MoJ announces consultation on court fee increases

Emily Deane TEPThe UK Ministry of Justice (MoJ) has announced a public consultation on increasing selected court fees in line with historical inflation dating from August 2016 to April 2021, or from the year the fee was last amended (capped at August 2016).

The proposal is limited to fees which are under-recovering compared to the estimated cost of the service, and to fees which are enhanced so that they can legally be set above the cost of service. The impacted fees are included in the following fee orders:

  • Family Proceedings Fees Order 2008 No 1054 (43 impacted fees);
  • Civil Proceedings Fees Order 2008 No 1053 (67 impacted fees);
  • Court of Protection Fees Order 2007 No 1745 (3 impacted fees);
  • Magistrates Courts Fees Order 2008 No 1052 (20 impacted fees).

The proposed fee increases will raise an estimated additional net income of GBP11-17 million a year for HMCTS after fee remissions.

In addition to increasing fees, the government also proposes to widen access to the Help with Fees scheme. This includes raising the income thresholds in line with inflation, including the couple and child premiums, backdated to August 2016. The extended scheme is intended to benefit those who feature disproportionately among low income groups, including women, people from black and minority ethnic backgrounds, disabled people and younger people.

Responses are invited by 17 May. Feedback can be submitted via an online survey using the link below, by email: [email protected], or by post to: Fees Policy Team, Ministry of Justice, 102 Petty France, London SW1H 9AJ.

STEP will continue to keep members apprised of any developments.

Emily Deane TEP, STEP Technical Counsel

OECD steps up the fight against enablers of tax and financial crimes

Robert CaringtonThe Organisation for Economic Co-operation and Development’s (OECD) Task Force on Tax Crimes and Other Crimes launched its new report, Ending the Shell Game: Cracking down on the Professionals who enable Tax and White Collar Crimes, during the 2021 OECD Global Anti-Corruption & Integrity Forum this week. The report sets out a range of strategies and actions for countries to tackle professional intermediaries who enable tax evasion and other financial crimes on behalf of criminal clients.

The panel for the launch event included Jim Lee, US Internal Revenue Service; Caroline Lee, International Ethics Standards Board for Accountants (IESBA); Grace Perez-Navarro, OECD; and Simon York, HMRC. The webinar was moderated by Will Fitzgibbon of the International Consortium of Investigative Journalists.

The event highlighted the damaging role played by intermediaries who enable financial crimes on behalf of their criminal clients, and their increasingly sophisticated technical methods, such as the use of cryptocurrency. The panel agreed that concerted domestic and international action is needed to clamp down on the enablers of crime. They recommended a closer partnership between public and private sectors to report on non-compliance and prevent such crime. Countries were urged to increase their efforts to better deter, detect and disrupt the activities of professionals who enable tax evasion and other financial crimes.

The report states that the majority of professional service providers are law-abiding, and play an important role in assisting businesses and individuals to understand and comply with the law. However there is a small subset that abuse their specialised skills and knowledge to enable clients to defraud the government and evade their tax obligations, and these need to be tackled.

The report calls on countries to establish or strengthen national strategies to deal with professional enablers more effectively. Such strategies should:

  • ensure that tax crime investigators are equipped to identify the types of professional enablers operating in their jurisdiction, and understand the risks posed by how they devise, market, implement and conceal tax crime and financial crimes;
  • ensure the law provides investigators and prosecutors with sufficient authority to identify, prosecute and sanction professional enablers, both to deter and penalise;
  • implement multi-disciplinary prevention and disruption strategies, notably through engagement with supervisory, industry and professional bodies, to prevent abusive behaviour, incentivise early disclosure and whistle-blowing and take a strong approach to enforcement;
  • ensure relevant authorities proactively maximise the availability of information, intelligence and investigatory powers held by other domestic and international agencies to tackle sophisticated professional enablers operating across borders;
  • appoint a lead person and agency in the jurisdiction with responsibility for overseeing the implementation of the professional enablers’ strategy, review its effectiveness, and devise further changes as necessary.

Robert Carington is Policy Executive at STEP

STEP attends FATF meeting to discuss beneficial ownership regime

Emily Deane TEPSTEP attended a virtual meeting held by the Financial Action Task Force (FATF) on 18 March to discuss potential amendments to FATF Standards Recommendation 24 and its implementation. FATF announced its intention to review this area, which may lead to a comprehensive overhaul of the system of beneficial ownership (BO), at a private sector consultative forum in November 2020.

