Update: TRS now open to agents

Simon HodgesUpdate: 19 October

HMRC has asked us to disseminate the following:

‘The new TRS is now available for agents to use. As part of this online process, agents will be taken through the steps to create an Agent Services account before they can register on behalf of trustees.

Agents use the link from www.gov.uk/trusts-taxes/trustees-tax-responsibilities to register a trust. As part of that journey, the agent will be asked to create an Agent Services account, and the agents will be directed to request access to the Trust Registration Service by email. The agent will receive a response from HMRC giving them access to Agent Services and some guidance on what to do next. Once they have created an Agent Services account they will be directed to the Trusts Registration iform.

In registering for an Agent Services Account they will have been identified as seeking to access the TRS, and will not be offered the option of linking existing government gateway IDs and client relationships. This is only undertaken by agents participating in the controlled go live of MTDfB.’

We are aware, however, that there are reports that Agent Services – and, therefore, TRS – will not be fully live for agents until the end of October or the beginning of November, though this may be subject to change. We will update members as and when we get more information. In the meantime, we have reported on the TRS issues in today’s Industry News: UK Online Trust Registration Service now available to agents.

Original blog

HMRC has confirmed that, from last night (17 October), the Trust Registration Service (TRS) is now available to agents filing on behalf of trustees. This follows last week’s announcement, that due to technical errors, there were delays in allowing agents access to the system.

HMRC has also confirmed that there will be no penalty imposed where registration is completed after 5 October 2017 but before 5 December 2017. STEP has inquired with HMRC whether there is any potential flexibility in that deadline, and we will update members on the outcome of those discussions. However, at the time of writing, the deadline of 5 December remains.

HMRC’s statement in full:

‘From today, the Trust Registration Service (TRS) is available to agents filing on behalf of trustees. Please see the following link for further details on how to gain access to the TRS: www.gov.uk/trusts-taxes/trustees-tax-responsibilities.

The new TRS allows agents, acting on behalf of trustees, to register trusts and complex estates online and to provide information on the beneficial owners of those trusts or complex estates. The new service, which was launched in July 2017 for lead trustees, replaces the 41G (Trust) paper form, which was withdrawn at the end of April 2017. This is now the only way that trusts and complex estates can obtain their SA Unique Taxpayer Reference. As part of this online process, agents will be taken through the steps to create an Agent Services account before they can register on behalf of trustees.

In this first year of TRS, to allow sufficient time to complete the registration of a trust or complex estate for SA and provide beneficial ownership information, there will be no penalty imposed where registration is completed after 5 October 2017 but before 5 December 2017.

For both UK and non-UK express trusts which are either already registered for SA or do not require SA registration, but incur a liability to relevant UK taxes, the trustees are required to provide beneficial ownership information about the trust, using the TRS, by 31 January following the end of tax year. This means, if the trustees of a UK or non-UK express trust incurred a liability to any of the relevant UK taxes in tax year 2016-17, in relation to trust income or assets, then the trustees or their agent need to register that trust on TRS by no later than 31 January 2018.

The relevant taxes are:
• income tax
• capital gains tax
• inheritance tax
• stamp duty land tax
• stamp duty reserve tax
• land and buildings transaction tax (Scotland).

The new service will provide a single online service for trusts to comply with their registration obligations. This will improve the processes for the administration of trusts and allow HMRC to collect, hold and retrieve information in a central electronic register.

More information is available in HMRC’s September Trusts & Estates Newsletter.

Finally, on Monday 9 October we published our guidance in the form of an FAQ note to help our customers understand the TRS requirements.’

Simon Hodges is Director of Policy at STEP.

Technical hitches remain for access to UK Trust Registration Service

Simon HodgesAgents remain unable to access the Trust Registration Service (TRS) after technical errors were identified in the system, HMRC has confirmed. However, the deadline for completing the register of a trust for self-assessment and providing beneficial ownership information remains 5 December 2017.

This news comes shortly after HMRC published its comprehensive guidance for the new online register of trusts on Monday 9 October, following the launch of the service in July 2017. This was to be the first phase, allowing trustees to access the TRS, and so ensuring that HMRC met with the basic legal requirements of the EU Fourth Anti-Money Laundering Directive.

