The rights and wrongs of beneficial ownership registers
02 October 2018
The British Overseas Territories and the Crown Dependencies – along with much of the rest of the world – have the right policies with regard to registers of beneficial ownership.
Transparency is facilitated by several important and interlinked mechanisms, which include strong requirements made of the financial services industry to counter money laundering and terrorist financing. In Guernsey, for example, a robust framework for the supervision of trust and company service providers was established almost two decades ago with a commitment to the highest standards of tax information exchange. In 2017, a decision was taken to introduce a centralised, vetted beneficial ownership register, similar to that operated in Jersey. This meets the Financial Action Task Force (FATF) standards for the various forms of cooperation and exchange of information and has been recognised by various international bodies such as MOVEYVAL in its mutual evaluation report of September 2015.
There is no international standard concerning the publications of information held on beneficial ownership registers, and the publication of information raises legal issues concerning Article 5 of the European Convention on Human Rights (the right to liberty and security of person) and data protection. The robust supervisory framework and the Guernsey Commission’s long-term track record in supervising trust and company service providers – together with the vetted central register of beneficial ownership – ensure that both law enforcement and tax authorities have access to information of a standard, accuracy and timelines which exceeds those to be found in other jurisdictions.
I regret to comment that the UK’s introduction of a public register represents a means of ‘playing to the gallery’, rather than a move toward ‘doing the right thing’. Moreover, it constitutes an unacceptable breach of privacy. What is important is that details of beneficial ownership are made available in an efficient fashion, to the relevant tax or police authorities, on request. The Business, Innovation and Skills (BIS) impact assessment estimates that the benefits from public registers are zero. In the UK, the exemption for foreign companies renders the provisions of the law effectively unavoidable. For those sensitive to privacy issues, or seeking to hide assets, the bill will lead to a migration of UK investments through UK companies to investment via UK branches of foreign companies.
Public inspection is also bad for investment and business. The Middle East and China, two key economic players, prefer to be discreet about their overseas investments. Publication of their beneficial owners is an anathema to them. The arrangements are also expensive for business. They affect over two million companies with costs to business of £1.1 billion (approx. $1,467 billion). This will rise substantially if, in due course, verification is required which is necessary to make the legislation effective. To meet FATF objectives, effective means of data verification are required by the FATF but are absent from UK legislation. It is ironic that the Crown Territories meet FATF requirements but the UK does not!
Many of the UK businesses affected are small companies where the lead entrepreneur frequently owns more than a 25% share, which buts them into the beneficial owner category. I wonder how many SMEs are aware today that they should keep publicly available registers where a failure to comply is a criminal offence. Yet again, these regulations, which are a costly hassle for the overwhelming majority of innocent law-abiding businesses, are easily avoidable by the guilty.
The G8 reached the consensus that companies should know who their shareholders are, and this was the basis of the new legislation. And yes, it is the companies that should have this information, not commercial competitors, direct marketers, spammers and media folk looking for a story – and other who could misuse the publicly available private information. The UK government has destroyed the right of privacy with little consideration and for absolutely no benefit. Fortunately, constitutionally it was not for the UK to impose its policy choice on self-governing jurisdictions.
Finally, as expected, the quality of information held by the British Overseas Territories and the Crown Dependencies is materially superior to that held on the UK public register. Without verification, the UK system is wide open to abuse.
The sensible approach is for beneficial ownership registers to be guarded and to only be accessible by the appropriate authorities for matters of national security, personal safety and tax investigations. Such bona fide inquiries can be made speedily and the registers can still protect privacy.
An original version of this article first appeared in the IFC Review Economic Report, Summer/Autumn 2018.
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