STEP – the reality

STEP logo iconThere have been a number of recent press articles about the role of STEP, a leading professional body, in the wealth management industry. Some of these articles have presented a highly distorted view of STEP and the activities of our members.

STEP members, known as TEPs, spend their professional lives helping families plan for their futures: from drafting a will or advising family businesses, to helping international families and protecting vulnerable family members who may have mental capacity issues or other forms of disability. With around 20,000 members worldwide, TEPs are the acknowledged specialists in giving advice to families in these areas.

Some TEPs focus on servicing very wealthy families, often with a range of international interests, who need expert advice to manage their affairs to ensure all tax and legal requirements are met in multiple countries. Most TEPs, however, are engaged in helping ordinary families deal with everyday problems. All are committed to the high technical and professional standards that STEP promotes and insists on from all its members.

Internationally, STEP has an important role to play in improving professionalism among all those working with families in areas such as inheritance planning and the care of vulnerable relatives. We are thus proud to be actively involved in helping raise standards in jurisdictions where there have to date been few, if any, equivalent professional bodies.

STEP also works constructively and transparently with a range of policymakers. As acknowledged global experts in their fields, STEP members have an important role to play in ensuring that policy development is informed by the practical experience of professionals working in the relevant area. STEP’s responses to official consultations are all publicly available on the STEP website (see www.step.org/consultation-tracker/1).

George Hodgson is Interim Chief Executive of STEP

Why do people go offshore?

George HodgsonTaking a global view, the period since 2008 has been marked by unprecedented activity aimed at improving tax transparency. First of all we had tax information exchange on request. More recently the move has begun to automatic exchange of tax information. The same period has also seen enormous emphasis internationally on improving the availability of beneficial ownership information.

All this activity focused on improving transparency ought, logically, to have been bad news for the so-called ‘secrecy jurisdictions’. It is perhaps surprising, therefore, that the reality looks somewhat different.

Researchers at the European Parliament have dug out some rather curious statistics from the Bank of International Settlements. Over the period 2008-2015 cross-border deposits have grown on average by 2.81 per cent. Over the same period, cross-border deposits in the rest of the world have grown by 1.24 per cent. In other words, during a period of unprecedented activity regarding building transparency, the share of the offshore centres in the cross-border deposit market has actually gone up.

What does that imply? Some will undoubtedly represent this as clear proof that current transparency measures aren’t working. Indeed the same EU Parliament report that presents the statistics goes on to request ‘a study on the feasibility of a global register of all financial assets held by individuals, companies and all entities such as trusts and foundations’. This just goes to show that Big Brother still has his supporters!

Others might see the continued growth in offshore in an age of transparency as demonstrating that the appeal of offshore in reality has little to do with ‘secrecy’. It is hard to imagine that any client moving funds to one of the major offshore centres does not expect those funds to be reported at some point to their domestic tax authority. It is impossible to believe that any of their advisors do not know that at some point their client’s position is likely to be reported to their domestic tax authority.

The conclusion therefore has to be that most of the funds going offshore are there not for secrecy but for other reasons, for example geographic diversification; strong financial infrastructure; or tax neutrality. But it is clear that regardless of the move to transparency, offshore centres still have strong client appeal.

George Hodgson is Interim Chief Executive of STEP

French trust register goes live to public on 30 June

George HodgsonFrance has taken the unprecedented decision to put its register of trusts online and freely accessible this week.

From 30 June the French trusts register can be accessed by using a number of search criteria, including the name of the trust, or identity of the trustee, settlor or beneficiaries.

France obtained this information as trustees of trusts which have a French connection, eg resident settlor, beneficiary and/or holding French assets, have been required to file reports with the French tax authorities since 1 January 2012. Failure to comply is punishable by a fine of at least EUR20,000, or 12.5 per cent of trust assets, if higher.

STEP is highly critical of the move, noting that the data was supplied for tax purposes in good faith, and with no permission for it to be made public.

There is no protection offered for details of vulnerable beneficiaries, such as children, elderly people, or those with limited mental capacity.

This information is strongly biased towards non-French structures, which are being treated on a different basis to French structures.

In addition, there has been no attempt to ensure that the information remains relevant or up to date; nor is there any facility to remove data that is no longer correct.