The second phase, allowing agents to access the TRS on behalf of trustees, was to be delivered in October. However HMRC has notified STEP that it has identified technical errors in the course of testing this phase. HMRC reassures us that it is resolving these issues as quickly as possible, so that the system works from the moment it is released.

HMRC has also reiterated the timeline, noting that there will be no penalty imposed where registration is completed after 5 October 2017 but before 5 December 2017.

HMRC has said it will provide STEP with an update next week. We will keep members informed.

Simon Hodges is Director of Policy at STEP

Proposed EU rules for tax planning intermediaries

European flags in BrusselsIn June 2017 the European Commission published draft legislation containing new rules for tax-planning intermediaries who design or promote cross-border tax planning arrangements. The stated objective is to identify and assess schemes that are potentially facilitating tax evasion or avoidance in order to block harmful arrangements in the early stages.

The proposals require intermediaries to report details of any arrangement that features defined ‘hallmarks’ (outlined below) to their own tax authority within five days, beginning on the day after the arrangement was made available to the taxpayer.

The new proposals are an amendment to the Directive for Administration Cooperation (DAC) and will be submitted to the European Parliament for consultation and subsequent adoption. It is anticipated that they will take effect on 1 January 2019.

Intermediaries

‘Intermediaries’ has a wide definition within the proposals and is described as anyone ‘designing, marketing, organizing or managing the implementation of the tax aspects of a reportable cross-border arrangement, or series of such arrangements, in the course of providing services relating to taxation.’

An intermediary could be a company or professional, including lawyers, tax and financial advisors, accountants, banks and consultants. An advisor who deals with any type of direct tax such as income, corporate, capital gains, inheritance tax, etc, will fall into the reporting remit.

Hallmarks

A tax-planning arrangement will be considered reportable if it features a ‘hallmark’ that is defined within the Directive, and the onus will be on the intermediary to report it. These hallmarks are considered to be characteristics within a transaction that may enable the arrangement to be used to avoid or evade paying taxes.

If one of more of the following hallmarks is identified then the arrangement must be reported:

• A cross-border payment to a recipient in a no-tax country.
• Involvement with a jurisdiction with weak or insufficient anti-money laundering legislation.
• An arrangement set up to avoid reporting income in accordance with EU transparency rules.
• An arrangement set up to circumvent EU exchange requirements for tax rulings.
• If it has a direct correlation between the fee charged by the intermediary and the amount that the taxpayer will save in tax avoidance.
• If it does not ensure that the same assets benefit from depreciation rules in more than one country.
• If it does not enable the same income to benefit from tax relief in more than one jurisdiction.
• If it does not respect EU or international transfer pricing guidelines.

Reporting

The Member State in which the arrangement is reported must automatically share the information with all other Member States via a centralised database on a quarterly basis. The information needs to be completed using a standard format, which will require details of the intermediary, the taxpayer and the scheme being recommended. Member States are obliged to implement proper penalties if intermediaries fail to adhere to the reporting requirements, and each Member State has to enforce its own national sanctions.

Objective

Some Member States already have mandatory reporting requirements in place for intermediaries, such as the UK, Ireland and Portugal. The reporting requirements are designed to assist Member States in closing loopholes when it comes to tax abuse as well as deterring the use of aggressive tax planning schemes across the EU.

STEP will continue to monitor developments in relation to these new measures, and will inform members of any new information as soon as it is released.

Emily Deane TEP is STEP Technical Counsel

Policy watch: Debating the UK Finance Bill

Simon HodgesSTEP members may be interested in a reasoned debate that took place last Wednesday, 6 September in the UK House of Commons, which gave some insight into the view of both the opposition and the government as to how offshore trusts are perceived.

Parliament came back from its summer holidays last week, albeit not for long (it goes back into recess on Thursday when MPs go off for conference season), but already lively discussions have been had over tax issues as part of a debate on the elements of the Finance Bill that were held up before the summer due to the general election.

