We, and we’re sure all of you, have been following the unfolding global Covid-19 crisis intensely.
From the impact it is having on global markets and economies, to our way of life and ultimately the health of many thousands of our fellow humans, this Black Swan event of an epidemic has probably already fundamentally altered the world in ways that we will only be able to truly appreciate in hindsight.
When we wrote our article on the outbreak a few weeks ago, we predicted that quarantine measures could very well be introduced in western countries, and alas, they have.
However, we are not going to make any predictions about the impact of the crisis in this email, as the situation is still too volatile and unpredictable.
Our basic guidelines remain unchanged: take precautions such a storing a bit of extra dry food, make sure you are holding some gold (if possible) and maintain an exit strategy to somewhere you consider safe and accessible.
Ultimately, this crisis we are all facing will be overcome.
Let’s take this ‘down time’ as an opportunity to re-focus and understand what will be there waiting for us once things get back to normal.
So with that in mind, today we are going to discuss an issue that might seem a bit mundane in a time of so much drama, but which we believe provides a telling insight into the unfolding shape of the world to come.
5AMLD and Ultimate Beneficial Owners (UBOs) in the EU
On January 10th, 2020, the European Union’s 5th Anti Money Laundering Directive (5AMLD) came into effect.
The directive follows on the 4AMLD, which had introduced new rules for member states, that included forcing companies operating within their jurisdictions to document “adequate, accurate and current information” about their Ultimate Beneficial Owners (UBOs) in databases that are accessible to anyone “with a legitimate interest”.
5AMLD has taken things a step further, introducing new rules on how accurate and systematized the data on UBOs is, while also stipulating more detailed sanctions that can be applied to companies that fail to comply.
The rationale for the EU’s Anti Money Laundering legislation is self-evident in its name: it’s designed as a means to combat money laundering and terrorist financing through the companies and bank accounts registered in the bloc.
However, the effects are far-reaching in terms of data privacy in general, and UBO privacy in particular.
Under 5AMLD, member states were obliged to set up central registries for companies by January 10th of this year, while the deadline for “trusts and other legal arrangements” is March 10th.
These centralized national registries will need to be interconnected on a centralized pan-European platform by 10th March 2021.
Added to that, the directive states that “Member States should set up centralized automated mechanisms allowing the identification of holders of bank and payment accounts and safe-deposit boxes by 10 September 2020.”
Is it being implemented?
In short, yes.
However, there have been some notable sites of resistance, namely in The Netherlands, where the parliament voted to delay the implementation of 5AMLD, though it is likely to come into effect in the spring.
Just to give you an indication of the lengths to which the legislation goes: if a Trustee of a pension fund in the Netherlands cannot or is not identified, then the entire board of the fund will be registered as a “pseudo UBO”, and will incur fines and other penalties.
Similar measures are taken across all member states. You can access a summary of the 4AMLD rules on UBO disclosures here.
Luxembourg, which has set up a public registry, has shined some light on how requests for anonymity will be handled in the shadow of the legislation.
A Director of ZEDRA Luxembourg, a firm offering specialized consultancy services for funds, trusts and companies, was quoted as saying that the authorities in Luxembourg have been able to exempt certain individuals from being registered on the database if they “are a minor, or can evidence that there are material risks to his / her personal safety.”
However, they also noted that it was becoming harder and harder to actually have requests for anonymity approved.
What it means
The implication of the 5AMLD legislation for obliged entities such as companies, banks, trusts, and their UBOs is significant.
First of all, obliged entities will need to identify and register their own UBOs, which in itself can be a complicated process.
Second, the impact on the privacy of UBOs is clear: the days of anonymously benefiting from a company, trust or other financial entity in the EU are definitely numbered.
Third, it is likely that in light of the new legislation, there will be a significant rise in companies that are sanctioned for inadequate reporting, as well as the revelation that some of their UBOs might be on sanctions lists.
It is reasonable to assume that this might end up having a negative impact on other law-abiding UBOs of the same entity.
What do we suggest?
This very much depends on your situation. If you are a UBO in a European trust or company, then it is highly recommended that you ensure that the company is being compliant in its reporting, in order that you avoid sanctioning.
If you believe that you have a good case for preserving your anonymity, then you should also explore the legal avenues available in your relevant jurisdiction for securing that anonymity legally.
If, conversely, you are looking for a safe and secure place to set up a company or trust with relative anonymity (such as not having your name placed on a public register), then there are still a range of offshore options available for you.
However, these are diminishing fast, and we recommend speaking to a specialist consultant about your options. If you would like us to put you in touch with specialists in offshore incorporation, then get in touch and we will be happy to point you in the right direction.