 

George Hodgson is Interim Chief Executive of STEP

Registers of beneficial ownership – the end game?

George_Hodgson-2016On Friday (22 April) HM Treasury announced that a further 19 countries have now joined the UK-led pilot project launched with Germany, France, Italy and Spain for the automatic exchange of information on beneficial ownership. These include the Netherlands; Romania; Sweden; Finland; Slovakia; Latvia; Croatia; Belgium; Ireland; Slovenia; Denmark; Malta; Lithuania; Cyprus; Bulgaria; Portugal; Estonia; Greece; and Czech Republic.

Following this, the Informal ECOFIN meeting of finance ministers of all 28 EU member states ahead of the Netherlands Presidency announced that they welcomed the fact that ‘all member states’ will enter into a pilot project for the automatic exchange of information on ultimate beneficial owners. In addition, they also announced that the Netherlands Presidency will take forward and broaden the work on the amendment to the 4th Anti-Money Laundering Directive (which will be submitted to the European Parliament and the Council in June). Ministers encouraged the Commission to ‘consider improvements to address certain issues linked specifically to money laundering, in particular to enhance accessibility of beneficial ownership registers on corporate and other legal entities, as well as on trusts and similar legal arrangements, to clarify the registration requirements for trusts, to speed up the interconnection of national beneficial ownership registers, promote automatic exchange of information on beneficial ownership between authorities, and strengthen customer due diligence rules.’

At the recent FATF meeting in Vienna that STEP attended there also growing pressure from the banks to allow them access to any beneficial ownership registers, even if the general public is not allowed access.

Add all this to the announcement from the OECD that the G20 has asked the Global Forum and the FATF ‘to make initial proposals by October 2016 on ways to improve the implementation of the international standards on transparency, including on the availability of beneficial ownership information and its international exchange’ and it is clear that international policy agenda has shifted fundamentally since the ‘Panama Papers’ story broke, and few would rule out it shifting further still as more leaks emerge.

We suspect many people will be struggling to keep up with the sheer volume and speed of the announcements now coming out in the area of transparency. To this end we are therefore very fortunate to have the head of CRS implementation at the OECD and a leading spokesman from Transparency International, as well as leading practitioners, joining us for in-depth discussion on these issues at the STEP Global Congress in Amsterdam on June 30- 1 July. This will no doubt provide crucial insight into just what is the end game, and how we can move forward.

George Hodgson is Deputy Chief Executive of STEP

OECD: ‘Public release of taxpayer information is not consistent with the international standards for tax transparency’

George_Hodgson-2016STEP yesterday (14 April) received a letter from Mr Kosie Louw, Chair of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, which was sent to all members of the Global Forum.

 

The letter contains the following statement:

‘I want to state that the public release of taxpayer information is not consistent with the international standards for tax transparency. Indeed, a key aspect of our work has been concerned with ensuring that when such information is held by governmental authorities it is shared only with persons authorised in accordance with the standard and the applicable international agreements that give effect to both EOIR and AEOI.’

STEP welcomes this statement, which reinforces our message that while we support international initiatives on transparency and anti-money laundering, families have a right to legitimate confidentiality in their financial affairs and there must be effective safeguards to protect their information from risk of abuse.

We look forward to working with the OECD in the weeks and months ahead to support and inform their efforts in combatting tax evasion and any actions that support criminal activity such as money laundering and terrorist financing, and to rebuild public confidence in the international finance system.

 

George Hodgson, Deputy Chief Executive, STEP

CRS and charities: watch out for reporting obligations

George HodgsonThe OECD Common Reporting Standard (CRS) is probably going to impact directly every STEP member outside of the US – the only major international financial centre not so far committed to joining the CRS. Even STEP members in the US, however, are likely to have to consider CRS’ implications for any clients they have with widely spread financial interests.

Fortunately, CRS is very closely based on FATCA, so most of the work practitioners have done on FATCA implementation over the past couple of years should serve them well when it comes to CRS implementation over the next year or two. There are, even so, a couple of wrinkles in CRS which might trap the unwary.

One difference is that some of the reporting options available to trusts which are considered Financial Institutions (FIs) under FATCA, specifically ‘owner documented’ status and ‘sponsored investment entity’ status, are not available under CRS. Basically, under CRS, trusts that are FIs can either be trustee-documented trusts or must report directly, although they can come to third party service agreements with others to complete their reporting for them if they wish.