Overall, 48 Finance Bill resolutions were left outstanding from the previous session. With the Brexit bill seemingly taking up most of the short amount of parliamentary time available this month, this bit of legislative housekeeping didn’t attract the biggest crowd but raised some interesting points none the less.

The 48 resolutions were debated together, though some areas were clearly more interesting to MPs than others, not least the issue of non-domiciled tax status. Speaking on the subject, Mel Stride, the Financial Secretary to the Treasury, said that the measures in the Finance Bill would help to make the tax system fairer while also forecast to raise GBP1.6 billion over the next five years. He added that: ‘Most importantly, permanent non-dom status for people resident in the UK will be ended, so that they pay tax in the same way as everybody else.’

Peter Dowd, Labour’s Shadow Chief Secretary to the Treasury, naturally disagreed, calling the measures on domicile ‘sieve-like’ and arguing that the rules on business investment relief ‘will allow non-doms to remit funds into the UK without paying usual taxes’. Wes Streeting, a Labour MP sitting on the Treasury Committee, said that ‘the Government are saying clearly “if you have a trust overseas before the rules kick in, don’t worry; we’re not going to touch that money”.’ He went on to say that he recognised that many are family trusts – and, later still, that he understands the ‘parental instinct’ to want to pass on assets – but argued that there was an unfairness in not applying retrospective changes to non-doms in the same way as different measures affect many others.

Concluding the debate for the government, Stride addressed what he saw as Labour criticisms of offshore trusts, stating: ‘Let me be clear again: if funds are taken out of trusts, they will be taxed in the normal way. In recent years, we have reached important international agreements on the automatic exchange of information to ensure that we can effectively monitor those movements.’ Addressing Streeting’s points, Stride reiterated that funds remitted out of non-dom trusts will be taxable. But addressing the idea of greater parliamentary scrutiny of HMRC – Streeting has suggested the Treasury Committee could look at its work more closely – Stride argued that ‘the idea of politicians getting directly involved in the tax affairs of individuals…would be a dangerous road to go down. I do not want politicians interfering in people’s tax affairs; I want to protect tax confidentiality’.

Under Jeremy Corbyn, Labour will likely return to some of these issues again, possibly at its party conference later this month. For the Conservative government, for now they will move on and publish the draft clauses for the Finance Bill to follow the Autumn Budget this Wednesday, 13 September 2017. The consultation on these draft clauses will be open until Wednesday 25 October 2017.

 

Simon Hodges is Director of Policy at STEP

Trustees, have you got your LEIs?

Emily Deane TEPThe Global Legal Entity Identification Foundation (GLEIF) has designed a system whereby every ‘legal entity’ will need to register and obtain a unique identification number – a Legal Entity Identifier (LEI) when new European legislation, the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) takes effect in the UK.

If the entity does not obtain an LEI it will not be able to trade on the financial markets in the UK after 3 January 2018.

The London Stock Exchange (LSE) requires investors who are deemed to be legal entities to obtain the LEI, which is a 20-character alphanumeric reference code unique to the legal entity.

Legal entities include trusts (but not bare trusts), companies (public and private), pension funds (but not self-invested personal pensions), charities and unincorporated bodies that are parties to financial transactions. If the LEI has not been obtained by 3 January 2018, the investment firms will not be able to meet their obligations and provide the legal entity with investment services.

What is the purpose of LEIs?

All LEI data will be consolidated in one database in an effort to improve global entity identification and standardisation, which will enable regulators and organisations to measure and manage counterparty exposure. In addition it will enable every legal entity or structure with an LEI to be identified in any jurisdiction. Once the legal entity has the LEI, it will be required to quote it to the requisite service provider when it enters into a reportable financial transaction. Every financial transaction will require sight of the LEI in order for it to be processed.

Do trusts need one?

The regulations require trustees who are using capital markets in relation to trust funds to obtain the LEI for the trust. We understand that bare trusts have been excluded from the requirement to obtain an LEI (depending on whether the firm classifies bare trusts as legal entities or as individual/joint accounts) but all other trusts will be obliged to obtain one if they are parties to financial transactions.

