Beneficial ownership compliance

Jun 01, 2018
When it comes to maintaining the valuable but burdensome beneficial ownership register, how much compliance is too much?

With the benefit of the freedom of capital movements and supply of financial services brought by the European Union comes the burden of policing money launderers and financiers of terrorism who take advantage of this freedom to facilitate their criminal activities.

It is widely recognised that coordinated measures by member states to prevent the misuse of our financial system are necessary and in this regard, the requirement by Europe’s legislators for member states to implement certain minimum local laws in this area is welcome. Also welcome is Europe’s acknowledgement that a balanced approach to protecting society from crime is needed, one that facilitates the creation of a regulatory environment that allows companies to grow without incurring disproportionate compliance costs.

So when it comes to placing compliance requirements on companies to maintain and publish information on who ultimately owns and controls them, so as to assist those they do business with or who help them to do business understand their provenance, how much is too much?

The law as it stands

It is the law in Ireland that non-listed companies and other legal entities incorporated here must take all reasonable steps to hold adequate, accurate and current information on their beneficial ownership and retain this information in the company’s beneficial ownership register. This has been the case since November 2016.

The information presently required to be held on beneficial owners includes name, date of birth, nationality, residential address and the nature and extent of the interest held. For the purpose of the current legislation, a beneficial owner is a natural person who ultimately owns or controls the share capital of that entity or has control by any other means. In this regard, a shareholding of 25% plus one share held by a natural person is an indication of direct ownership. Furthermore, a shareholding of 25% plus one share held by a corporate entity, which is under the control of a natural person(s) or by multiple corporate entities under the control of the same natural person(s), is an indication of indirect ownership.

Upcoming law

It will soon be the case that the information in these beneficial ownership registers (or some of it) will need to be shared in a central register of beneficial owners. The entities in question will be obliged to file this information through an online portal.

It remains unclear who will have access to this information. However, if the current text of the 5th Anti-Money Laundering Directive as proposed by the European Parliament becomes law, any member of the general public will have access to the information on the central register of beneficial ownership, in addition to national authorities like the Gardaí and the Revenue Commissioners.

The minimum information that will be available on the central register will be name, month and year of birth, country of residence, nationality and the nature and extent of the interest held by the beneficial owner.

Subject to having an ability to impose restrictions on access in certain circumstances – where there is a risk of fraud, kidnapping, blackmail, violence or intimidation, for example – member states will have the discretion to provide access to additional information to enable the beneficial owner to be identified.

Burden vs benefits

Entering into a business relationship with a company (whether as a customer, seller, lender, service provider or otherwise) without full knowledge of who the beneficial owner is might expose that organisation to significant risk – such as where that counter-party might be laundering the proceeds of crime or financing terrorism activities. Therefore, the need for accurate and up-to-date information on beneficial owners is a key factor in tracing criminals who might otherwise hide their identity behind a corporate structure.

Placing an obligation on a company to publicly maintain this information promotes transparency and drives efficiencies and consistency when it comes to a potential business counter-party accessing and assessing due diligence information on that company.

Once the level of information required from Irish companies on beneficial ownership can assist in the detection of criminal activity, the introduction of a means for business counter-parties to undertake meaningful due diligence on Irish companies can only serve to promote Ireland as an open and efficient place to do business.

Claire Lord is a Corporate Partner and Head of Governance and Compliance at Mason Hayes & Curran.