The European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016 (the "Regulations") were enacted on 15 November 2016.
They implement certain provisions of the Fourth Anti-Money Laundering Directive 1 EU/2015/849 (the "4AML Directive") relating to obtaining and maintaining beneficial ownership information on clients/customers.
The Regulations apply to any Irish corporate entities and accordingly impact corporate investment funds (investment companies and ICAVs) as well as Irish AIFMs and UCITS management companies ("mancos") (collectively the "Relevant Entities").
Corporate entities that are (i) listed on a regulated market subject to disclosure requirements consistent with EU law such as the Transparency (Directive 2004/109/EC) Regulations 2007; or (ii) subject to equivalent international standards which ensure adequate transparency of ownership information are exempt from the Regulations.
In an investment funds context, the Regulations do not apply to non-corporate fund structures such as unit trusts, investment limited partnerships or common contractual funds.
The 4AML Directive is due to be transposed into Irish law on 26 June 2017. However the Regulations have transposed the requirements of Article 30(1) (relating to beneficial ownership information requirements) in advance.
The Regulations have immediate effect from the date of enactment (15 November 2016) with no transitional provisions or grandfathering period.
The explanation given for the early transposition of this aspect of the 4AML Directive is that corporate entities will need time to gather the necessary beneficial ownership data in advance of the other related elements of the Directive being implemented (i.e. the requirement to establish a central register of beneficial ownership (Article 33(3) of 4AML Directive). It could be inferred from this that there an expectation that all corporate entities will not be in immediate compliance with the Regulations. However, in the absence of any express transition provisions, all affected entities should ensure they are compliant as soon as possible.
As of 15 November 2016, Relevant Entities are required to maintain a register of their beneficial owners (the "Beneficial Ownership Register").
Beneficial owners are natural persons who ultimately own or control a legal entity through a shareholding/ownership interest of more than 25%. This can be through a direct holding by the natural person or indirectly through a corporate entity or entities under their control.
It is not required to look beyond entities that are themselves exempt from the requirements of the Regulations in the ownership chain (i.e. those referenced above).
Details to be obtained and placed on the Beneficial Ownership Register include each beneficial owner's (i) name; (ii) date of birth; (iii) nationality; (iv) residential address; and (v) the nature and extent of the interest held. The information must be kept "current".
If the Relevant Entity has reasonable cause to believe a natural person is a beneficial owner, it must serve a notice requiring that individual to state whether or not that is the case and if so, to confirm or correct any particulars that are included in the notice and supply any that are missing. Notices must also be served on existing beneficial owners where the Relevant Entity has reasonable cause to believe particulars in the Beneficial Ownership Register have changed and on any person (natural or legal) that the Relevant Entity has reasonable cause to believe is aware of the identity of any individual who is a beneficial owner of the Relevant Entity.
Beneficial owners have a parallel obligation to notify Relevant Entities of their beneficial ownership status and relevant particulars where the Beneficial Ownership Register is incomplete/inaccurate for more than one month and no notice is received from the Relevant Entity.
Where, having exhausted all possible means and provided there are no grounds for suspicion by the Relevant Entity, no beneficial owner is identified, the Regulations require that the "senior managing officials" of the Relevant Entity be entered on the Beneficial Ownership Register (e.g. the board of directors).
The 4AML Directive, on implementation, will require that beneficial owner information is held in a centralised register. As mentioned above, the Regulations were enacted early to allow the relevant data to be collated.
It is not yet clear what form the centralised register will take and whether it will be publicly accessible or if access will be restricted to appropriate parties such as entities carrying out customer due diligence, EU regulators and financial intelligence units and others that can demonstrate a legitimate interest. An Irish centralised register is not expected to be in place before Q3 2017.
A Relevant Entity that fails to comply with its obligations under the Regulations will be liable, on summary conviction, to a Class A fine (a fine not exceeding €5,000). Sanctions for non-compliance also apply to persons who fail to provide required information.
Recommended next steps
We have set out below recommended next steps that should be taken by Relevant Entities to comply with the Regulations.
- Put in place a form of beneficial ownership register and arrange for this to be maintained.
- Undertake an analysis of investors (in the case of a fund) and shareholders (in the case of an AIFM or UCITS management company) to determine if a beneficial owner may be present.
- For corporate funds, this could be a significant exercise. For example, where there are nominee arrangements in place, the fund is unlikely to hold the relevant information on beneficial ownership.
- Where there is a shareholder/investor holding more than 25% of shares (measured on an aggregate basis across the umbrella, in relevant cases) the required information will need to be obtained for inclusion on the Beneficial Ownership Register (unless such shareholder/investor is a public company). Relevant notices may need to be issued.
- If there is no beneficial owner (including if the relevant shareholder/investor is a public company and there is therefore no beneficial owner), the board will need to be identified in the Beneficial Ownership Register.
- Going forward, the position as determined will need to be monitored for changes.
- AIFMs and UCITS management companies should consider the implications of the Regulations in the case of any change of shareholding.
- Corporate funds should add an item to their annual compliance calendar confirming there is no single non-public investor holding more than 25% of all shares in issue (across the umbrella, in relevant cases) and that the board of directors are identified in the Beneficial Ownership Register.
- For corporate funds, subscription forms should be reviewed and, if necessary, updated to obtain the relevant particulars regarding new beneficial owners, and obtain agreement to notify the Relevant Entity of changes in the particulars of a beneficial owner if applicable.
Maples can assist with the various recommended next steps outlined above including the preparation of a form of Beneficial Ownership Register in accordance with the Regulations and subscription document reviews/updates.
1 EU Directive 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.