In the case of discretionary trusts which have legal restrictions and cannot disclose trust details, the LSE will accept a validation from the trust itself, and will not require sight of the trust deed. However, in all other cases the LSE will generally accept a scanned copy of the first couple of pages of the trust deed in the same way that many banks do for AML compliance. Entities other than trusts are obliged to provide information such as their official registry details and business address.

Issues around trusts

When you apply for the LEI you will be asked to reference the source of its identity, such as Companies House if it is a company registered there. However, there is no equivalent register for trusts. It may be possible to use the trust’s Unique Tax Reference (UTR) from HMRC’s tax return to identify it. This would appear to be a sensible approach for the purpose of minimising the number of LEIs for a trust with multiple funds; however some larger trusts may apply for an LEI covering all of the sub-funds regardless of the UTR. There is still no guidance available on this point.

Renewal

Every entity will be required to renew its LEI on an annual basis and there will be a charge for renewal. To renew your LEI you must provide the Local Operating Unit with updated information, so that it may verify the data held.

However the FCA update dated 2 August 2017 clarifies that the requirement under MiFID II to renew the LEI on an annual basis applies to firms that are subject to MiFIR transaction reporting obligations, and in the UK, under our implementation of MiFID II, to UK branches of non-EEA firms when providing investment services and activities.

This recent update clarifies that trusts will not need to renew their LEIs on an annual basis unless they want to continue undertaking financial transactions.

What if I don’t apply?

If the LEI has not been obtained by 3 January 2018, investment firms will not be able to provide the legal entity with investment services. The legal entity itself is ultimately responsible for obtaining the LEI, but some investment firms may agree to apply for the LEI on behalf of their legal entity clients. The LSE has produced a draft format which will be acceptable in order to transfer the application authority from the entity to a third party such as a management company, if preferred.

Registration information

Each Local Operating Unit (LOU) may charge a fee for arranging the LEI and the fee may variable at each Operating Unit. You can find a LOU on the GLEIF website.

For more details on how to request your LEI, see the guides:

Quick User guide (pdf)
Full LEI User Guide (pdf)

It is widely acknowledged that guidance is lacking in this area, and the private client sector is keen to see some more prescriptive guidance in relation to trusts before the end of the year.

Emily Deane TEP is STEP Technical Counsel

Are you prepared for the UK’s new corporate criminal offence?

HandcuffsSTEP advised members earlier this year that the Criminal Finances Act 2017 received Royal Assent on 27 April 2017. The Act contains the new corporate criminal offence of ‘failure to prevent the facilitation of tax evasion’, which is anticipated to take effect in September 2017.

Even though tax evasion and facilitation of tax-related crimes are already criminal offences, it has previously been difficult to pin these offences on a corporation or partnership such as a law firm. The new legislation will create a liability on the employer for the actions of its employees and ‘associated persons’ who knowingly facilitate any tax evasion. The definition of ‘associated person’ is very wide in scope and will include employees, partners, consultants and also agents and anyone performing services for or on behalf of the company or partnership.

The Act applies to LLPs and partnerships as well as companies. It does not alter what is criminal but who should be liable for the criminal act.

There are three elements to the new offence:

1. The criminal UK or non-UK tax evasion by a taxpayer under the current law.

2. The criminal facilitation of this offence by an associated person acting on behalf of the company.

3. The company failed to prevent the associated person from committing the criminal act at stage two.

The legislation creates two new offences – a UK offence and an overseas offence. If a UK tax offence is committed then it is irrelevant if the company or associated persons are not UK-based. In accordance with the new legislation, the offence will have been committed and can be tried in the UK courts. This stance reinforces the UK’s position that any individual can be guilty of a UK tax evasion offence, regardless of their location, if they assist someone else to evade UK tax.

If non-UK tax is evaded then the company will be liable for the offence if they have a place of business in the UK, or if any of the facilitation took place in the UK.

Defence

There will be a defence available if the employer put in place reasonable prevention measures, but otherwise the offence is strict liability, and the employer may face criminal prosecution, financial penalties and reputational damage. A reasonable prevention procedure is one that ‘identifies and mitigates its tax evasion facilitation risks’ which will make prosecution more unlikely.

