STEP welcomes UK government response to Fifth Anti-Money Laundering Directive consultation

Emily Deane TEPUpdate 11 August 2020: It remains unclear exactly when the proposed Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 will come into force as this is being created by way of a Statutory Instrument, which is subject to the sifting procedure in Parliament. This is a special procedure for EU legislation, and the date on which the regulations will come into force will only become clear once the procedure has been completed.

HM Revenue & Customs (HMRC) has confirmed that the date from which new business relationships and acquisitions of land have to be considered as part of the registration requirements under the regulations will be 21 days after the Statutory Instrument has been laid (see para 1(2) of the regulations).

The UK Parliament website shows the regulations as ‘laid’ on 15 July for the purpose of the sifting procedure, however this does not mean they have been ‘laid’ for the purposes of the commencement provisions in para 1(2) of the regulations. This can only happen after the sifting procedure has been completed. We will keep members updated once it is clear when the regulations will come into force.

Original blog: HMRC and HM Treasury (HMT) have published a response to the technical consultation ‘Fifth Money Laundering Directive and Trust Registration Service’. The consultation ran from January to February 2020 and sought views on how the Fifth Money Laundering Directive (5AMLD) should be transposed, and how certain processes could work for the expanded Trust Registration Service (TRS).

STEP submitted a consultation response and has held numerous meetings with HMRC and HMT over the last 18 months, on various issues related to the implementation of 5AMLD.

One of STEP’s outstanding concerns has been in relation to the interpretation of the business relationship point, which could have had an incredibly damaging effect on the use of UK professional service providers if interpreted in the same way as 4AMLD. We have been advising the government on the negative impact that a wide interpretation of the directive could have on the industry, and we are delighted to see that our recommendation has been accepted.

Para 2.15 of the consultation confirms that, ‘the government has opted to take a measured approach and will only require non-UK trusts to register on entering a business relationship with a UK obliged entity if the trust has at least one UK resident trustee. This means that non-UK trusts will not be required to register if their only link to the UK is through a business relationship with a UK based adviser.’

There is also a significant expansion of the categories of trust that will not need to be reported, which will ease the reporting burden on our members, although we were disappointed to note that bare trusts have not been exempted from registration as we would have liked. The government has also recognised that it would not be appropriate to require trusts created by will to register on the TRS if they are wound up within two years of death.

STEP also had concerns over the ‘legitimate interest’ application process, and the consultation confirms that it will aim to ensure that each request will be reviewed on its own merits, and access will be given only where there is evidence of money laundering or terrorist activity. We will continue to engage with the government on this issue.

The government has set a deadline of 10 March 2022 for existing trusts to register on the TRS, or to update their records if they have already done so. A 30-day deadline will be imposed for new trust registrations and updates. The regulations to implement the provisions have now been laid before Parliament for consideration.

We are very pleased that our discussions and papers have been taken into consideration so comprehensively, and we will continue to engage with the government on the remaining policy issues and assist with the development of the guidance.

 

Emily Deane TEP, STEP Technical Counsel

 

5AMLD consultation: STEP’s view

Emily Deane TEP

The UK Treasury has published a consultation paper on the transposition of the EU’s Fifth Anti-Money Laundering Directive (5AMLD), which expands upon the scope of registration for trusts and widens the accessibility provisions to the beneficial ownership records. The 5AMLD Directive provides for public access, but it is up to each Member State to decide whether or not they will restrict this.

Express trusts

5AMLD will require that all UK express trusts register with HMRC, not just those with UK tax consequences (as was the case with 4AMLD). It will also bring into scope non-EU resident trusts that own UK land or property. STEP is concerned that under 5AMLD, a much wider range of trusts will need to be registered. Express trusts may include co-ownership of land, insurance trusts and other dormant trusts, which will significantly enhance the number of trusts that need to be reported. The consultation seeks to clarify the definition of express trusts, which we hope will provide some clarity and narrow the scope.

Access to the register

There will be expanded accessibility provisions. In the UK, the records will be accessible by law enforcement agencies, any UK obliged entity that enters into a business relationship with a trust, and anyone who can show that they have a ‘legitimate interest’ in the data. An exception is that if a trust has a ‘controlling interest’ in a non-EU company, then anyone will be able to access the information by making a written request and no legitimate interest is required. A trust will be deemed to hold a controlling interest in any corporate or other legal entity when the trust has 25 per cent or more of either the voting shares or other means of control over that entity as defined in the Persons with Significant Control (PSC) guidance. It is currently unclear how legitimate interest applications will be dealt with by the government since ‘legitimate interest’ is not defined within 5AMLD.

Legitimate interest

The government will need to decide whether or not requests for trust data meet the definition of legitimate interest. The current train of thought is that those with legitimate interest should be limited to people with active involvement in anti-money laundering or counter-terrorist financing activity, or those who have reason to believe or evidence that a particular trust or person is involved with money laundering or terrorist financing.

We hope that the government will require strong evidence of illegality and/or wrongdoing that clearly implicates the trust concerned before agreeing to consider a legitimate interest application. There are many people who seek to obtain confidential information about individuals and families with wealth for purposes other than the exposure of illegality or wrongdoing. People are often keen to obtain information about the affairs of the wealthy and those in the public domain, for example, and we are concerned that vague assertions of impropriety could be used to obtain confidential information about family trusts.

The consultation does, however, acknowledge that many trusts are used for children and vulnerable adults, and requests for personal information on either of these will be given ‘special consideration’ and will possibly even be withheld, which we fully endorse.

Registration deadlines

For trusts already in existence on 10 March 2020, the government proposes a deadline of 31 March 2021 for them to register. This gives a long lead-in time, given the greater number of trusts that will need to be registered.

For trusts created on or after 1 April 2020, the government proposes that the trust should be registered within 30 days of its creation. The government envisages that this approach will be the most straightforward, as registration can occur as part of the set-up process, when the required details should be readily available to trustees/agents. The proposal for registration within 30 days for new trusts means there is no single deadline each year and it seems sensible for the trust to be registered at the same time it is created.

It is also intended that this 30-day deadline will be used for any amendments that need to be made to the trust register data, for example, to update an address or change a trustee.

Penalties

Due to the fact that 5AMLD extends registration to non-taxpaying trusts, the government considers that the self-assessment penalty regime is not a suitable basis for the 5AMLD penalty framework. The new regime is also being consulted on within the paper.

STEP will be submitting a response to the consultation, which closes on 10 June 2019. The transposition deadline is December 2019, with an implementation deadline of January 2020. There is an extended trust register deadline for the UK of March 2020.

Emily Deane TEP is STEP Technical Counsel