The meeting aimed to garner additional views on the key proposals for amendment to Recommendation 24 from Designated Non-Financial Business and Professions (DNFBPs) which include lawyers, trust and company service providers, notaries and other independent legal professionals.

The principal issues for discussion included:

  • The verification of BO information provided to the registry and whether a DNFBP could hold the information instead.
  • Whether DNFBPs have sufficient access to the BO registries in order to identify and verify the relevant beneficial ownership information.
  • Whether physical paper bearer shares are still necessary?
  • How can the sector define and adequately control nominee arrangements?
  • How could the process of identifying beneficial ownership be improved?

STEP noted the issue that the application of the rules around beneficial ownership is complex, which can create an ambiguous outcome due to confusion around the identification of natural persons. This confusion can lead to the rules not being applied correctly, resulting in inaccurate information being held. Licensed third parties which are obliged to hold information, such as trust companies, have a more rigorous process of identification and this could be beneficial to adopt.

STEP suggested that FATF target the accuracy of the information held, its effectiveness, and how often it is collected. It also suggested it would be preferable for jurisdictions to have multiple options, rather than the current highly prescriptive rules of identification, to ensure the accuracy of the information collected and verified. The overarching objective for review should be to strengthen the measures in place, and mitigate the obstacles to transparency and risks of misuse.

FATF confirms that it will continue to consult with the private sector and will publish a full consultation on written proposals in June. STEP will continue to keep members apprised of these developments in due course.

Emily Deane TEP, STEP Technical Counsel

Trusts and AML-CFT registers of beneficial owners: I’m a trustee, do I need to register somewhere?

Robert CaringtonOn 11 February, STEP Europe held a webinar to examine how various jurisdictions have transposed the Fifth Anti-Money Laundering Directive (5AMLD), and particularly how those Member States have chosen to define a business relationship.

The panel included Stéphanie Auferil TEP from France; Dr Petra Camilleri from Malta; Aileen Keogan TEP from Ireland; Filippo Noseda TEP from the UK; Paolo Panico TEP from Luxembourg; and Nicola Saccardo TEP from Italy; with Dr Anthony Cremona TEP moderating. The event was sponsored by IQEQ.

Many trustees based in the EU, and other jurisdictions with regulations similar to the EU’s central Register of Beneficial Ownership (RBO), are familiar with the need to register trusts. The details are sent to the competent authority and disclose information on all persons who fall within the definition of ‘beneficiary’, with respect to trusts in the appropriate RBO form. However, non-EU-based trustees are less likely to be familiar with the new requirement to also have the trust registered when the trustee enters into a business relationship in the EU, whilst in a number of countries EU based trustees have already been required to register (France).

The panel members each explained how their own countries have implemented the following provision from the Official Journal of the European Union regarding article 31, as covered in this discussion document (pdf).

Some of the key updates per jurisdiction were:

Ireland: It still has not implemented 5AMLD as the legislation does not yet fully transpose 5AMLD. It is difficult to see how it would work in the country, due to the number of trusts to be found in many aspects of society (house purchases, pensions and to protect the vulnerable) and how the directive would affect daily life. Ireland has already removed statutory trusts, unit trusts and pension trusts from the definition of an express trust, though further clarification is needed. However as yet there has been no carve-out for trusts known already to be of minimum risk, such as those for the vulnerable and charities.

Italy: The RBO of trusts is not yet operative and the legislation refers to implementing provisions which have been made available in draft for public consultation, but not yet issued. Under the legislation, trusts have an obligation to register non-EU trustees either for a business relationship under the EU directive, or if under Italian law, trusts have tax consequences pursuant to Article 73 of the Income Tax Code. The draft implementing provisions are being considered and will cover both resident trusts and non-resident trusts with Italian source income/gains.

France: The country already had reporting obligations from 2011 for EU or non EU trustees and those with French connections (such as resident settlor or beneficiary or French situs assets). It transposed 5AMLD in February 2020 and extended reporting to non-EU trustees acquiring French real estate or entering into a business relationship in France.

Robert Carington is Policy Executive at STEP

The future of EU policy on preventing money laundering and terrorist financing

Robert CaringtonOn 27 January 2021, Paolo Panico TEP, the Chair of STEP Europe, moderated a webinar hosted by Anti-Money Laundering Europe (AME) on the future of the European Union’s policy on preventing money laundering and terrorist financing.