Advice for members

HMRC’s draft guidance dated October 2016 provides six guiding principles that companies should consider when interpreting the new legislation:

Risk assessment

Companies should assess their own risk exposure level in relation to their employees engaging in the facilitation of tax evasion in the course of business. The guidance notes that the bodies most affected by the new offence will be those in financial services, including the legal and accounting sectors. These bodies are advised to review the following additional guidance: The Financial Conduct Authority’s (FCA) guide for firms on preventing Financial Crime, the Law Society’s Anti Money Laundering Guidance, particularly Chapter 2 and the Joint Money Steering Group (JMLSG) guidance.

Proportionality of risk-based prevention procedures

It is anticipated that relying upon existing in house anti-money laundering procedures will not be sufficient to satisfy the defence of having prevention procedures in place. The guidance explores some of the varying common elements that would be considered to be reasonable prevention procedures.

Top level commitment

The top level management of each company should be committed to raising awareness and establishing safeguards intended to prevent the facilitation of tax evasion amongst its employees. Procedures include communication and endorsement of the new legislation within the company, as well as development and review of prevention procedures.

Due diligence

The company should mitigate any risks that it identifies by way of applying advanced due diligence procedures. The guidance notes that bespoke financial or tax related service companies will face the greatest risk, and that merely applying existing procedures will not be an adequate response to mitigating their exposure. New procedures are expected to be applied clearly in conjunction with the new legislation.

Communication (including training)

The company must ensure that its new prevention procedures are widely communicated and understood through internal and external communication with all employees. This communication may vary depending upon the size of the company, however training must be provided, and a zero tolerance policy for facilitation of tax evasion and its consequences must be properly communicated.

Monitoring and review

The company must put in place ongoing monitoring mechanisms and reviews to ensure that the system is effective, and it must make improvements where necessary. The company may choose to have reviews conducted by internal or external parties.

While HMRC’s guidance contains some useful terminology and case studies, it is recognised that further guidance is needed in this area. We understand that HMRC is working with industry bodies to support them in producing more specific guidance and STEP will keep you updated accordingly.

Emily Deane TEP is STEP Technical Counsel

MoJ in special measures on charges?

Businesman blows whistle and shows red card
STEP was one of the bodies most actively engaged in the furore that developed around the Ministry of Justice’s (MoJ) proposal to raise probate fees for some estates from £155/215 to as much as £20,000.

One of the things that enraged many STEP members was not just the scale of the increase, but the fact that overwhelming criticism in response to the consultation on the proposals had been entirely disregarded. Moreover, the mechanism by which the MoJ were looking to introduce the new fee – via a Statutory Instrument with minimal Parliamentary scrutiny – appeared to be a clear abuse of process; a view confirmed by a legal opinion commissioned by STEP.

In the end, the increase in probate fees appears to have been shelved, at least for the time being. It has recently emerged, however, that it is not just probate fees that have been getting the MoJ into a spot of hot water. Fees for Powers of Attorney were also raised to levels that more than covered costs, but the MoJ had again failed to follow the procedures needed in these circumstances. Fees for Powers of Attorney have since, with effect from 1 April 2017, been reduced, and the Office of the Public Guardian is looking at ways to refund those who have paid too much. (See Justice ministry to repay GBP89 million of powers of attorney overcharges.)

Even more intriguingly, the MoJ, in its Annual Report, has let slip that it is ‘undertaking a review of lessons learnt [from the Powers of Attorney fees issue] which has led to the creation of a new income strategy unit which will oversee the standards and controls set for all income streams.’

The Report goes on to say: ‘There have also been a number of improvements to the way in which we forecast and monitor fees to ensure compliance with requirements set by HM Treasury.’

Stripping through the civil service code, this sounds like there has been fairly sharp exchange of views between HM Treasury and the MoJ over fees that begin to look like taxes, with Treasury no doubt highlighting that there are supposed to be rules and procedures when it comes to this sort of thing.

