STEP Caribbean Conference, Cayman

George HodgsonI have just enjoyed a highly informative STEP Caribbean Conference in Cayman from May 1-3, which attracted well over 300 delegates from across the STEP world.

Presentations ranged from the emerging theme of cryptocurrencies, which I suspect is a wholly new topic to many in the audience, to the use of firewall provisions in fending off matrimonial claims.

What really stood out, however, is the changing mood across much of the Caribbean regarding transparency and the rising regulatory burden. Yes, these developments are providing major challenges, particularly in driving costs up sharply across the board.

This was a theme very clearly evidenced in STEP’s Offshore Perceptions research report last autumn. But the message from a string of eminent speakers is that the time is gone to complain about this; it’s time instead to ‘get on with it’ and ensure that businesses adapt to the new environment they are now working in.

This obviously echoes the mood in the UK regarding Brexit, where whatever the views of STEP members on the issue, I sense most agree that we need to now accept it is going to happen and plan on that basis. Indeed Brexit and its potential implications for the offshore world was another key issue which attracted a full house.

The Caribbean Conference, which is now in its 19th year, remains one of the flagship STEP events in the calendar and I look forward to next year’s meeting in Barbados.

 

George Hodgson is Chief Executive of STEP

STEP attends FATF Joint Experts’ Meeting on Typologies in Moscow

money laundering
STEP attended the Financial Action Task Force (FATF) Joint Experts’ Meeting on Money Laundering and Terrorist Financing Typologies in Moscow late last month. STEP’s Co-Chair of its Public Policy Committee, John Riches TEP, also attended in his capacity as a trust expert.

STEP was invited to participate in a ‘Challenges of establishing beneficial ownership’ round table discussion. This focused on the private sector perspective of the challenges associated with identifying beneficial ownership for natural or legal persons, and examined the following points:

Is it suspicious to have accounts in other jurisdictions?

STEP was quick to point out that there may be a bona fide business purpose for having trust accounts in alternative jurisdictions. International families will often have their financial counterparties abroad, and this should not be grounds for suspicion. Many may prefer to use a bank or existing custodian to a new one, and trustees are understandably attracted to jurisdictions that are more economically or politically stable and have a clear understanding of trust arrangements.

In the UK it can take as long as six months to open a bank account for this purpose, so a well-regulated jurisdiction that can act faster may be more attractive to a trustee. Many offshore centres are highly regarded due to their regulation of Trust and Company Service Providers (TCSPs). They can also be more flexible and less expensive.

What are specific vulnerabilities in various types of trust arrangements?

Most of those present believed that advisors would not proceed to set up an arrangement unless they have obtained the requisite Know Your Client (KYC) documents, plus a clear understanding of the function and purpose of the arrangement. There should not be any uncertainty or lack of understanding regarding the client, location or objective of the vehicle.

If there was even a slight suspicion that the purpose was illegitimate, the client would be reported to the local authorities.

What are potential risk indicators to practitioners, i.e. red flags?

In its 2013 report, Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals, FATF identified some 42 risk indicators. Those discussed in the meeting included a client’s reluctance to provide information, data or documents to facilitate a transaction.

However, it was agreed that it would be unusual for an advisor to act illegitimately and run the risk of significant prosecution, reputational and regulatory penalties.

What challenges are associated with verifying the beneficial ownership?

Those attending agreed it can be challenging to identify a legal entity that is some way down the chain of ownership in multi-layered structures. It can also be confusing to verify the beneficial ownership of the ultimate holding entity. This is often not helped by an absence of proper documentation.

A particularly topical problem with legal arrangements is to ascertain what is meant by a ‘natural person exercising effective control’ in the context of trusts. Also problematic is a lack of understanding as to what information is required in the extended category of ‘beneficial owners’. This creates a lot of confusion and wasted effort for financial institutions and advisors.

Are there indicators of activities being undertaken to obscure beneficial ownership?

The use of shell companies and nominees to hide true beneficial owners appears to be much more common than the use of more sophisticated legal arrangements, such as common-law trusts and civil-law foundations.

It’s worth noting that professional advisors rarely report potential abuse of trusts or foundations in a money-laundering or terrorist-financing context.

Many of the advisors in the meeting confirmed that they have never actually encountered any suspicious activity in their own careers.

Are there particular risk indicators with certain arrangements or jurisdictions?

Most agreed that those with bad intentions would shun more complex arrangements like trusts and foundations in favour of simpler vehicles. These might include companies that can be misrepresented with false information about a single beneficial owner.

