This article originally appeared at ACAMS moneylaundering.com
On the eve of key behind-the-scenes talks on the Fourth European Union Anti-Money Laundering Directive, the rift over proposals for the public register of trusts has widened between the United Kingdom and Europe.
Officials from the European Parliament, Commission and Council are set to meet Tuesday to discuss the plans in a ‘trialogue’ meeting, according to a Brussels-based source close to the matter. Trialogues are informal and unpublicized discussions that play a key role in legislative proceedings.
It is expected that a formal EU announcement on the matter will be made by December, however, even that could be pushed back further as sharp divisions over the issue of public registers persist between leading member states.
The UK has embarked on plans to become the first country in the world to have a public register of ultimate beneficial ownership of companies, but it is vehemently opposed to one for trusts as proposed by the European Parliament.
On Friday it maintained its stance, with a Treasury spokesman saying that while British action to improve transparency remains ‘unmatched’ globally, trusts must not be treated the same as companies.
‘Trusts are widely used by many UK citizens, where there is often little or no risk of money laundering,’ he said.
Strong opposition against a register of trusts and companies is also brewing from legal professionals in London.
Publicizing ownership would be ‘intrusive’ into the financial affairs of individuals who wish to keep them private, lawyers argued last week during a debate on privacy and the government’s plans for public registers. Executives of companies targeted by activists could also be harassed or kidnapped if their personal information was publicity exposed, a senior practitioner said.
A private register accessible to law enforcement agencies and regulatory authorities is a better option, attendees said at the event, hosted at the London offices of Mishcon de Reya.
Beneficiaries of trusts would also be vulnerable if their identities were made public, including children or handicapped family members, according to George Hodgson, deputy chief executive of the Society of Trusts and Estate Practitioners.
‘To expose the names of such beneficiaries on a public register strikes us as having some obvious risks and dangers attached to that process,’ said Hodgson, who is also a former staff member of the Treasury Committee of the UK House of Commons.
Trusts are perceived as instruments for money laundering and tax evasion in continental Europe, whereas in England they are actually mainly family-oriented structures, British lawyers say.
Plans to publicize the owners of trusts are ‘very alarming’ and constitute a ‘considerable misunderstanding’ of the general use of trusts on the basis that most trusts are basically structures to let assets pass smoothly from one generation to another, Hodgson explains.
Still, a number of well-documented cases show trusts have been misused for illicit proceeds, so trusts are not only used for inheritance or for children but have been an integral part in money laundering and corruption, according to Christian Hallum, senior policy analyst at Eurodad (European Network on Debt and Development), which recently publicized a report outlining the varying positions of several EU states on the issue of public registers.
Some of the concerns the UK has voiced can, moreover, be addressed by the push within the European Parliament for member states to protect personal information, particularly of vulnerable individuals, and allow its disclosure on a risk-based approach, he added.
A UK HMRC study found that 15 percent of trusts have vulnerable beneficiaries, of which a third were minors and an additional 17 percent were elderly, he said.
‘As such, the vast majority of trusts are not used for truly vulnerable people,’ Hallum explained.
One way forward on the matter perhaps is that ‘serious consideration be given to adopting a licensing system of corporate service providers (including registration agents) which has been successfully utilized in a number of international finance centers,’ according to Ian Kirk, partner and head of commercial at Collas Crill, who also backs a registry only accessible to competent authorities.
Those corporate service providers would also be responsible for verifying beneficial ownership and source of funds, he said.
But given the appetite in the EU for a public register of trusts, politics rather than issues of privacy or practicality will win the day, Kirk states.