The funding gap left by the failure to get the probate fee increase through before the election still needs to be addressed. How the MoJ will eventually fill that gap remains to be seen. It sounds, however, like we can at least expect the MoJ to pay a bit more attention to due process when this issue next comes up than it was minded to earlier this year.

George Hodgson is Chief Executive of STEP

Information exchange reporting FAQs

Emily Deane TEPWith reporting now underway in the UK for both FATCA and the Common Reporting Standard (CRS), STEP has been liaising with HMRC on some of the finer points of reporting.

Can I still submit CRS amendments?

There is some time available following the 31 May 2017 deadline for submission of amendments or corrections. If you need to submit an amendment within the first few weeks of filing then HMRC should be able to include the amendments in the first exchange scheduled for 30 September and the information will be sent to the relevant jurisdiction.

What are the penalties for late CRS reporting?

HMRC has confirmed that they will take a soft approach towards penalties in the early stages of CRS (like FATCA, the US Foreign Account Tax Compliance Act ) – particularly if there are CRS system errors that incur late filing. However, a harder approach may be taken towards people who are deliberately negligent with their filing.

FATCA: what do I do if a US TIN is unavailable?

It has previously been identified that in some cases a nine-zero approach will be accepted when a TIN (Taxpayer Identification Number) is unavailable. Some accounts are being filed with missing TINs which causes difficulties because the system will respond that it has been submitted in an incorrect format. The ‘missing TIN’ cases are inevitably causing issues for users and HMRC and HMRC is waiting for feedback from the IRS later this year on how to resolve it. It may be deemed acceptable that the nine-zero approach continues in the short term.

I have received a FATCA renewal message, what do I do?

If you have received a FATCA renewal message for an FI (Financial Institution) from the IRS then you will need to login, check that renewal is not required and confirm that. For further information see p 84 of FATCA Online Registration, which says ‘FIs notified of the potential need to renew their agreement should login to the FATCA Online Registration System and view the ‘Renewal of FFI Agreement’ page … FIs must determine if they need to renew their agreement and then must submit their determination … All FIs should follow steps 1 through 4 below to determine if they must renew their agreement’.

What is the deadline for client notification?

The UK Client Notification Regulations came into force on 30 September 2016. The obligation for practitioners to notify any clients with offshore accounts and assets that HMRC will soon begin to automatically receive data from over 100 jurisdictions relating to UK tax residents and their offshore accounts, in accordance with the UK’s automatic exchange of information agreements, must be met by 31 August 2017. See this STEP blog for more information.

STEP will continue to consult with HMRC on ongoing technical issues.

Resources:

Emily Deane TEP is STEP Technical Counsel

CRS reporting update, June 2017

Emily Deane TEPSTEP attended the most recent CRS Business Advisory Group hosted by HMRC and discussed the following issues:

FAQs

HMRC advised that new documents on the OECD portal have been published along with some additional FAQs.

Anti-avoidance

Members were interested to know when the OECD will publish its loophole paper which will review loophole reporting strategies.

HMRC advised it does not expect imminent changes to the OECD’s anti-avoidance strategy but does expect a review prior to that planned in 2019.

In the meantime, the OECD has launched a facility for parties to disclose CRS schemes which are potentially used to circumvent CRS reporting.

US TINs – invalid format

The number of the US Taxpayer Identification Number (TIN) to be submitted has to be in a certain format, otherwise the return will be rejected.

In some cases a nine-zero approach will be accepted but some accounts with missing TINs are causing difficulties having been submitted in an incorrect format. The ‘missing TIN’ cases are inevitably causing issues for users and HMRC. Members agreed that there will be problems next year when the nine-zero approach will no longer be accepted.

HMRC recognises these difficulties and has been liaising with the IRS regarding the TIN issues. A member also mentioned that the issue was being raised by industry groups in EU circles.

Invalid self-certifications

Members agreed that HMRC’s guidance is ambiguous if a self-certification is returned to the financial institution but contains errors. For example, would HMRC accept a self cert that had been returned, but not signed, in a time sensitive case?

HMRC declined to generalise on self-certification issues, stating that each example has to be judged on its own specific issues. It confirmed that it is up to the financial institution to decide whether it is satisfied that a person is non reportable. The financial institution should apply due diligence procedures based on guidance and common sense.