Any jurisdiction likely to be seen as requiring less exacting information in the formation of new legal entities will naturally be preferred.

However, public perception about particular jurisdictions can be misleading. Many offshore finance centres regulate TCSPs in a more stringent and well-considered way than ‘onshore’ jurisdictions.

• FATF is planning to collect some real life case studies among attendees to analyse for vulnerabilities and discuss in more detail with advisors. It is also collecting examples of adjudicated and publicly available cases to identify realistic money laundering concerns, which it will share. STEP will keep you updated in due course.

 

Emily Deane TEP is STEP Technical Counsel

Probate fees: how we got to where we are

Emily Deane TEPFollowing the news late last week that the UK government is scrapping its plans to hike probate fees, Emily Deane TEP looks back on an eventful 15 months for STEP and practitioners.

February 2016
In February 2016 the Ministry of Justice (MoJ) issued a consultation paper on reforms to the fee system for grants of probate. The paper proposed to increase the fees for estates of over GBP50,000, with a banded fee structure depending on the estate value. Larger estates faced a 13,000 per cent rise to GBP20,000.

STEP strongly opposed the new system on the basis that the proposed fee would be completely disproportionate to the service provided by the probate court, and would effectively be a new tax on bereaved families.

We raised concerns on the grounds of fairness, practicality and legality, in particular that the new measures being introduced via the Draft Non-Contentious Probate Fees Order 2017 may be ultra vires, i.e. beyond the power of the order.

The consultation was widely circulated, with over 97% of respondents opposing its proposals. Then the matter went quiet for almost a year.

February 2017
On 24 February 2017, STEP received notice from the MoJ that, subject to parliamentary approval, and despite overwhelming opposition to the proposals, the new fee system would be implemented in May 2017: just weeks away.

Concerned that this would have a huge impact on bereaved families and their legal advisors, we set out to highlight the issue to ministers, the media and the public.

We contacted the MoJ highlighting our concerns and requesting a meeting. We received no reply, with the MoJ remaining extremely quiet on the issue. No clear information was posted highlighting the new fee structure to the public, with a discreet link to the consultation response on the gov.uk website the only notice that these changes were coming.

We therefore sought to raise public awareness of the issue, issuing press releases and explaining our concerns to the media, and developing guidance for members of the public.

Our work paid off, with national media including BBC Moneybox, the Daily Mail  and the Mirror  covering the issue. Our guidance for the public was viewed nearly 2,600 times and our social media channels were buzzing with activity.

April 2017
Then at the beginning of April we heard that the influential House of Commons Joint Committee on Statutory Instruments had questioned the legality of the proposals, given that the new ‘fees’ looked very like taxes. But while hopes were raised, the government continued to push forward with no changes to its plans.

Concerned that the issue would not be given proper scrutiny, STEP obtained a legal opinion from leading expert in public law, Richard Drabble QC, who agreed with the SI Committee’s findings and confirmed that ‘the proposed Order would be outside the powers of the enabling Act’.

Then, on Tuesday 18 April, Prime Minister Theresa May called a snap election. The pressure was suddenly on to get all orders through before parliament was dissolved.

On Wednesday 19 April the House of Commons Second Delegated Legislation Committee rushed though the Non-Contentious Probate Fees Order 2017 meeting at 8.55am, with no advance warning that it would be tabled that day. It was approved 10 to 2.

On Thursday 20 April we finally received a response from the MoJ to our earlier letter, dismissing our concerns and advising that the fee changes would be going ahead.

We understood that the Lords were due to discuss the matter on Monday 24 April, so we immediately sent the legal opinion to senior politicians in the House of Lords to inform the debate.

Later that evening press reports suddenly emerged that the proposals were to be dropped, and the next day we received a bulletin from the MoJ stating: ‘There is not enough time for the Statutory Instrument which would introduce the new fee structure to complete its passage through parliament before it is dissolved ahead of the general election. This is now a matter for the next government.’

Success…for now…

Our effort, and those of practitioners across the country, to highlight the issue had paid off. The legal uncertainty highlighted by Richard Drabble QC, combined with the media attention, meant that it could not be pushed through the Lords in time.

We have since heard from senior sources in the Lords that the subject may re-surface as primary legislation post-election, in which case it would need to be approved by both Houses of Parliament. We presume it would be re-introduced as a new tax, rather than an increased fee. If so, the funds will go to the Treasury, not the MoJ.