The panel included Steve Ryan, deputy head of the financial crime unit in the Directorate-General (DG) Internal Market and Services of the European Commission (EC); Eero Heinäluoma, Member of the European Parliament (EP); and Roger Kaiser, Senior Policy Advisor, European Banking Federation.

The EC stated that it planned to unveil its consultation feedback and a new legislative package in the near future following the May 2020 action plan.

The consultation feedback had reportedly showed support for EU action in this area as well as significant support for further harmonisation in all areas, particularly for obliged entities and beneficial ownership registers.

The proposed legislative package will focus on only three out of the six pillars of the action plan, which are a harmonised rulebook; EU level supervision; and a coordination and support mechanism for financial intelligence units (FIUs). The plan is for the package to be adopted in spring 2021.

The main proposals of the package for each pillar are:

  • to put in place a more integrated framework;
  • to establish a new AML authority at the centre of an EU AML supervisory system. This should have direct supervisory powers over financial institutions and oversight/coordination powers in the non-financial sector;
  • to set up a mechanism to coordinate and support FIU work, fully integrated in the new AML authority. It will provide technical support and assistance to analysis produced by FIUs, including joint work.

The EP representative called for an updated rulebook to keep up with new developments like crypto-assets, and noted that supervisors should be supported with appropriate tools and resources. It stressed that reform is needed and was looking forward to receive the EC proposal.

Industry representatives called for a single EU rulebook and supervisory convergence and stressed the need to avoid a ‘tick the box’ approach, or any regulatory or supervisory fragmentation. It also called for guidance to help balance out GDPR and AML requirements.

 

Robert Carington is Policy Executive at STEP

The OECD reviews the Common Reporting Standard

Emily Deane TEPHM Revenue & Customs (HMRC) invited some of the UK’s financial industry experts, including STEP, to join an overview of the OECD’s current review of the Common Reporting Standard (CRS).

The OECD will launch a consultation later this year, but has requested early input from industry experts on the improvements and changes that they would like to see. The purpose of the review is to enhance the general efficiency and operation of the CRS, and especially the quality and usability of its data.

In recent years there has been increasing use of innovative financial products that were not envisaged when the CRS was originally implemented. Some gaps and ambiguities in the legislation have been identified, and the OECD believes the time is now right to review and consolidate it. HMRC intends to consult the crypto-asset industry on technical changes and improvements and e-money industry experts, an area which was previously excluded, but some countries have called for it to be included in order to reach a single and consistent view.

HMRC also discussed some trust related issues for consultation, including:

Rules on reporting of joint accounts

While each joint account holder is required to report specific information, the schema does not recognise the number of account holders. HMRC suggests developing an indicator or flag to identify each individual account holder.

Controlling persons of passive non-financial entities (NFEs)

The schema is currently unable to assess the identity of the controlling person (ie settlor, protector) making the data less useful for tax risk purposes. HMRC suggests introducing  a mandatory field to specify the role of the controlling person.

Account holder where a trust is a financial institution (FI)

HMRC suggests the schema should be able to identify the type of equity interest the account holder has for risk assessment purposes.

Other trust-related issues that will be addressed in more detail include:

  • the treatment of reporting in relation to trustees, protectors and controllers;
  • inconsistent value reporting on the value of trust accounts;
  • reporting of trust loans as payments and potential avoidance issues;
  • consistency over reporting of issues on protectors and other ‘controllers’ who have no financial interests in the trust;
  • cross-over issues on reporting controllers – AML principles and FATF guidance;
  • reporting on ownership of corporate trustees in the context of controlling persons/equity interest holders;
  • relevance of cash as an asset in the context of classifying entities, particularly in the financial institution/passive NFE distinction.

HMRC has confirmed that it will form a focus group to look at the CRS and specific trust aspects, and we will keep members updated as the consultation progresses. In the meantime if members have any additional trust-related feedback please email the policy team at [email protected] by 1 February 2021.

Emily Deane TEP, STEP Technical Counsel

The UK replaces DAC6 with the OECD’s model Mandatory Disclosure Rules (MDR) post-Brexit

Emily Deane TEPThe disclosure of cross-border tax planning arrangements under Council Directive (EU) 2018/822 (DAC6) came into force on 1 July 2020 and requires reporting of any persons involved in cross-border arrangements, including loan agreements, payments from a resident of one country to a resident of another, or putting funds in an offshore trust, if one of the hallmarks apply.

