FATF invites STEP to discuss potential revision of Recommendation 25

The Financial Action Task Force (FATF) is conducting a review of Recommendation 25, which covers the transparency and beneficial ownership of legal arrangements. The FATF’s objective is to improve Recommendation 25 and its Interpretive Note to meet its overall objective of preventing the misuse of legal arrangements for money laundering or terrorist financing.

The FATF recently invited STEP and other stakeholders to attend a private sector engagement forum in early November to understand their views on several key areas.

The forum participants discussed the definition of trusts and equivalent legal arrangements in common/civil law systems. The discussion focused on whether a common definition could be introduced in order to clarify where the law is unclear.

This section also covered the key challenges of understanding the nature and structure of common law express trusts and civil law legal arrangements.

The key challenges in understanding and verifying beneficial owners in the context of trusts, and how the concepts of ‘ownership’ and ‘control’ would apply to them, were also discussed. The types of information collected to establish beneficial ownership of trusts, and the challenges of collecting this information of foreign legal arrangements operating in countries without the necessary legal framework, were also covered.

The FATF also raised how it wished to establish to what degree identification of beneficial owners should be inherently part of a trustee’s duties and asked whether this should be an explicit obligation.

One of the major focuses of the forum was to examine some of the ways that trusts and other legal arrangements can purposely be used to disguise ownership and evade transparency. Discussion also focused on complex ownership structures and how they could be defined and identified more clearly. Challenges can arise in existing multi-layered structures where the legal entity being identified is lower down the chain of ownership and in some cases, verifying the beneficial ownership of the ultimate holding entity, can be unclear.

The FATF stated that it would welcome any written proposals with suggested amendments for Recommendation 25 until the end of the year. The next step would be a planned public consultation in Q3 2022: however, this will be open to change if necessary.

In parallel with this review of Recommendation 25, the FATF are also reviewing amendments to Recommendation 24, which focuses on the transparency and beneficial ownership of legal persons. The FATF is consulting on suggested amendments to Recommendation 24 and STEP is planning on responding.

Robert Carington is Policy Executive at STEP

Progress on digital legacy planning from internet service providers

Two leading tech firms have announced significant changes to digital legacy options.

Apple

Robert CaringtonApple is to offer a digital legacy service for user accounts, according to reports from CNET and Digital Legacy Management. The move, announced at its annual Worldwide Developers Conference this week, follows reports of families taking service providers like Facebook to court to gain access to deceased family members’ accounts. Users can either permit access to a named individual, the ‘administrator’, or choose to have their accounts deleted. The new function is expected to be released later this year, though no date has been set.

The administrator will sign in through a ’legacy contact Apple ID’ and will need an access key to see password-protected data on Apple devices. He/she will also be able to view data stored in iCloud, Apple’s cloud service, which can then be downloaded, but will not have access to payment information, such as stored credit cards, or logins stored on a user’s Keychain.

While the service has not been officially released, Apple has already set up a dedicated web page. The user needs to enter their Apple ID login to get to the digital legacy page, which gives them the option to specify that their account be deleted when they die.

However the main question, which is yet to be answered by Apple, is how the service will work if the designated legacy contact does not use any Apple products. It is also unclear whether the administrator will be able to access the new system from devices using other operating systems, such as Android.

LinkedIn

LinkedIn also now offers options for those authorised to address a deceased person’s account, memorialise or close a deceased member’s account, according to a blog by Sharon Hartung TEP. Whilst these are not classed as pre-planning tools (advance selections) with respect to addressing an account member’s wishes and preference upon death, they do allow the fiduciary to either request a LinkedIn profile to be closed or memorialised.

Next steps, and STEP’s Thought Leadership work

Both moves follow in the footsteps of Google’s inactive account manager, which has been going for some years. It is hoped that other vendors and tech providers will respond to consumer expectations and follow suit.

In the meantime STEP continues its Digital Assets Thought Leadership work, which is focusing on engagement with service providers, and documenting the difficulties that professionals and members of the public may encounter with digital assets and service providers across various jurisdictions, in particular regarding estate planning and digital legacies.

STEP and the Microsoft-funded Cloud Legal Project at Queen Mary University of London have recently jointly undertaken a survey to ascertain the awareness, experiences, and concerns of practitioners in dealing with digital assets, in relation to both estate planning and digital legacies. The information gathered will subsequently inform and set the framework for resulting activities and education of value to practitioners, service providers, policymakers and the public.

Robert Carington is Policy Executive at STEP

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

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

STEP webinar on Mental Health and the Financial Advice Relationship

Robert CaringtonOn 18 November STEP will hold its third webinar in the Thought Leadership webinar series, following webinars on the remote witnessing of wills and wealth taxes earlier in the autumn.

Mental Health and the Financial Advice Relationship will be chaired by Mark Dunkley TEP, Shakespeare Martineau LLP (UK); and the panel will consist of Carol Lynde, Bridgehouse Asset Managers (Canada) and Adam Wiseman, Bridgehouse Asset Managers Advisory Panel (Canada).

