The 4th AML Directive Agreement – a pragmatic solution

George Hodgson

Reports suggest that late last night the EU Parliament and Member States finally reached an agreement on the 4th Anti-Money Laundering Directive. The agreement will see a  mandatory requirement for registration of beneficial owners for corporates, but is less than clear on the issue of public access to such a register, allowing access to be limited to those with a legitimate interest”.

On trusts the agreement calls for national registers to be established simply based on the information that will in any case be available to tax authorities. There is no requirement for public access or access by obliged entities, although obliged entities may be allowed access if a  Member State wishes. This looks like a pragmatic solution. Relying on tax information to compile the register should minimise bureaucracy and costs and the proposed access rules should help preserve legitimate confidentiality of trusts, many of which are established to protect the interests of vulnerable family members.

STEP has been proactively campaigning for some time on this issue and had recently provided a legal opinion to the Commission and others outlining that public access to any trust register was likely be in breach of the European Convention on Human Rights. We are pleased that our concerns on this point seem to have been recognised in the negotiations last night.

This is a great outcome and STEP will report more details of the arrangement, most likely in the new year.

George Hodgson is Deputy Chief Executive of STEP.

STEP England & Wales Biannual Statement – December 2014

aewpThere have been some important changes in the England and Wales Regional Committee since the last Chair’s statement in June. Most significantly Patricia Wass has recently finished her term as Chair of the Committee. As will be evident from the Committee’s recent statements Tricia has steered the Committee through a number of important discussions and decisions; not least as we face continued changes on regulatory and disclosure issues, legislative changes and the need to make sure that we meet the needs and aspirations of all our members. We are very grateful to Tricia for her commitment and contribution during her tenure as Chair.

Tricia will now be Vice Chair along with Rita Bhargava and I have taken on the role of Chair for the next two years.

Over the last six months the England and Wales Regional Committee has considered a number of policy, education and business development initiatives and opportunities. In all of this we are immensely grateful to the staff at STEP and those on various other Committees. I am extremely glad to be part of an organisation where we can call upon experts in a range of practice areas to make robust and considered responses to the many consultations, the outcome of which could significantly affect us and our clients.

FATCA is one such example and has occupied time at each of our meetings over the last six months as we grapple with its implementation in all its detail, what is ‘in scope’ and what is not. I am aware that the STEP Policy Team have spoken to practitioners about FATCA around the country and have worked closely with other professional organisations in producing updates and helpful materials.  We will now start to consider the Common Reporting Standard and how that will affect members and their clients.

On the topic of consultations, the Chancellor’s Autumn Statement indicates Treasury and HMRC have taken on board everyone’s comments about the proposed ‘settlement nil rate band’ and how unfairly that would operate, which is welcome news — even if we have yet to learn how new targeted rules will apply.

In the last Chair’s statement in June, Tricia referred to the new Code for Will Preparation in England and Wales. We will shortly be reviewing the Code to make sure that it is meeting its objectives as well as being workable in all respects. Mindful that we wish to be perceived as a gold-standard professional body, the Practice Committee will seek to be proactively involved in the Law Commission project looking at potential changes to the law around wills. We hope to have a guidance paper shortly as a first step.

Since June, STEP has also launched the Qualifications and Membership Framework with helpful information including FAQs on the STEP website. The new qualification system is simple and enables STEP to standardise entry requirements and create flexibility in how an individual can achieve membership of STEP through examination. This is an exciting initiative as part of STEP’s commitment to providing training for life designed to assist members in their career development.

The Committee have also had discussions around the 2021 Business Plan over the last six months and will continue to do so as we look at ways of strengthening the STEP brand and its offering, making it relevant to all members but especially younger members as we prepare for the future.

Once again the Autumn Conferences have been well received and attended and, again, our thanks are due to the STEP Events Team for the administration and coordination of these valuable occasions. In addition to the educational subject matter, these events allow us to meet with old friends and make new ones.  So much of our work is built around our network of friends and contacts and it is great to have these opportunities. The second annual SIG Half Day Conferences were also held over the past two weeks at the STEP Worldwide office in London. Just as last year, they all proved to be stimulating occasions and were well attended.