Following the conclusion of negotiations between the UK and the EU on a Free Trade Agreement (FTA), HMRC confirms that only arrangements that meet hallmarks under category D of DAC6 need to be reported in the UK, in accordance with the OECD’s Mandatory Disclosure Rules (MDR).

The regulations have been amended and laid before Parliament to ensure the rules work correctly post-Brexit, including ensuring that references to EU member States refer to the UK or an EU member State after the end of the transition period. The rules will now only apply to two types of arrangements captured within the category D hallmarks:

  • Hallmark D1 is any ‘arrangement which may have the effect of undermining the reporting obligation under the laws implementing Union legislation or any equivalent agreements on the automatic exchange of Financial Account information, including agreements with third countries, or which takes advantage of the absence of such legislation or agreements’.
  • Hallmark D2 applies to an arrangement involving a ‘non-transparent legal or beneficial ownership chain’ with the use of persons, legal arrangements or structures:
    • that do not carry on a substantive economic activity supported by adequate staff, equipment, assets and premises; and
    • are incorporated, managed, resident, controlled or established in any jurisdiction other than the jurisdiction of residence of one or more of the beneficial owners of the assets held by such persons, legal arrangements or structures;
    • where the beneficial owners of such persons, legal arrangements or structures, as defined in Directive (EU) 2015/849, are made unidentifiable.

The replacement of DAC6 will significantly reduce reporting requirements although the disclosure of tax avoidance schemes (DOTAS) will continue to apply in the UK. It is also clear that under the terms of the FTA, the UK must not reduce the level of protection in its legislation below the level of protection afforded by the OECD’s MDR. While the UK has not implemented MDR in its domestic legislation the rules provide a ‘level of protection’ which in certain respects is equivalent to that in the OECD’s MDR, and in other respects goes beyond it.

The government will begin to repeal the legislation implementing DAC6 in the UK and will implement the OECD’s MDR as soon as practicable, in order to replace DAC6 and transition from European to international standards on tax transparency. The government intends to consult on draft legislation to introduce MDR, and STEP will keep members apprised of the situation accordingly.

Update 6 January 2021: HMRC has confirmed to STEP that only arrangements which meet the hallmarks under Category D will now need to be reported, therefore historic reporting (for arrangements up to 31 December 2020) in respect of the other hallmarks will no longer be required.

Emily Deane TEP, STEP Technical Counsel

We’ve reached the end of an unprecedented year, but how has STEP fared?

Denese MolyneuxIt’s no secret that 2020 has been an unprecedented year; and just about everyone writing a commentary on the last twelve months would probably say the same. But how has STEP fared during this turbulent time?

I wrote in June of how lucky we were to be part of an organisation that strove to keep its members informed and engaged throughout the turbulent early months of the pandemic. I have continued to be impressed at the ingenuity of both STEP head office staff and the resilience of branches which have worked tirelessly to keep the STEP show on the road.

CPD and examinations went virtual; branches met by Zoom; the Spring Conference, Tax Conference and the recent Branch Chairs’ Assembly had the highest number of attendees ever – online, of course. The members of the events team have surpassed themselves and have more than earned our gratitude.

In the background STEP continued to contribute and influence policy; work with the All Party Parliamentary Group on Inheritance Tax and Intergenerational Fairness generated STEP positive publicity and greater visibility amongst key audiences. Thanks to Emma Chamberlain OBE TEP and Emily Deane TEP for their input into the report that was published earlier this year.

STEP’s work with the government around the 5th Anti Money Laundering directive saw a change in definition of ‘business relationship’. This is a key outcome for the industry and shows how respected STEP is within government departments.

STEP’s work with the UK Ministry of Justice on video witnessing of wills has also been a highlight, showing that our pragmatic and practical advice is being listened to in vital areas.

HMRC’s consultation on raising standards in the tax advice market is ongoing and STEP has been encouraged to contribute further. Many thanks to Sarah Manuel for her work in this area.

Whatever 2021 brings us I am confident that STEP will emerge stronger and better. The recent Branch Chairs’ Assembly proved to me just how passionate and motivated our membership is, and I very much look forward to working with you all in the year to come.