The mediation period and the cut off timing were also discussed. HMRC stated that it is up to the individual financial institution’s procedures as to the cut off. It was agreed that it can be a grey area with some contradictions, and in some cases the financial institution may need to decide whether a person is reportable, whilst the validation is undertaken. More clarity on this issue was requested from HMRC.

HMRC customer support

HMRC has been receiving increasing numbers of calls from clients of financial institutions, rather than the financial institutions themselves. This is causing problems, particularly when close to filing dates. As a result, HMRC has asked financial institutions to omit its contact details from notes that accompany the self-certifications, stating these are not relevant to clients and it does not have the resources to deal with additional queries.

STEP will continue to attend the periodic working group to discuss ongoing technical issues with HMRC.

Resources:

STEP Guidance Note: CRS and trusts
Live STEP webinar on ‘CRS and Trustees’ with John Riches TEP and Samantha Morgan TEP, 13 June

 

Emily Deane TEP is STEP Technical Counsel

EU AMLD: where are we now?

Emily Deane TEPOn 21 March 2017, the first political trilogue on the Commission proposals to amend the 4th Anti-Money Laundering Directive (4AMLD), proposed in July 2016, on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing took place at the European Parliament (EP).

In the wake of the ‘Panama Papers’ scandal the Commission has been intent on cracking down on the hiding of illicit funds by adopting a coordinated approach at both EU and international level.

The EP, Commission and Council have expressed their willingness to engage in negotiations with a view to a swift agreement, and the EP stressed the importance of transparency in fighting money laundering.

Beneficial ownership debate

STEP has concerns about some of the proposals to amend the Directive. In particular, the requirement for member states to set up publicly accessible central registers for the mandatory registration of the beneficial owners (BO) of all trusts (not just those with tax consequences), and similar legal arrangements (Articles 30-31).

The general consensus of the majority of member states is that the BO information on these registers should be publicly accessible. STEP is arguing that a publicly accessible register is likely to infringe data protection rights, the right for private and family life guaranteed by Article 7 of the EU Charter of Fundamental Rights, and Article 8 of the European Convention on Human Rights.

Publishing details of beneficiaries, particularly vulnerable beneficiaries, would leave them seriously exposed to potential abuse, given the risk of such information falling into the wrong hands and being disseminated for illegitimate purposes.

The state of negotiations:

• The definition of the BO of a company or trust remains in dispute.
• There are questions whether the information on the registers should be publicly accessible and if not, who should be granted access?
• Should registration of a BO be required where the activities are carried out, or where the entity is owned?
• MEP Judith Sargentini is hoping to reduce the threshold for the identification of a BO from 25% to 10% ownership. The Commission continues to state that this should only be the case if it’s a high-risk entity.

The trilogue parties intended to reach an agreement by the end of the Maltese Presidency on 30 June 2017, but the EP has stated it will be difficult to conclude it by then. Estonia takes over the Presidency on 1 July.

The next meetings are on 29 May, 7 June, 28 June 2017.

4AMLD – UK’s obligations

In the meantime 4AMLD implementation into national law is required by 26 June 2017.

The UK’s newly published draft of the Money Laundering Regulations 2017 will be its instrument to transpose the directive. This will revoke and replace the Money Laundering Regulations 2007.

The UK is required to implement a central register of trusts on 26 June, which will apply to worldwide trusts with UK assets that generate a tax consequence. The Directive leaves it to each member state to decide the level of transparency to be applied and the UK has confirmed that access to this register will be limited to law enforcement agencies on the grounds of privacy (see HMRC consultation on 4AML implementation).

The corresponding German bill has faced scrutiny at the committee stage whereby some of its members were pushing for full public access but other members have rejected a fully public registry of company and trust beneficial ownership. The bill will be subject to revision before it is enacted but it is unlikely that public access will be granted.

STEP will continue to monitor the progress on 4AMLD and the revised Directive and keep members updated accordingly.

 

Emily Deane TEP is STEP Technical Counsel