STEP will continue to work closely with our members and the media to increase awareness of the matter, although we sincerely hope it will not re-emerge in a different guise.

Emily Deane TEP is STEP Technical Counsel

HMRC consultation on 4AML implementation

Emily Deane TEPHMRC invited STEP to attend a consultation on 30 March regarding the UK’s implementation of the EU Fourth Anti-Money Laundering Directive (4AML), in particular in relation to the requirement to implement a central register of trusts.

The consultation was hosted by HMRC’s Policy Specialist, Tony Zagara, and focused on Article 31 – trust beneficial ownership. The UK trust register will be implemented on 26 June 2017 and will register trusts anywhere in the world with UK assets that generate tax consequences.

Information about the settlors, beneficiaries and trustees will be required to be reported in an annual submission and the information could be exchanged with law enforcement and competent authorities, but not the public. The focus group discussed the following key issues:

New registration system

The old paper registration system will be replaced with an online service for registration, which will be introduced in two tranches in June and September. The June online service will replace Form 41G for registering new trusts. Form 41G will be removed from HMRC’s website later this month.

The second online service will be introduced in September, which will allow users to make amendments to existing trusts online, further replacing the paper system.

Annual reporting

The trustees will need to report on the trust on an annual basis, but only if it generates tax in that tax year. HMRC was unable to clarify whether, once a trust has been registered with a tax consequence, it is still necessary to submit annual updates in the following years if it has been dormant and has not generated any further tax consequences.

The panel agreed that annual reporting would probably not be necessary if there have been no changes since the first registration, however they agreed to check and revert back on this point.

Bare trusts will be excluded from reporting and new guidance will be produced on HMRC’s landing page in due course.

Letters of wishes

HMRC said trustees should report the identities of beneficiaries who are named in letters of wishes. Every person named in a letter of wishes would need to be identified, regardless of whether they have received a payment, unless they are included as a ‘class’ of beneficiary.

Practitioners were quick to point out that this could be an impossible task for trustees.

They explained to the HMRC panel that if beneficiaries have not received payments they cannot be associated with money laundering, and if they do receive a payment they will be reported anyway under the regulations. Letters of wishes can also be changed frequently and, more often than not, without the advisor’s knowledge.

HMRC defended the reporting obligation by suggesting that letters of wishes could be used as a loophole for criminals if they were excluded from the regulations.

The general consensus of the attendees was that the word ‘vested’ should be incorporated into the definition so that default beneficiaries in letter of wishes are excluded from being reported on unless they receive a payment.

HMRC will be feeding back the discussions from the consultation to its legal team to redraft the regulations.

Consultation deadline

HMRC’s consultation paper was published on its website (see below) and the consultation closes on 12 April. HMRC is requesting responses as soon as possible since there is a short time frame following the closing date. If you have any drafting points to be incorporated in STEP’s consultation response, please email Emily.Deane@step.org by 10 April.

Emily Deane TEP is STEP Technical Counsel

Probate fees – will common sense prevail?

George HodgsonThe government’s threat to radically increase probate fees next month (Probate fee rise ‘a new tax on bereaved families’) may be receding, following a meeting of the House of Commons Joint Committee on Statutory Instruments on 29 March.

Using some very welcome common sense, the committee raises the issue (para 1.12) that it is a constitutional principle that there should be ‘no taxation without the consent of Parliament’. This is something I suspect 99% of people will agree with.

It finds that the proposal from the Ministry of Justice (MoJ) is clearly a tax, not a fee, in every normal definition of the term, and should therefore be subject to full parliamentary scrutiny, rather than brought in via the back door through a Statutory Instrument.

The committee also finds (para 1.13) that ‘charges’ of the magnitude proposed by the MoJ were probably never envisaged when the original legislation the government was attempting to use here was approved. In other words, using this process is an abuse.

We would hope that this will provide an opportunity for the government to re-think its approach, which was criticised by over 90% of those responding to the consultation, and submit re-worked proposals for proper scrutiny by Parliament.

• Joint Committee on Statutory Instruments: Non-Contentious Probate Fees Order 2017

 

George Hodgson is Chief Executive of STEP

New probate fees: a guide for the public

flowers

UPDATE 21/04/2017: the Ministry of Justice has abandoned the new fee regime due to lack of parliamentary time prior to the 2017 General Election. See more information.

What is probate?
When someone dies, you need to get the legal right to deal with their property, money and possessions, and to do so you need a grant of representation, which is known as ‘probate’.

