The Fourth Money Laundering Directive (MLD4) was published in the Official Journal on 5 June 2015 (see our Briefing: Fourth Money Laundering Directive published in the Official Journal).
MLD4 is currently due for transposition into Irish law on 26 June 2017, despite the European Commission's recent proposal that it be transposed early (see our Briefing: MLD4: Earlier transposition?).
Certain provisions regarding beneficial ownership (by individuals) of corporates and other legal entities were transposed into Irish law this week.
This affects all Irish companies (including companies limited by guarantee) and other bodies corporate (including, for example, ICAVs and industrial and provident societies).
It is important to note that the concept of "beneficial ownership" in MLD4 differs significantly from the commonly-used and understood concept of "beneficial ownership" in company law. Under MLD4, an individual can be a beneficial owner of an entity if he directly (or indirectly through other companies) holds > 25% of the shares in that entity, or otherwise directly (or indirectly through other companies) controls >25% of that entity. Further, individuals who have no legal or beneficial interest in shares in an entity, but are directors or the CEO of that entity, may be deemed to be its beneficial owners if the entity cannot identify, with certainty, any other individuals who may be its beneficial owners.
EARLY TRANSPOSITION OF CERTAIN PROVISIONS
With effect from 15 November 2016, Article 30(1) of MLD4 has been transposed into Irish law, 7 months in advance of the June 2017 transposition deadline, by way of the European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016.
Article 30(1) requires that corporates and other legal entities incorporated in a Member State obtain, and hold "adequate, accurate and current" information on their beneficial owners.
Corporates (including companies formed and registered under the Companies Act 2014, or the previous Companies Acts) and other legal entities incorporated in Ireland (Relevant Entities) now must comply with this obligation, and each Relevant Entity must set up a beneficial ownership register (the Register).
When the remaining provisions of MLD4 are transposed into Irish law, the information on beneficial ownership must be accessible by competent authorities, Financial Intelligence Units (FIUs), entities carrying out customer due diligence (CDD) under MLD4 and others with a legitimate interest (most likely via access to the Central Register – see further below).
WHO IS A "BENEFICIAL OWNER"?
For the purposes of MLD4 and this new obligation, a beneficial owner is an individual who ultimately owns or controls the Relevant Entity.
If the Relevant Entity either cannot identify an individual who is a beneficial owner, or identifies an individual who may be a beneficial owner, but cannot be certain of this, the Relevant Entity must instead list its "senior managing officials" (i.e. its directors and CEO) in its Register as being its beneficial owners. It must also keep a record of the steps that it took to identify its beneficial owners.
WHY IS "BENEFICIAL OWNERSHIP" A KEY FOCUS AREA?
At EU level, access to accurate information regarding beneficial ownership is seen as critical to the effective deterrence of criminal activities that could be shielded by corporate structures. The 'beneficial ownership' provisions of MLD4 are aimed at ensuring that the individuals at the top of complex ownership structures can be readily identified for CDD purposes.
WHY HAS ARTICLE 30(1) BEEN TRANSPOSED EARLY?
- Central Register
When MLD4 is transposed into Irish law (this is expected to happen in June 2017), Ireland must ensure that information on the beneficial owners of Relevant Entities is held in a centralised register (the Central Register). It is not yet clear what form the Central Register will take. The information on the Central Register must be capable of being accessed in a "timely and unrestricted" manner by competent authorities and FIUs, without alerting the Relevant Entity, and those carrying out CDD under MLD4 must also be able to access the Central Register in a timely manner.
- Populating the Central Register
To ensure that the Central Register can be populated with information on the ultimate beneficial ownership of Relevant Entities from June 2017, Relevant Entities are being required to start collating that information now.
How that information will be passed by Relevant Entities to the operator(s) of the Central Register remains to be seen, and it has not yet been confirmed who will operate the Central Register. The set-up and operation of centralised registers, together with the preparation of related guidelines, can be a lengthy process (as has been the case with the Central Credit Register – see our Briefings Credit Reporting Update Vol 1/2016 and Credit Reporting Update Vol 2/2016).
WHAT RELEVANT ENTITIES ARE OUT OF SCOPE?
Relevant Entities that are:
- listed on a regulated market and subject to disclosure requirements that are consistent with EU law (i.e. the Transparency Directive); or
- already subject to equivalent international standards in respect of the transparency of information on beneficial ownership,
are not within the scope of this development.
This development also does not affect express trusts governed by Irish law. A separate provision (Article 31) of MLD4 deals with the beneficial ownership of trusts, and has not yet been transposed into Irish law.
HOW IS BENEFICIAL OWNERSHIP/ CONTROL ESTABLISHED?
In establishing whether an individual is a beneficial owner of a Relevant Entity, MLD4 contemplates ownership or control existing as a result of an individual holding (whether directly or indirectly) a sufficient percentage of shares, voting rights or other ownership interests, or other forms of control, in a Relevant Entity.
As mentioned above, if the Relevant Entity either cannot identify an individual who is a beneficial owner, or identifies an individual who may be a beneficial owner, but cannot be certain of this, the Relevant Entity must instead list its "senior managing officials" (i.e. its directors and CEO) in its Register as being its beneficial owners, notwithstanding that they may have no ownership interests (legal or beneficial) in the Relevant Entity.
- Indicators of direct ownership
If an individual holds 25% plus one share in a Relevant Entity, or another form of ownership interest exceeding 25% in a Relevant Entity (perhaps by way of controlling voting rights in a Relevant Entity that does not have a shareholding structure, such as a company limited by guarantee), that will indicate direct ownership and that individual will be a beneficial owner.
- Indicators of indirect ownership
If a company or companies controlled by an individual together hold more than 25% of the shares, or other ownership interest exceeding 25%, in a Relevant Entity, that will be indicative of indirect ownership (i.e. indirect interests can be aggregated) and that individual will be a beneficial owner.
While Member States have discretion to decide that a lower percentage than 25% should be used as the threshold, Ireland has not done so.
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This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.