With the UK government forcing the issue over beneficial ownership registers, just where do the Crown Dependencies and Overseas Territories stand? and is that all set to change?
There’s wide agreement that knowing who’s behind trusts, companies, bank accounts and funds is a useful tool in the fight against money laundering, economic crime and the financing of terrorism.
Registers of beneficial ownership provide greater transparency and traceability, especially to financial services regulators and law enforcement agencies. The debate, however, is about the best way of setting them up and running them without compromising the individual’s rights to privacy.
This is where the Channel Islands, which have long maintained beneficial ownership registers, differ from the UK.
“The international standard on beneficial ownership is set by the Financial Action Task Force [FATF],” explains Helen de la Cour, Technical Manager at Jersey Finance, which represents and promotes Jersey as an international finance centre.
“It requires countries to ensure that there’s adequate, accurate and timely information on beneficial ownership and control that can be accessed in a prompt manner by competent authorities. Jersey was assessed against this standard in 2015 [and was found to comply].
“The UK introduced a publicly accessible central register of beneficial ownership information, which includes the details of people with significant control [PSC], in June 2016. Since then, the UK has encouraged the Crown Dependencies and Overseas Territories to consider adopting public registers of beneficial ownership.”
Guernsey has a similar register to Jersey’s. “Ours is verified with proper regulatory oversight,” says Guernsey Finance Chief Executive Dominic Wheatley. “It’s available to proper authorities in the UK and elsewhere, those being responsible for tax and for the combat of crime and terrorism. So they already have access to full and verified data and they have that access in a timely manner when they need it. They are very satisfied with these arrangements.
“Our view is that this is an absolutely necessary and important part of our infrastructure. We also respect absolutely the right of individuals to privacy with regard to their personal affairs, including their personal financial affairs.”
Different strokes
The fly in the ointment for the UK government is that it can’t force Jersey, Guernsey and the Isle of Man to adopt its beneficial ownership model. This is because the allegiance of the Crown Dependences (CDs) is to the Queen and they have their own legislatures.
The Overseas Territories (OTs), such as the Cayman Islands and the British Virgin Islands, have written constitutions and are governed by Parliament in Westminster, which makes their laws subject to their consent.
The OTs are pursuing legal challenges to having public registers forced upon them. The CDs believe they’ve got beneficial ownership registers cracked and see no reason to change. This view appears to be supported by international regulatory bodies.
“We firmly believe that our beneficial ownership register is fit for purpose,” says Helen de la Cour. “And this is a viewpoint that’s been endorsed by Moneyval [the EU’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism], which described Jersey’s capturing of information as a ‘leading system’.”
Nevertheless, de la Cour adds that, should public registries become the global standard, Jersey will review its approach to ensure it stays at the forefront of international requirements.
Global standard
But will publicly accessible registers become the global standard? Long story short, this looks unlikely. First, as Richard Field, a Guernsey-based Partner at law firm Appleby explains, while the centralised registers are a theme of the EU’s Fifth Anti-Money Laundering Directive (5AMLD), which came into force on 9 July, it requires that they be accessible to the public. But it allows member states to implement the legislation as they think fit regarding who has a “legitimate interest” to access the data.
Second, in July 2016, the French Constitutional Court suspended the publicly accessible register of trusts, because it conflicted with the French Constitution and disproportionately infringed an individual’s rights to privacy.
Third, what about the US? There, beneficial ownership is a matter for individual states to set the laws and, culturally, a number of states (perhaps the entire nation?) are opposed to transparency, believing in non-disclosure and an individual’s right to privacy. States such as Wyoming, Utah, Nevada and Delaware are highly unlikely to budge on this and see it as a competitive advantage they can offer over international finance centres such as the Channel Islands.
Fourth, the publicly accessible register model may be inherently flawed. The UK, for example, requires disclosures to be made by beneficial owners themselves.
As Robert Shepherd, Partner at the Guernsey office of law firm Mourant Ozannes, puts it: “If you’re a fraudster, the chances are that you’ll fill out the disclosure fraudulently. Then you might update the information 12 months later – but you’re not going to change things, because why would you? We don’t think that’s a very good system.”
This is in contrast to the islands’ model, as he explains. “Here, the responsibility for completing the register is not with the beneficial owners but rather with a corporate service provider [CSP]. You can only form companies in Jersey and Guernsey through a regulated CSP, such as a law firm, accountancy firm or a trust company. It’s their job, when they form a company, to make sure they have the customer due diligence [CDD] on the directors and the shareholders, and that they update the CDD.
“It’s a dynamic, active system that keeps everything up to date and if the CSP doesn’t do that properly, it could lose its licence, be fined and go out of business. That system has been in place for 15 years now, and some CSPs have indeed gone out of business.”
A fifth reason why public, central registers wouldn’t work is that they actually run counter to data protection legislation.
“There’s a fundamental disconnect in approach when one considers Article 8 of the European Court of Human Rights and the General Data Protection Regulation (GDPR), which enhances individuals’ privacy rights, and espouses the minimisation of data processing and a reduction in the availability and circulation of personal data,” says Appleby’s Richard Field.
“While 5AMLD does refer to establishing ‘proportionate measures’ in response to the issue of transparency and having ‘due regard to the fundamental right to the protection of personal data’, this doesn’t seem to translate consistently into the recommendations being made.
“There’s a clear risk such information will be used to target wealthy individuals, extort directors and/or lead to identity theft and other similar crimes.”
What comes next?
Although the direction of travel seems to be towards some sort of global standard for publicly accessible beneficial ownership registers, this destination seems to be a long way off. And it’s not inevitable, especially without the likes of the US on board.
Julian Hayden, Private Client Director at Jersey-based global financial services firm Hawksford, says if that were the case, it could be complicated.
“There’s an important distinction here between transparency and privacy. The Crown Dependencies have been prepared for this for a long time, but it’s important to consider the wider debate around whether the need for worldwide transparency outweighs a personal right to privacy. It’s about privacy, not secrecy, and ensuring consistent reporting to the right authorities.
“I would be astonished if worldwide transparency at a public access level ever materialised because, at an individual governmental level, there would be objections from multiple jurisdictions. I suppose time will tell.”
In this light, some have expressed surprise that the UK adopted a public register at all, yet it’s soldiering on. In July, the Department for Business, Energy and Industrial Strategy launched a consultation on a ‘Registration of Overseas Entities’ bill, which aims to establish a register of those with interests in UK property. In the Channel Islands, however, the approach is to cautiously wait and see how things evolve and if at some future time the global playing field is levelled, it may be time to change.
Alternatively, what if every country were to adopt the Jersey/Guernsey model of beneficial ownership? In principle it could happen, especially as it’s been so roundly praised by global bodies such as the EU and the OECD.
Perhaps the islands are the only ones in step, then? Maybe, but that’s looking pretty unlikely at the moment as well…