Another potential trap is that while all regulated charities were essentially exempt from FATCA reporting, some charitable trusts will need to file reports under CRS.

Charitable trusts that are Non-Financial Entities (NFEs) are regarded as Active NFEs under both FATCA and CRS and are therefore not reportable. Under FATCA, charities that are FIs were also carved out as ‘Deemed Compliant Financial Institutions’ and thus did not need to register or report. Under CRS, however, such charitable trusts do not have ‘Deemed Compliant’ status. Thus, under CRS, charitable trusts that are FIs – typically because they have a discretionary fund manager – will need to perform due diligence, establishing the tax residence of all Controlling Persons (including beneficiaries) and report any reportable accounts.

STEP recently arranged a meeting between some charity advisors and HMRC on this issue and HMRC are now looking to draft some additional guidance for the charity sector in the issues raised by CRS. In drafting this guidance HMRC would welcome further input from practitioners. Therefore, if you have encountered any specific difficulties or have any particular questions, please contact STEP and we will undertake to pass them on to HMRC as they are drafting their guidance.

George Hodgson, Deputy Chief Executive, STEP

Informing clients of CRS reporting

George HodgsonAt one of the regular meetings we had with HMRC, there was a short presentation from the Offshore Evasion strategy team. They are keen to get the message out to taxpayers that automatic exchange of information in the shape of the Common Reporting Standard will be coming in relatively soon, with the first exchange of information between tax authorities due in 2017. At that point tax authorities will start to get a flood of very detailed information on anyone with financial assets overseas. They would much prefer that taxpayers in this situation take action now to regularise their affairs via the disclosure options that are available rather than see a whole raft of taxpayers being faced with enforcement action after tax information exchange has commenced.

Many practitioners are probably currently focussed on ensuring FATCA reporting goes smoothly and have not yet given too much thought to the arrival of the CRS, but the message from HMRC is a timely one and highlights the benefits of ensuring that clients are fully aware of the need to regularise their tax affairs if need be, ahead of the new international reporting arrangements coming into force.

George Hodgson is Deputy Chief Executive of STEP.

Scam Alert: Hotel Room Reservations Services from Exhibitor Housing Services (EHS)

George HodgsonA third-party company, Exhibitor Housing Services (EHS), is contacting our Mauritius conference speakers and exhibitors, introducing themselves as the official ‘housing bureau’ for the event or as a representative from the InterContinental Resort Mauritius or STEP and offering room rates lower than those quoted on our website.  This is not the case. EHS is not affiliated in any way with STEP or with the InterContinental Resort and we believe they will charge you an undisclosed booking fee in addition to the rates they are quoting.

We would strongly recommend that you do not give any personal information, including credit card details to EHS or any other unknown vendor.  If you receive an e-mail from EHS, please forward to it to events@step.org

In order to guarantee your hotel reservation, please go to the venue page on the STEP Mauritius Conference website http://www.step.org/venue-mauritius for full details of rates and how to book.

The 4th AML Directive Agreement – a pragmatic solution

George Hodgson

Reports suggest that late last night the EU Parliament and Member States finally reached an agreement on the 4th Anti-Money Laundering Directive. The agreement will see a  mandatory requirement for registration of beneficial owners for corporates, but is less than clear on the issue of public access to such a register, allowing access to be limited to those with a legitimate interest”.

On trusts the agreement calls for national registers to be established simply based on the information that will in any case be available to tax authorities. There is no requirement for public access or access by obliged entities, although obliged entities may be allowed access if a  Member State wishes. This looks like a pragmatic solution. Relying on tax information to compile the register should minimise bureaucracy and costs and the proposed access rules should help preserve legitimate confidentiality of trusts, many of which are established to protect the interests of vulnerable family members.

STEP has been proactively campaigning for some time on this issue and had recently provided a legal opinion to the Commission and others outlining that public access to any trust register was likely be in breach of the European Convention on Human Rights. We are pleased that our concerns on this point seem to have been recognised in the negotiations last night.

This is a great outcome and STEP will report more details of the arrangement, most likely in the new year.

George Hodgson is Deputy Chief Executive of STEP.

Battle Over Exempting Trusts From Public Registry Continues Between EU and UK

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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.