No report on conferences would be complete without reference to STEP’s inaugural Global Congress in Miami last month. While many of us were not able to attend, it was, by all accounts, a great occasion and highlights our role as a truly industry-leading international organisation. As we continue to expand, and with a growing number of our clients facing industry imperatives across many jurisdictions, and with a number of regulatory changes such as FATCA, anti-money laundering initiatives and the Common Reporting Standard impacting our work, the skills and expertise of our members is of paramount importance. Events like the Global Congress help us keep our finger on the pulse of industry changes around the world and maintain a professional edge for our clients.

September brought about the ninth annual STEP Private Client Awards, which saw 700 professionals from around the world celebrate the excellence of our peers. This year set a new record for nominations with 240 submitted across 21 award categories. I was very pleased to see so many practitioners from England and Wales take home a coveted PCA.

Finally, Branch Chairs should have received notification of the forthcoming Assembly at the STEP Offices on Friday 13th February when we will hear more about some of the initiatives mentioned above as well as welcoming guest speaker Professor Elizabeth Cooke from the Law Commission who will talk about the Law Commission project around wills.  I look forward to meeting the Chairs or a representative from their Branch then.

Wishing everyone a peaceful Christmas and prosperous New Year.

Alex Elphinston TEP is Chair of STEP’s England and Wales Regional Committee

Battle Over Exempting Trusts From Public Registry Continues Between EU and UK

blog-banner-atomium

This article originally appeared at ACAMS moneylaundering.com 

On the eve of key behind-the-scenes talks on the Fourth European Union Anti-Money Laundering Directive, the rift over proposals for the public register of trusts has widened between the United Kingdom and Europe.

Officials from the European Parliament, Commission and Council are set to meet Tuesday to discuss the plans in a ‘trialogue’ meeting, according to a Brussels-based source close to the matter. Trialogues are informal and unpublicized discussions that play a key role in legislative proceedings.

It is expected that a formal EU announcement on the matter will be made by December, however, even that could be pushed back further as sharp divisions over the issue of public registers persist between leading member states.

The UK has embarked on plans to become the first country in the world to have a public register of ultimate beneficial ownership of companies, but it is vehemently opposed to one for trusts as proposed by the European Parliament.

On Friday it maintained its stance, with a Treasury spokesman saying that while British action to improve transparency remains ‘unmatched’ globally, trusts must not be treated the same as companies.

‘Trusts are widely used by many UK citizens, where there is often little or no risk of money laundering,’ he said.

Strong opposition against a register of trusts and companies is also brewing from legal professionals in London.

Publicizing ownership would be ‘intrusive’ into the financial affairs of individuals who wish to keep them private, lawyers argued last week during a debate on privacy and the government’s plans for public registers. Executives of companies targeted by activists could also be harassed or kidnapped if their personal information was publicity exposed, a senior practitioner said.

A private register accessible to law enforcement agencies and regulatory authorities is a better option, attendees said at the event, hosted at the London offices of Mishcon de Reya.

Beneficiaries of trusts would also be vulnerable if their identities were made public, including children or handicapped family members, according to George Hodgson, deputy chief executive of the Society of Trusts and Estate Practitioners.

‘To expose the names of such beneficiaries on a public register strikes us as having some obvious risks and dangers attached to that process,’ said Hodgson, who is also a former staff member of the Treasury Committee of the UK House of Commons.

Trusts are perceived as instruments for money laundering and tax evasion in continental Europe, whereas in England they are actually mainly family-oriented structures, British lawyers say.

Plans to publicize the owners of trusts are ‘very alarming’ and constitute a ‘considerable misunderstanding’ of the general use of trusts on the basis that most trusts are basically structures to let assets pass smoothly from one generation to another, Hodgson explains.

Still, a number of well-documented cases show trusts have been misused for illicit proceeds, so trusts are not only used for inheritance or for children but have been an integral part in money laundering and corruption, according to Christian Hallum, senior policy analyst at Eurodad (European Network on Debt and Development), which recently publicized a report outlining the varying positions of several EU states on the issue of public registers.

Some of the concerns the UK has voiced can, moreover, be addressed by the push within the European Parliament for member states to protect personal information, particularly of vulnerable individuals, and allow its disclosure on a risk-based approach, he added.

A UK HMRC study found that 15 percent of trusts have vulnerable beneficiaries, of which a third were minors and an additional 17 percent were elderly, he said.