When is probate not needed?
Usually you won’t need to apply for probate if the estate does not include land, property or shares; if it is passing to a surviving spouse or civil partner because it was held in joint names (e.g. a joint bank account, or a home owned as ‘joint tenants’); or if the estate is valued at less than £15,000.

Each financial institution has its own rules, however, and may still require you to apply for a grant even if the value is under this threshold.

What is happening to probate fees?
In February 2017, the government announced that probate fees in England and Wales will change in May 2017 to a banded system, where fees increase with the value of the estate, replacing the current flat fees of £155 if you apply through a solicitor, or £215 for a personal application.

The proposal to link probate fees to the value of the estate was published in February 2016 and attracted overwhelming opposition. Nonetheless, the new system has been brought in, and was confirmed in the March 2017 Budget.

The fee structure as of May will therefore be as follows:

Value of Estate New Fee % Change (from £215)
Up to £5,000 £0 0%
£5,000 – £50,000 £0 -100%
£50,001 – £300,000 £300 +40%
£300,001 – £500,000 £1,000 +365%
£500,001 – £1m £4,000 +1,760%
£1m – £1.6m £8,000 +3,621%
£1.6m – £2m £12,000 +5,481%
Over £2m £20,000 +9,202%

When in May does the change kick in?
The government has not yet confirmed the exact date in May from which these changes will apply. The new fees will apply to all applications received by the probate service on or after this still-to-be-announced date in May, irrespective of the date of death. Probate registries have said that any application received within working hours of the Probate Registry before the implementation date will be charged the current fee.

What can you do?
Applying for probate takes time as you need to gather a number of documents and all the relevant information regarding the value of the estate to ensure any inheritance tax obligations are correctly accounted for. If you are very recently bereaved it may therefore be very difficult to submit a full application for probate before the new fees are implemented.

If, however, you have already started the process, you may want to try and get your probate application in before May to ensure you pay the current flat fee.

If you are applying for probate through a solicitor, your solicitor will be aware of the situation and will be doing everything they can to try to get your probate application lodged with the probate registry before the new fee structure applies.

If you are making a personal application, you should be aware of a few important points:

  • In cases where you are required to submit an IHT400 or any document for assessment by HMRC for inheritance tax purposes, many probate registries have said that it is possible for you to submit the appropriate forms to both HMRC and HMCTS Probate simultaneously. They will not issue your grant until the approved IHT421 is received, but the probate registry will mark your application as lodged. To assist them in not raising this as a query, they have advised that you clearly mark on your application that the inheritance tax document will follow after assessment.
  • A ‘full application’ for probate purposes, and therefore to qualify for the appropriate fee, must include:
    • Full oath sworn by all deponents and commissioners
    • An original will and codicil (where appropriate) endorsed by all commissioners and deponents
    • The appropriate number of correct copy wills and codicils
    • An Inland Revenue account (with the exception of IHT400s/421s where assessment is ongoing and it has been noted on the covering letter that it will follow)
    • All associated documents including any affidavit evidence required at the time of submission, renunciations, powers of attorney
    • The appropriate fee.

    Upon receipt of an application in this form prior to commencement then the existing fee will be charged.

  • If the estate you are dealing with is asset rich but cash poor, the probate registries have said that executors will be able to apply to the Probate Service to access a particular asset for the sole purpose of paying the fee. Instalment options will not be available.

Where can you get more information?
The government has not published any public information on this issue beyond the consultation documents:

In the absence of public-facing information from the government, we will continue to publish updates on this, as and when they are announced, here on the STEP Blog.

If you have any specific questions about your probate application please contact your local probate registry.

George Hodgson is Chief Executive of STEP

New probate fees: FAQ

UPDATE 21/04/2017: the Ministry of Justice has conceded that the new fee regime has been abandoned due to lack of parliamentary time. See more information.

 

Newcastle District Probate Registry has supplied the following FAQs to help practitioners implement the new probate fees.

Q. What happens in cases where there is a need for an HMRC Assessment will any delay mean I incur the higher fee?

In cases where you are required to submit an IHT 400 or any IHT document for assessment by HMRC for Inheritance tax purposes then it is possible for you to submit the appropriate forms to both HMRC and HMCTS Probate simultaneously. We will not issue your grant until the approved IHT 421 is received but we will mark your application as lodged. To assist us in not raising this as a query it would be advisable to clearly mark your application that the IHT document will follow after assessment.

