Governments have become more and more focused on the risks posed by opaque and confidential corporate structures. In particular the ability of a certain type of person to use such structures to hide the true ownership and origin of funds, thereby facilitating tax evasion and money laundering.
Most bodies set up to tackle these issues are of the view that for law enforcement agencies, being able to quickly and easily identify who really owns a company or a corporate structure, would be a huge boon to the fight against money laundering and tax evasion.
Recommendation 10 of the Financial Action Task Force (FATF) states that financial institutions should undertake customer due diligence measures to identify and verify the identity of the beneficial owner of the customer and not just the customer themselves. This is because it is the beneficial owner that really matters for money laundering, not the customer themselves.
This recommendation has been implemented in most countries who follow the FATF recommendations and it also extends to many non-financial institutions (including Elemental).These checks are done specifically by the financial institution though and they are not part of a government register of similar.
However, the UK has gone a step further in the Small Business, Enterprise and Employment Act 2015 (“SBEE“). Through the SBEE, the UKhas passed legislation to create a Register of Persons with Significant Control. This will require every company in the UK to maintain a register of every individual who holds or controls more than 25% of the beneficial interest in the company (Note: Please see here for the full test). Importantly, this register will be publicly available on the Companies House website for anyone to review.
In theory therefore, this achieves the desired aim of shining a light on any opaque or confidential structures involving UK companies. David Cameron (the UK Prime Minister) announced this policy to the G8 summit back in 2013 to great fanfare and he encouraged other countries to follow suit suggesting that it would be a great weapon in the fight against money laundering.
In many ways, this was a brave gesture. One of the factors that has discouraged countries from adopting policies to make it harder to use companies for illegal purposes, is the fear that increased regulation will harm other more legitimate businesses and maybe encourage businesses to utilise other jurisdictions. By taking a lead in this area, the UK has taken a risk and hopefully lead by example for others to follow.
On the other hand, the SBEE has not gone as far as David Cameron would like people to believe. There is no independent verification of the information on the beneficial owner register and it has no force of law relating to who the actual owner is.
Therefore, it would be naïve to think that those persons who are participating in illicit activity will disclose the true information on this register. In fact, Lord Blencathra, the former Tory home office minister David Maclean has gone further and claimed that this policy was a ‘purely political gesture’ designed to head off European attempts to curb the City of London.
So, will this idea go further and be adopted in other jurisdictions and potentially with some form of verification process? It can only be hoped, but I suspect that it will be a long and slow road.
Nick Lindsay is a director of Elemental, a corporate service provider who provides Escrow Agent services.