‘As such, the vast majority of trusts are not used for truly vulnerable people,’ Hallum explained.

One way forward on the matter perhaps is that ‘serious consideration be given to adopting a licensing system of corporate service providers (including registration agents) which has been successfully utilized in a number of international finance centers,’ according to Ian Kirk, partner and head of commercial at Collas Crill, who also backs a registry only accessible to competent authorities.

Those corporate service providers would also be responsible for verifying beneficial ownership and source of funds, he said.

But given the appetite in the EU for a public register of trusts, politics rather than issues of privacy or practicality will win the day, Kirk states.

STEP Wealth Structuring News Digest wrap-up – November’s top stories

blog-banner-clocks

Need to catch up on a month’s worth of news in just a few minutes? Welcome to the wrap-up of the top ten most popular stories in the STEP Wealth Structuring News Digest throughout November. In case you missed them, here are the worldwide industry news stories most viewed by our readers.

G20 summit agrees beneficial ownership policy: G20 countries have adopted a policy document containing ten principles intended to improve the transparency of beneficial ownership of companies and trusts. Among them is a requirement that trustees of express trusts and similar entities maintain adequate information on settlors and beneficiaries and make it available to the authorities, but it stops short of demanding a central registry of beneficiaries.

Twenty per cent surcharge tax for owners of second homes in high-demand areas: The property tax imposed on owners of second homes in France (taxe d’habitation) would rise by 20 per cent in high-demand areas in January 2015, under proposals in the French government’s latest supplementary budget.

New FATF guidance stops short of trust registries: The international Financial Action Task Force (FATF) has published new guidance on transparency and beneficial ownership measures to deter the misuse of companies and trusts. Significantly, it does not follow European Union calls for compulsory registries of trusts, nor for public access to such registries if they exist.

Senior UBS executive Raoul Weil acquitted in US trial: A US court has acquitted the former head of UBS’s global wealth management unit of helping American clients evade taxes on USD20 billion of undeclared assets. Raoul Weil was extradited to the US while on holiday in Italy a year ago. His defence attorneys did not call any defence witnesses at his trial in Florida.

Duma passes de-offshoring bill: Russia’s parliament has voted to enact a government bill to force Russian citizens and companies to pay tax on retained earnings and assets of foreign companies under their control.

Switch to OECD reporting may cost non-doms their privacy: Britain’s adoption of the Organisation for Economic Cooperation and Development (OECD) automatic information exchange agreement could deprive non-doms of their right to keep offshore bank accounts secret from HM Revenue and Customs, according to law firm Pinsent Masons. The reporting agreements now in place between London and the Crown Dependencies and British overseas territories only require banks to report non-dom clients’ remitted income, but the OECD reporting standard does not contain any such exemption.

Renouncing citizenship may not shake off tax burden: Renouncing US citizenship is not only a difficult process, but it may not even provide a reliable exit from the US’ worldwide tax net, says Canadian law firm Moodys Gartner. US tax law restricts loss of citizenship for tax purposes further than immigration law does, so unwary individuals could potentially lose their citizenship under immigration law and still be treated as a US citizen for tax purposes.

Credit Suisse fined over tax evasion charges: Credit Suisse is to pay the US authorities USD2.6 billion in ‘fines and restitution’ for allegedly helping American clients evade tax for a period spanning several decades.

RBC exits Caribbean wealth business: Royal Bank of Canada is closing its Caribbean wealth management business and considering a reduction of its Swiss operations, to focus more on clients in Canada, the US, the UK and Asia.

Row over EU public register of foundations and trusts remains deadlocked: The EU negotiations surrounding the new 4th AML Directive appear to remain deadlocked over the EU Parliament’s demand for publicly accessible registers showing all beneficial owners of both foundations and trusts. Many practitioners in civil-law countries seem unaware that the EU’s proposals for public accessible registers include not just trusts but also foundations and all similar structures. STEP remains opposed to a public register. The negotiations are scheduled to conclude shortly, with the Directive due to be finalised by the end of the year.

The STEP Industry News Digests provide a round-up of relevant industry news for trust and estate practitioners and other professionals in the wealth management sector. They provide brief summaries of topical news stories gathered from news providers internationally, providing a quick reference for busy practitioners to all the relevant news and issues. The News Digests also feature job listings from our recruitment site and list local STEP branch events and conferences. STEP’s digest services include twice weekly UK and Wealth Structuring (international) editions as well as a bi-weekly North America Digest focusing on the US, Canada and Mexico, and a Latin America Digest.

