisdiction, which is a bizarre test. Given that most offshore trusts are not taxable here, they would not be affected.”
A level playing field for registration of beneficial ownership is clearly a long way off, although the G20 forum of most powerful nations has endorsed the need for greater transparency. As offshore financial centres, the Channel Islands inevitably attract scrutiny, especially since the Panama Papers. However, Jersey and Guernsey can both demonstrate evidence of a strong commitment to clarity of beneficial ownership – though they both stop short of making their data publicly available.
Money laundering, terrorism funding and tax evasion are front page news. Calls to mitigate them are now firmly on government agendas across the world as calls from the press, public and politicians ring out louder and more stridently year by year. But whether global agencies and local regulators can, or should, implement worldwide standards and linked up action on beneficial ownership registration is probably one step too far.