How to improve the EU’s Anti-Money Laundering (AML) Package on beneficial ownership registration

This report contains the Tax Justice Network’s proposed amendments to improve the EU’s draft Anti-Money Laundering (AML) Package with regard to beneficial ownership registration. 

Introduction

On 20 July 2021, the European Commission presented a package of legislative proposals to strengthen the EU’s rules to tackle money laundering and to counter the financing of terrorism (AML/CFT)¹The package includes, among others, a proposal for a regulation on AML/CFT and a proposal for a new AML Directive (AMLD 6) which would replace the current applicable AMLD 5. The package is now being discussed, so here are the Tax Justice Network’s proposals on how to improve the current draft Regulation and Directive.

Our comments concern:

• The definition of a beneficial owner (BO);
• The scope of legal vehicles subject to registration;
• The conditions that should trigger beneficial ownership registration;
• The details to be registered on each BO;
• Access to information;
• How to verify information
• Sanctions for non-compliance
• Miscellaneous issues (trustees, nominees)

This report offers a brief point-by-point explanation of what should be improved, and why. This blog offers the summary of each proposal. The following extract from the report shows the table with the Tax Justice Network’s proposed amendments (in bold) both for a partial improvement (left column) and towards the most transparent scenario (right column). For the full list of proposed amendments, refer to the report.

Summary of proposals

1) The beneficial owner (BO) definition

It may not be clear who owns an asset. The legal owner of a yacht, for instance, may be a company based in a tax haven. Yet we want to know who the true owner is. This can be tricky to nail down, so the EU package needs clear and effective definitions. The beneficial ownership definition should refer to any natural person (ie a human) with direct or indirect ownership of, control of, or benefit from a legal vehicle, without thresholds. Control should include any means of control or influence to appoint at least one director or manager or make any relevant decision on assets or activities of the legal vehicle, and should extend to anyone having a power of attorney to manage the entity or its assets (eg a bank account) or being a party to a contract (eg rights to all of a companies’ profits) or financial instrument (eg a call or a put option, futures, convertible stock, etc.) related to shares, votes, income, assets or benefits of a legal vehicle.

2) Scope of entities

All legal vehicles should be covered, without exceptions. If thresholds are kept (against our recommendations), then lower thresholds should apply to listed companies and investment funds and special provisions should apply for  state-owned enterprises.

3) Conditions that trigger beneficial ownership registration

Legal vehicles should be required to register their beneficial owners whenever they are incorporated or governed according to domestic laws, or when they hold assets or operations in an EU country, or when they have a participant (eg beneficial owner, shareholder, director, settlor, etc) who is resident in an EU country. Just as is already practiced with most legal persons (eg companies), trusts and similar legal arrangements should be required to “incorporate” or register in order to obtain legal validity.

4) Details to be registered for each beneficial owner

In addition to all current details to be registered, the full ownership structure should be registered and beneficial owners should disclose their citizenship, place of birth, any additional residency or citizenship, whether they hold a status of politically exposed person (PEP) in any country, and the value of each transaction (eg acquisition of shares) to become a beneficial owner, or in the case of free transactions (eg a donation), the reason for the transaction and relationship to the former owner of the interests or votes.

5) Access to beneficial ownership information

Legal and beneficial ownership data should be available to the public for free. Ownership registries should be available online in open data format.

6) Verification of beneficial ownership information and red flagging

Beneficial ownership registries should conduct automated analysis to check for consistency with other databases (eg to confirm that all registered beneficial owners are living persons). The online registry should introduce red flagging based on outliers and suspicious characteristics (eg a single person as a beneficial owner of thousands of companies).

7) Sanctions for non-compliance

In addition to any criminal and/or monetary sanctions, administrative sanctions should be applied to remove non-complying legal vehicles from the registry and to revoke any rights from non-complying beneficial owners (eg votes or dividends).

8) Miscellaneous: preventing registrations of no beneficial owner, trustees and nominees

There should be no situation where a legal vehicle does not have beneficial owners (such entities should not be allowed to register, and thus should not have legal validity). Either: at least one beneficial owner will always be identified (eg if the beneficial ownership definition has no thresholds) or, if thresholds are applied, then the top 10 shareholders should be identified up to a natural person. Nominee shareholders should be prohibited. When a trustee owns or holds an asset, eg in the real estate register, there should be an indication that this is just a trustee plus a disclosure of the trust and the trust’s beneficial owners (all settlors, trustees, protectors, beneficiaries and any other person with control over the trust).

The report also offers proposals on how to amend the draft EU Directive to ensure consistency between the EU Regulation and the EU Directive.