The Fourth Money Laundering Directive is more likely to provide
paperwork than protection from abuse of trusts for tax evasion and
terrorism says Jenny Cutts.
Headline grabbing scandals on the use of trusts, companies and
other structures to shelter ill-gotten gains and, at worst, fund
terrorism, have contributed to an international effort to clamp
down on money laundering, terrorist financing and tax evasion.
The EU's latest legislation comes in the form of the Fourth
Money Laundering Directive. This requires EU states to establish a
central trusts register and comes hot on the heels of compliance
imposed by the U.S Foreign Accounts Tax Compliance Act (FATCA) and
the OECD's Common Reporting Standard (CRS).
The Money Laundering Directive requires trustees of all express
trusts governed under UK law to obtain and hold information on its
beneficial owners, make this available to competent authorities and
financial investigation units, and submit it to a central register
where the trust generates 'tax consequences'.
Trusts that will be affected will be those administered in the
UK but also offshore trusts with a UK source income, like a UK
rented property or shares in UK companies. 'Tax
consequences' broadly means trusts that are required to submit
tax returns to HMRC. Beneficial ownership information includes the
identities of the settlor, the trustee(s), any protectors, the
beneficiaries or class of beneficiaries, and any other natural
person exercising effective control over the trust.
Despite previous drafts of the directive, the central register
will not be accessible to the general public (unlike the present UK
regime for beneficial owners of UK companies), something the trusts
industry will be celebrating. However, there are proposed
amendments to the directive pending at EU level (introduced
following the Paris attacks and Panama Papers scandal) which are
designed to make trust registers publically accessible in certain
circumstances; notably where the trust is
Questions have to be asked whether this extra layer of
compliance duplicates much of the information already collected via
a trust's annual tax return and other existing HMRC forms. It
would reduce trustees' mountain of compliance paperwork if this
could also be done with the information required for FATCA and the
It must also be queried whether this regulatory work to assist
in the fight against criminals and tax evaders is proportionate to
the role the UK trust plays, or not, in this murky world.
UK trusts have been used for centuries to preserve family
wealth. Historically, trusts were used to pass family assets down
to the first male heir and keep landed estates intact. In the
present day UK trusts continue to be used as a way of controlling
access to family wealth over the generations and keeping assets
'in the family'. They're also used as a
protective tool for those who cannot, or are not in a position, to
manage or generate assets themselves due to mental disabilities,
underlying health or addiction problems.
All of this is not achieved by UK trusts stealthily hiding
assets from the taxman or embarking on criminal activities. A UK
trust is a recognised legal structure with its own tax regime and
reporting requirements to HMRC, often paying tax at higher rates
than an individual.
Given all of this, and the administrative burden the register
would create for trustees, it is difficult to see how the expense
of resourcing and policing it can be justified for the public
purse. As the debate on Brexit rages, we cannot help but think that
this is one EU directive the UK should consider carefully about
implementing in full.
With a view to promote corporate transparency and prevent misuse of corporate vehicles for illicit purposes such as corruption, tax evasion, money laundering, the Financial Action Task Force ("FATF")...
An assignment of rights under a contract is normally restricted to the benefit of the contract. Where a party wishes to transfer both the benefit and burden of the contract this generally needs to be done by way of a novation.
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