Mental health has traditionally been treated either an afterthought, or in some circles of life not taken seriously at all. However due to recent and ongoing changes in trends, exacerbated by the COVID-19 pandemic and lockdown, it has become a matter of increasing public and global concern.

Mental health disorders cover areas such as depression, anxiety disorders, eating disorders, and alcohol/substance abuse; and it is estimated that around 10 per cent of the global population has some form of mental health disorder (source). In the UK, it is estimated that one in six people will experience a common mental health problem every week (source). In Canada, half of the population will have, or will have had, a mental illness by age 40.

Based on this increased awareness, advisors are now having to ask how they can detect an illness early on in a client relationship, and how they should effectively manage it to avoid any harm to the client’s health, finances, reputational risk, or damage to the advisor’s ongoing relationship with the client.

Using insights gained from research, advisor interviews and mental health expertise, this upcoming event will give an overview of the current mental health landscape and its impact on investors, providing advisors with a suite of educational tools and real life scenarios that they can apply with their clients who may be experiencing mental health issues.

Robert Carington is Policy Executive at STEP

STEP’s first Virtual UK Annual Tax Conference

Robert CaringtonThe first STEP Virtual STEP UK Annual Tax Conference was held on 26 June with over 800 people attending online. The day was a radical departure for STEP, with conventional meetings postponed or cancelled due to COVID-19. While it did include some glitches, attendees have the opportunity to catch up on any material they missed, with presentations available for a full year.

The day saw some outstanding STEP members speaking on topical matters, and we were delighted to host Emma Chamberlain OBE TEP, Robert Jamieson TEP, John Barnett TEP, Dawn Register TEP, Katherine Bullock TEP, John Woolley TEP and Deborah Clark TEP.

Emma Chamberlain presented the first session, giving an update on inheritance tax (IHT), which covered the Barclays Wealth case and the resulting legislation on excluded property settlements; and the definition of charity in IHT after the Routier case and its implications. She noted the work done by the Office of Tax Simplification and the All-Party Parliamentary Group for Inheritance & Intergenerational Fairness (APPG) on IHT reform was something to watch.

Robert Jamieson TEP covered capital gains tax (CGT) main residence relief and the statutory changes in the Finance Bill 2020 relating to residency, in a comprehensive presentation.

John Barnett TEP gave an informative update on Agricultural Property Relief (APR) and Business Property Relief (BPR), covering their structure, key cases such as Gill and Brander; and finishing with predictions on their reform; he noted that the CGT uplift was the most likely to be reformed by any government in the near future.

The afternoon session started with Dawn Register TEP giving advice on dealing with HMRC, covering areas such as its No Safe Havens 2019 programme to ensure offshore tax compliance and its risk assessment process. She also explained changes made due to the COVID-19 pandemic, including the relaxation of some deadlines.

Katherine Bullock TEP followed with a practical session focused on such IHT calculations as chargeable lifetime gifts, how to arrange settlements and when grossing up is necessary.

John Woolley TEP was next with an update on pension transfers and lump sum IHT plans following the Staverley decision in the Supreme Court in May 2019. John covered the advantages and disadvantages of death benefits being paid through either flexi access drawdown or by-pass trusts the protection of funds on divorce or insolvency; and dealing with the valuation issues of the ten-year periodic charge and their impact on loan trusts and discounted gift trusts, as well as any problems that may arise.

The final presentation of the day was from Deborah Clark TEP who spoke on family investment companies and their use. Her presentation covered their structure and funding and asset protection as well as how they were treated by income tax.

  • Our thanks to the event’s sponsors: James’s Place, Fraser and Fraser, National Philanthropic Trust, Octopus Investments, and Remember a Charity.

Robert Carington is Policy Executive at STEP

STEP joins Anti-Money Laundering Europe webinar on the future of the EU’s fight against money laundering

Robert CaringtonOn 3 June, STEP joined a webinar hosted by Anti-Money Laundering Europe (AME) on the future of the European Union’s fight against money laundering.

John Riches TEP, Chair of STEP’s Public Policy Committee, was joined on the panel by Jérôme Deslandes, Cabinet of the Executive Vice President of the European Commission; and Piers Haben, Director for Banking Markets, Innovation and Consumers at the European Banking Authority (EBA). The chair was Mike Savarese, AME.

The webinar discussed the European Commission’s package on anti-money laundering (AML) published on 7 May.

