Monday, 7 May 2018

Public Beneficial Ownership Registries and the OECD

Jersey has currently escaped the imposition of a public registry of beneficial owners, and that was the right action for Jersey to lobby for, and the right thing to happen. But public beneficial owner registers will come in time globally, and that will be the right thing to happen too.

Let me tell you a story, as Max Bygraves used to say. And by the way, this is a true story. Once upon a time there was a Parish Constable and he decided that the rateable value of properties in his Parish (in what were termed “quarters”) had not changed for ages, and there were all kinds of discrepancies. The time had come for revaluing the rateable value.

That was a good idea, but the Constable and the Parish Rates Committee then made a mistake. They decided that, as the Parish was large, they would divide it up into 3 parts, and revalue part 1 in the first year, part 2 in the second year, and part 3 in the third year. You can probably guess what happened. In the first year, people in part 1 saw their rates soar by 15% while the others had a modest 2% increase. There were some very angry parishioners.

This way of doing things was the right thing to do, but in the wrong way. It penalised Parishioners in one part of the Parish until, three years later, everyone was on the same footing.

And that’s what I think the attempt to impose public beneficial owner registers on what, after all, are soft targets, is the right thing, but at the wrong time.

America is only just starting to put together a legal framework for beneficial owner registers – not public ones, but ones like Jersey available to law enforcement and taxation authorities. How Delaware and Nevada will conform remains to be seen.

What is the state of play at the moment. One of the legal websites says this:

“Some jurisdictions have created or are working on establishing open access to public registers of beneficial ownership (Afghanistan, Argentina, Australia, France, Israel, Jamaica, Netherlands, United Kingdom), although some may require the payment of fees (Australia, Jamaica, Netherlands). The EU Member States and Japan provide access to government institutions, obliged entities, and all who may have “legitimate interests” without defining the parameters of these interests. Others limit access to law enforcers (Singapore), monitoring government authorities (Armenia, Brazil, Costa Rica, Mexico), or members of the company (India).”

The EU under anti-money laundering directives (MLD5) is committed at some point to open access registers, but that is not in place yet. For example:

“In late November 2017, the Irish government announced that it intended to go live with a Central RBO during Q1 2018 and indicated that the question of granting public access to the RBO would be settled once MLD5 was finalised. Finalisation of MLD5, including the public accessibility point, took a big step forward with the political agreement of December 2017. Prior to the implementation of MLD5, our understanding is that information in the Central RBO will not be available to the public, with access being restricted to the Irish Financial Intelligence Unit (FIU) and relevant state competent authorities.”

In other words, most EU countries are still getting a register in place, and are initially, like Jersey, having access restricted to to government institutions, and external law enforcement agencies, including tax authorities.

In Europe, the deadline for MDL5 has moved to the end of 2019 because of issues setting up robust registers and gathering the information. Jersey did this by the end of June 2017.

While the UK has a public access beneficial owners register, the information collected is “dirty” and needs cleaning up. In the rush to get it done, all kinds of mistakes have been made by those submitting data, and now the data needs to be robustly verified. It also is not kept up to date (within 21 days this has to be done in Jersey) when registered ownership changes..

“The UK PSC Register requires an annual update of the information when companies file their ‘annual returns’. This is hardly consistent with the FATF Recommendation that corporate information should be ‘adequate, accurate, and timely’ and may lead to some unpleasant situations if changes occur between two reporting anniversaries and the information is not updated in the meantime.”

The current FATC requirement is not for a public register but “that beneficial ownership information is accessible by law enforcement and/or other competent authorities and is verified”. This verification is not firmly in place in the UK.

The USA, meanwhile, is lagging behind the rest of the world:

“On May 11, 2018, the Financial Crimes Enforcement Network (FinCEN) will implement its fifth and final AML rule, adding to the original four pillars of the AML program under the Patriot Act. Although this legislation has been in the works since 2012, there has been a definite push to issue a final rule concerning beneficial ownership following the Panama data leak.”

“Up until now, there have been no set federal rules in place regarding ongoing identification of beneficial ownership in the U.S.; it has been applied on a best practice approach. FinCEN is now officially enacting the de facto global standard around identification of beneficial ownership of entities, recommended by the Financial Action Task Force (FATF) five years ago. Starting next year, a beneficial owner will be defined as an individual who – directly or indirectly – owns 25 percent or more of the equity interests of the legal entity customer”

I remember back in 2011, the OECD was pushing for an e internationally agreed tax standard, and signing up so many TIEA agreements between countries. They had a “White List”, a “Grey List” and a “Black List”, and it was interesting that the "White List" does not take account of any differences between tax havens and other jurisdictions. If they have implemented the tax standard, that is what mattered.

The time has come for a similar initiative so that, like revaluing rates, the process is done in a fair way internationally.

First of all, the OECD needs to establish a white, grey and black list of countries with a robust registry of beneficial owners – that’s to at least Jersey standards, not UK standards – so that it is verified and kept up to date.

At the same time, once most countries are on the whitelist, all registries should be made open to automatic access of information accessible by bona fide law enforcement and/or other competent authorities. This is also a given. Jersey has already signed up to this. This is not information by request as at present by registries (Jersey, France etc), it is automatic access.

Secondly, consideration needs to be given to Data Protection issues. What we don’t want is a public registry which can facilitate the risk of criminal acts such as ransom,, extortion and theft to the homes of the wealthy. Just as individuals can be kept of electoral registers, a debate needs to be had on this issue before public access takes place.

Thirdly, once safeguards are in place, and all countries are on the “whitelist” for a registry of beneficial owners that is fit for purpose, the OECD can set a date for legislation to be passed in member countries so that on a particular date, public access will come into being.

We have not seen this recently, however, all we have seen is a push to get the softer targets such as BVI to provide a public access registry, when a registry open to automatic access of information accessible by bona fide law enforcement and/or other competent authorities would suffice to enable stamping out of criminality.

In other words, it is good PR for the UK, but it is noteworthy Theresa May is not pressing Donald Trump on speeding up the USA to have a public access registry which would include Delaware companies.

When public beneficial owner registers will come in globally, this must be done in an orderly and measured way – and there’s no reason why this cannot happen within the next 5 years. But like my true story about the Parish rates, it must be implemented in a fair and just manner.

That’s why the OECD should lead. The EU has shown itself all too capable of producing blacklists which are pandering to the prejudices of their own member states, and often ignoring their own deficiencies. Like America, it practices internal "exceptionalism". And they don’t have the global punch.

The OECD doesn’t care about names – “tax haven”, “offshore”, but they do care about internationally recognised standards regardless of what name a place may be labelled. And as the 2009 situation showed, they are fair and firm across the globe. There are no “soft targets”, just targets that everyone has to measure up to.

Jersey should be pro-active here, and push for the OECD to establish lists of countries with registries established - and verified (i.e. robust and checked and up to date), in the first instance, so there is a global push. Jersey Finance could also perhaps produce its own (kept up to date) list of the state of play worldwide.

Secondly once that is done push for a date on which registries are accessible by law enforcement and/or other competent authorities all over the world. 

That needs to be established before we move to public registries, otherwise, like the re-rating increase, some countries will end up paying a price for the badly implemented way in which is has been done.

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