Q. Do we have the actual date of implementation?

No we do not have the actual date of commencement yet. However we can assure you that on receiving that date a mail shot will be released immediately informing you of that date. HMCTS Probate would however like to work with you now to ensure that we reduce as much as possible the added burden on applications nearer that date. You can assist us in doing this by following the steps in the mail shot sent to you on Monday 6th March.

Q. How do I calculate the estate value that the fee will be charged upon?

The fee is calculated from the net value of the estate after deducting liabilities or debts from the total of assets and gifts – you can do this using the appropriate Inheritance Tax form.

  • On an Inheritance Tax Summary Online application this figure will be the figure noted in the net estate value box
  • On form IHT 205 the net estate value for fees purposes can be found at Box F
  • On form IHT 207 the net estate value for fees purposes can be found at Box H
  • On form IHT 421 the net estate value for fees purposes can be found at Box 5

Q. What is considered as a full application?

A full application for Probate purposes and therefore to qualify for the appropriate fee is defined as the following. It must include:

  • An full oath sworn by all deponents and commissioners
  • An original will and codicil(where appropriate) endorsed by all commissioners and deponents
  • The appropriate number of correct copy wills an codicils
  • An Inland Revenue account (with the exception of IHT 400’s/421’s where assessment is ongoing and it has been noted on the covering letter that it will follow)
  • All associated documents including any affidavit evidence required at the time of submission, renunciations, Powers of attorneys
  • The appropriate fee.

Upon receipt of an application in this form prior to commencement then the existing fee will be charged.

Settlers and Prelodgements are not considered as full applications and therefore submission of an oath for settling prior to commencement and a subsequent oath after commencement will result in the new fee being applied.

Q: When will the new fees be implemented – at date of death or date of application?

The new fees will apply to all applications received by the probate service on or after the implementation date of the new fees irrespective of the date of death. Any application received within working hours of the Probate Registry before the implementation date will be charged the current fee. Subject to approval of the necessary legislation by Parliament, we expect the new fees to take effect from May 2017, but the exact date will be confirmed nearer the time.

Q Is there to be any equivalent of the IHT instalment option for an asset rich / cash poor estates?

There will not be an instalment option available to pay fees. If the estate does not have enough cash to pay the fee, executors will be able to apply to the Probate Service to access a particular asset for the sole purpose of paying the fee.

Q. How does the new fee affect property held between cohabitating couples?

The law remains the same. Any jointly owned assets (e.g. property held as joint tenants) will not require probate, regardless of whether couples are married, in a civil partnership or neither. All couples are free to choose how they hold their property, and they can change to a joint ownership arrangement via the Land Registry.

Have you registered your LEIs?

Emily Deane TEPEvery legal entity will need to get a Legal Entity Identifier (LEI) by 3 January 2018. Emily Deane TEP explains what LEIs are, and how to get one.

What is an LEI?

The Global Legal Entity Identification Foundation (GLEIF) has designed a system where every ‘legal entity’ will need to register and obtain a unique identification number – a Legal Entity Identifier (LEI) before it can trade on 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 an LEI, which is a 20-character alphanumeric reference code that is 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.

Do trusts need one?

Bare trusts have been excluded from the requirement to obtain an LEI, 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. All LEI data will be consolidated in one database in an effort to improve global entity identification and standardisation.

What if I don’t apply?

If the LEI has not been obtained by 3 January 2018 then 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 (pdf) which will be acceptable in order to transfer the application authority from the entity to a third party such as a management company.

The LSE will charge an initial allocation cost of GBP115 + VAT and annual maintenance cost of GBP70 + VAT per LEI.

How do I register?

Registration for individual LEI allocation requests started on 5 August 2013. You can request your LEI via the link below, and there are two user guides to help you:

More information can be found on the Financial Conduct Authority’s website:


Emily Deane TEP is STEP Technical Counsel

 

HMRC: no more safe havens

Treasure chestThis week STEP hosted a seminar to update members on HMRC’s latest moves to tackle tax evasion and avoidance.

Entitled, ‘An essential update on HMRC’s activity to tackle tax evasion and avoidance, including information exchange, new powers and its impact on professional advisors,’ the seminar took place at BDO LLP’s office in London. Speakers included John Shuker from the HMRC International & Offshore Evasion Team, and Dawn Register TEP of BDO LLP.