Denese Molyneux TEP, Chair, STEP England and Wales Regional Committee

FATF holds consultative forum to inform review of beneficial ownership system

On 24 November, the Financial Action Task Force (FATF) held its private sector consultative forum on beneficial ownership of legal persons, which focused on Recommendation 24 Transparency and beneficial ownership of legal persons of the FATF Recommendations. FATF stated that it is undergoing a major review of this area, which may lead to a comprehensive overhaul of the system of beneficial ownership to address issues such as inconsistencies across many countries, privacy concerns, centralised registries, legitimate purposes for access, and how information should be verified.

The forum was divided into two sessions with the first being chaired by Jennie Haslett and featuring Maira Martini, Transparency International; Jason Sharman, University of Cambridge; and John Cusack, the Global Coalition to Fight Financial Crime. The panel gave a third-party view with the aim of defining and understanding the nature and scale of problem. The following challenges were identified by the panel:

  • the quality of the information and how it is being verified;
  • the importance of flexibility and adapting requirements to the risk of the jurisdiction (as it was stated that a one-size-fits-all approach does not work);
  • that rather than implementing new laws, existing ones should be properly enforced; and
  • the need for increased collaboration between all players.

The second panel was chaired by Alexandra Kadet and featured Young Led, Department of Treasury, USA; Michela Maggi, European Commission; and Mariano Garcia Fresno, Ministry of Justice, Spain. The panel shared its views on the effectiveness of the measures being implemented and the potential problems and solutions. The discussion focused on who should have access to beneficial ownership information, the balance between what needs to stay private and what can be made available, the challenge faced when involving legal entities outside of the EU, and the need to have it centralised.

The overarching consensus from the forum was that this is a very challenging issue with no perfect solutions. FATF confirmed that a number of significant challenges were identified that needed to be addressed, such as complacency among some gatekeepers, the need for discrepancy reporting to make sure registers don’t work in isolation, consequences for non-compliance, and the need for consistency of global standards and practice.

Robert Carington is Policy Executive at STEP

Modernising Lasting Powers of Attorneys in England and Wales

The Ministry of Justice (MoJ) and the Office of the Public Guardian (OPG) have jointly initiated a project to modernise the process of making and registering lasting powers of attorney (LPAs), which may include an element of digitisation. They will be collaborating on a series of scoping events, roundtables and surveys to obtain research that will culminate in the publication of a consultation in spring 2021 to gather evidence and inform the future of the LPA service.

On 19 November the MoJ and OPG invited STEP to attend a virtual roundtable, which was introduced by Alex Chalk MP, Parliamentary under Secretary of State in the MoJ and hosted by Nick Goodwin, Public Guardian and Chief Executive of the OPG. During the roundtable, discussions were held on two specific areas of the research and engagement so far.

Improving safeguards for the donor in relation to identity checks

There was general consensus that there need to be more advanced identity checks for donors, which would consequently improve safeguards. It is a prevalent concern of the industry that identity fraud and theft are fairly accessible particularly if someone has access to a Health & Welfare LPA and the donor is incapacitated or vulnerable. It was also flagged that ID verification online may be technologically robust but there will be a small demographic, usually the more elderly, that do not have access to a computer or smartphone for verification. It was also reinforced that it is essential that any new online system is securely piloted within the industry before it is implemented.

The importance of the role of witnesses

It was recognised by attendees that the process of obtaining witnesses for LPA signing can add some gravitas and formality to the process, which in turn also gives the donor time to consider the importance of the legal document that is being created. It was also considered that it might be more appropriate to introduce digital signatures for the witnesses but to retain the obligation of the physical signature for the donor. On 9 November, STEP’s UK Industry News Digest covered highlights of the results of the first survey that has been undertaken, which showed that more than 90 per cent of 410 solicitors surveyed in England and Wales want to retain the rule requiring LPAs to be physically signed by the donor rather than by electronic means to prevent fraud.

We were informed that these areas have been marked for more extensive research under this initiative and will be discussed further.

The MoJ and OPG have stressed that empowering and protecting the individuals acting as donors in the LPA process is of paramount importance and amendments to the legislation will only be made if modernisation will provide the same level of protection or preferably enhance it. However, it is clear that the world is becoming more digital and we have seen accelerated evolution on the digital platform due to the COVID pandemic this year.

The MoJ and OPG intend to carry out extensive engagement within the industry, alongside the consultation next year, and will gather a wide range of evidence and expertise to understand user needs and challenges. STEP will continue to engage with the MoJ and OPG and monitor the progress of this initiative.

Emily Deane TEP, STEP Technical Counsel