Its main item was an action plan, accompanied by a list of high-risk third countries, and a methodology describing how these were chosen. The action plan aimed to address the weaknesses identified in research from 2019 and was based on the following six pillars:

  1. Better implementation of rules – This will be achieved by a number of tools particularly interconnection of beneficial ownership registers, more powers for the EBA and a focus on country-specific recommendations. The eventual aim is for an EU supervisory body responsible for conducting on-site examination on the effectiveness of the AML framework.
  2. Harmonised rulebook – This will be achieved by sharing information, integrating the latest Financial Action Task Force (FATF) standards and building on the good examples of member states.
  3. EU level supervision – This integrated AML system will need to be jointly run by the EU and national authorities.
  4. Coordination and support mechanisms for FIUs (Financial Intelligence Units) –Through common templates and tools, standards on feedback, support of joint analysis and training.
  5. Law enforcement and information sharing – New tools such as criminalisation of money laundering, a Directive on the use of financial information and rules on asset recovery (including mutual recognition of freezing orders) will be used.
  6. EU’s global role – This will be achieved through the new methodology and the list of high-risk third party jurisdictions that pose a threat to the EU’s financial system.

John Riches’ view on these developments from a private sector perspective, was that due to the rapid development of the EU’s AML framework, member states appear to have struggled to implement past incarnations of AML. He observed that there seemed to be an inconsistency in approach between states, resulting from a lack of clarity and practical guidance.

His main concerns were over beneficial ownership registers and transparency, and how this lack of clarity had made implementation of trust registers difficult, and also potentially unfair. He noted that the uncertainty over some of the provisions in the Fifth Anti-Money Laundering Directive showed a lack of understanding on how trusts work. He also voiced major concerns over the potential conflict of public registers versus privacy rights.

The panel heard that the EU is aiming to be assessed as a single jurisdiction, with a single supervisor and rule book, within five years, so will be recognised as such by FATF. This single approach is seen as being cheaper and more efficient, and a more effective way of achieving a stronger, more unified and robust system.

The event ended with John Riches stressing that the EC consultation should be much more than a box-ticking exercise, and something more meaningful, which will benefit everyone.

Robert Carington is Policy Executive at STEP

The COVID-19 crisis prompts a rash of philanthropic giving

Robert CaringtonOn 13 May 2020 the STEP Philanthropy Special Interest Group (SIG) in partnership with Philanthropy Impact hosted the first of its 2020 Philanthropy Programme series of events with a webinar entitled ‘Core Components of a Professional Philanthropy Advisory Practice’.

The event attracted a number of delegates from 18 different jurisdictions, and discussed a range of issues for philanthropy advisors. It was ably hosted by George King IV, Partner, MASECO Private Wealth; with Jo Bateson TEP, Partner, KPMG; Cath Dovey, Co-founder, Beacon Collaborative; and Alana Petraske, Partner, Withers Worldwide LLP, on the panel.

The current COVID-19 crisis and the deep and radical changes in society it has brought has prompted an increase in people wishing to give, and brought about a more important role for the philanthropy advisor. This means it is essential for advisors to have the right tools in place, and to be aware of clients’ shift in attitudes towards philanthropic giving, and what it involves.

Advisors need to feel comfortable about providing advice, especially while getting used to new ways of working. While much work can be done online, there are still concerns over physical actions, like signing cheques for clients, although on a positive note, many regulators have taken a pragmatic approach, recognising the need to work remotely.

A number of reasons were given for the increase in charitable giving. Clients want to be seen to be doing something, or they are using the increased ‘spare time’ to reflect on their place in society and how they could better themselves, with charitable giving being a solution. Many are acting in response to the current situation with a sense of urgency, and want to donate as quickly as possible.

During the first two weeks of the crisis, established infrastructure funds were able to utilise pre-existing networks and donate immediately and strategically. Subsequently there was a broader response, with non-regular clients and new donors emerging. Many of these had used the first few weeks to get their own affairs in order, and then wanted to act with speed. Anecdotal evidence showed that donors range from those with structures in place, to those who need preliminary hand-holding.

Even though the crisis is a generation-defining moment and clients want to donate quickly, several on the panel urged advisors to recommend clients should hold fire, and instead research their charities of interest, with a view to deploying their wealth strategically over a longer period (6 -12 months). It’s vital to manage clients’ anxiety and also assess the risk factors, as charities will be in distress for some time, and many will not survive at all. Reports show that in the UK, 40-70 per cent of charities may be dissolved in the next 12 months.

Another key, and indeed quite obvious issue is whether the client has sufficient money to give. The outbreak has brought out basic level survival instincts (such as the run on loo paper) and if someone feels under attack from the virus, they may not want to give, or feel they can’t.

The panel also suggested advisors be mindful of their own businesses, and review what they expect to happen in the next 6 months – 2 years. Points to consider include: where their work comes from, what will future working will look like, and what clients will be seeking from them. However, now is the perfect moment for advisors to be the philanthropy champion at work and integrate philanthropy into wealth planning.

The event ended with the panel highlighting what they felt were the key skills required for advisors in the industry:

  • Collaboration and the importance of building up a community which you can utilise and engage with.
  • Honesty regarding your skills, and being prepared to practice and train those who need further improvement.
  • To focus on a useful knowledge base, such as understanding what grant makers and other key players are doing.

 

 

Robert Carington is Policy Executive at STEP