To subscribe to STEP’s digest services you will need to first register here: http://www.step.org/register

STEP UK News Digest wrap-up – November’s top stories

blog-banner-stpauls

The year is drawing to a close but there has still been plenty of activity in the private wealth sector throughout November. Welcome to the wrap-up of the top ten most popular stories in STEP’s online UK Digests throughout November as clicked by our readers.

Woman who disowned mother fails in claim on estate: A woman who wrote to her mother formally disowning her and wishing her dead has forfeited her right to a claim under the Inheritance (Provision for Family and Dependants) Act 1975 on her mother’s estate, the England and Wales High Court has ruled in Wright v Waters (2014 EWHC 3614 Ch).

Prison sentence for solicitor who overcharged client’s estate: Carmarthenshire solicitor John Owen has received a five-year jail sentence for charging GBP1 million of fraudulent fees to a deceased client’s estate while acting as his sole executor.

New tax planning opportunities under flexible pension drawdown rules: An expert at tax advisory firm Baker Tilly examines the inheritance tax planning opportunities offered by the new pension flexibility rules, under which families may be able to use pension funds as multi-generational trust funds.

Power of attorney cannot be used for IHT planning: The Court of Protection has ruled that a power of attorney cannot be used to organise the donor’s financial affairs for inheritance tax planning purposes without first applying for a court order under s23(4) of the Mental Capacity Act. The exception is the attorney’s s12 power to make reasonable gifts on customary occasions, said Senior Judge Lush in the case of Public Guardian v AC (2014 EWCOP 41), in which the attorney happened to be a professional financial advisor.

Brother rejected as deputy after failing to notify relatives: The England and Wales Court of Protection has ruled on the case of an elderly man, RM, who had to go into a care home following a stroke. His brother then emptied RM’s house of its contents and installed his own son as a tenant without notifying RM’s stepsons.

Professional sanctions on tax scheme promoters will trigger HMRC conduct notice: Draft regulations have been published setting out the conditions under which a tax planning scheme promoter who has been disciplined by his or her professional body will be issued with an HMRC conduct notice under the Promoters of Tax Avoidance Schemes legislation.

Beneficiary permitted to sell farm while will is disputed: The England & Wales High Court has ordered the removal of a caution lodged at the Land Registry regarding a Derbyshire farm formerly owned by the late Arnold Seals. The caution was lodged by his adult children, who are challenging a will in which Seals left his share of the farm to a friend.

Three more tax planning schemes added to accelerated payment list: HM Revenue and Customs (HMRC) has updated its list of tax avoidance schemes whose users may be forced to pay an accelerated payment before any tribunal has ruled on the scheme’s validity. Three schemes have been added and eight removed. Scheme users will, at some time in the next 18 months, receive a demand to pay within 90 days.

Cardigan family trustees ordered to repay remuneration and compensation: A judge in the England and Wales High Court has ordered John Moore, one of the trustees of the Cardigan family trust, to repay to the trust the sums he received in respect of remuneration (GBP118,000) and ordered his removal as trustee. The trustees have also been ordered to repay GBP64,225 to the trust by way of compensation for failing to repair and re-let a property and to take steps to obtain possession of another. (Brudenell-Bruce v Moore & others, 2014 EWHC 3679 Ch.)

Apprenticeships for probate practitioner training: The government has approved a licensed probate practitioner apprenticeship under the Trailblazer programme, aimed at boosting the number of qualified individuals entering the estates practice profession. The apprenticeship is expected to take three to five years to complete.

The STEP Industry News Digests provide a round-up of relevant industry news for trust and estate practitioners and other professionals in the wealth management sector. They provide brief summaries of topical news stories gathered from news providers internationally, providing a quick reference for busy practitioners to all the relevant news and issues. The News Digests also feature job listings from our recruitment site and list local STEP branch events and conferences. STEP’s digest services include twice weekly UK and Wealth Structuring (international) editions as well as a bi-weekly North America Digest focusing on the US, Canada and Mexico, and a Latin America Digest.

To subscribe to STEP’s digest services you will need to first register here: http://www.step.org/register