The introduction of the Common Reporting Standard (CRS) this year follows a raft of governmental efforts including the Foreign Account Tax Compliance Act (FATCA) and the EU Directive 2003/48/EC (the EU Savings Directive) to improve cross-border tax compliance. The Offshore Evasion Team has focused on clamping down on UK tax evaders, in particular:

• Moving UK gains, income or assets offshore to conceal them from HMRC
• Not declaring taxable income from overseas, or taxable assets kept overseas
• Using complex offshore structures to hide beneficial ownership of assets.

The tax gap for 2014-2015 is estimated to be GBP36 billion, with GBP 5.2 billion attributed to tax evasion.

HMRC launched the campaign ‘No Safe Havens’ in 2013 with the objective of ensuring that there are no jurisdictions where UK taxpayers can hide their income and assets. It also implemented a number of disclosure facilities to give people the incentive to come forward and pay tax voluntarily, before they are detected and sanctioned.

In the last two years, HMRC has vigorously escalated its tax evasion strategy. The Worldwide Disclosure Facility opened last September, in addition to a new requirement for all financial institutions and tax advisers to notify their customers about new automatic exchange of information agreements.

The following further measures are due to be implemented in 2017:

Corporate Criminal Offences of Failure to Prevent Facilitation of Evasion
This will apply to corporations who fail to prevent their agents from criminally facilitating tax evasion (facilitating evasion is already considered a criminal offence). The offences will apply to domestic or overseas corporations whose agents facilitate the evasion of UK taxes, or a domestic corporation which facilitates the evasion of tax overseas.

Tackling Offshore Tax Evasion: A Requirement to Correct
Taxpayers will be obliged to disclose any outstanding UK tax related to offshore investments or assets, or face ‘failure to correct’ penalties. These penalties will be significantly higher than for those who voluntarily put their affairs in order, and will be a minimum of 100%.

STEP’s Technical Committee has submitted responses to a variety of HMRC’s consultation papers relating to tax evasion below:

 

Emily Deane TEP is STEP Technical Counsel

European Data Protection Supervisor voices privacy concerns over 4AMLD

George HodgsonThe European Data Protection Supervisor’s Opinion on proposed amends to the Fourth EU Anti-Money Laundering Directive (4AMLD) shines a welcome spotlight on data protection implications and the ‘significant and unnecessary risks to an individual’s right to privacy’.

The Opinion, published on 2 February 2017, raises questions as to whether or not the proposed collection of personal data is proportionate to the fight against money laundering and terrorism financing and scrutinises the access to beneficial ownership information and the significant and unnecessary risks that this might cause an individual who has a right to privacy and data protection.

STEP has been heavily engaged with Brussels for some time on proposed revisions to 4AMLD. We have also, via our relevant STEP branches, been active on the issue in several EU Member States.

The existing 4AMLD recognises that many trusts are sensitive family arrangements, often designed to protect the interests of vulnerable family members. Trusts are therefore treated differently to corporate structures: beneficial ownership information on trusts is not publicly available and is only accessible by recognised competent authorities, and registers of trusts are confined to trusts with tax consequences, reflecting the fact that any risk assessment suggests that this is where the highest risk of abuse lies.

The proposed revisions to 4AMLD effectively put trusts on the same basis as most corporate structures. This means Member States would be required to establish comprehensive beneficial ownership registers of ALL trusts – a change that will impact on millions of ordinary families. It also would require that such register should be available, as a minimum, to anyone who has a ‘legitimate interest’ (not defined – but understood to include journalists and NGOs with an interest in this area), and allowing Member States to open such registers even to those with no demonstrable ‘legitimate interest’ in the information.

In spite of STEP’s best efforts, and the best efforts of other professional bodies who have been working with us on this issue, our arguments against these proposals were getting little attention from policy makers. The original proposals for the revision were sparked by a wave of terrorist attacks in Brussels, and then were increasingly seen as a necessary political response to the Panama Papers scandal. Brexit then did few favours for those trying to argue in Brussels for the merits of what are still generally seen as ‘Anglo-Saxon trusts’…

It is encouraging, therefore, that the European Data Protection Supervisor, a powerful voice in Brussels, has now weighed in with a stinging review of the proposed amendments. They are seen as having muddled objectives underpinned by little objective risk assessment and paying scant regard to the issue of proportionality, particularly in the proposal to allow wide access to beneficial ownership information on family trusts. We can only wait and see how this impacts on the intense debate that is currently going on in the EU Parliament on the proposals.

 

George Hodgson is Chief Executive of STEP