On 29 January 2019, the Department of Finance published the European Union (Anti-Money Laundering: Beneficial Ownership of Trusts) Regulations (S.I. No 16 of 2019) (the "Regulations"). These Regulations, which were immediately effective, transpose Article 31 of the Fourth EU Money Laundering Directive ("4MLD") which requires trustees of express trusts to obtain and hold adequate, accurate and upto- date information in respect of the trust's beneficial owners and to keep and maintain a beneficial ownership register. The Regulations apply to any express trust whose trustees are resident in, or which is otherwise administered in, Ireland, including where shares are held on trust under an express declaration of trust.
The Regulations apply to Irish collective investment schemes that are constituted as trusts and so introduce a new requirement for these funds' trustees to obtain the information in relation to beneficial owners and to maintain a beneficial ownership register. Irish funds constituted as investment companies and ICAVs are already subject to these beneficial ownership requirements (for more information on the beneficial ownership requirements for these corporate entities, please see our previous briefing here). The Regulations specifically provide that a "collective investment undertaking trustee" for funds that are constituted as trusts includes the manager and/or operator of the fund. Therefore, both the depositary and the fund manager are trustees for these purposes and so are responsible for compliance with the Regulations. Accordingly, fund managers and depositaries of Irish unit trusts should ensure that appropriate arrangements are in place between them with regard to obtaining information on beneficial ownership and the maintenance of the beneficial ownership register.
WHO IS A BENEFICIAL OWNER?
In accordance with 4MLD, the Regulations provide that a beneficial owner is "any natural person(s) who ultimately owns or controls the customer and/or the natural person(s) on whose behalf a transaction or activity is being conducted". In the case of a trust this means all of the following:
- the settlor(s) - in an Irish unit trust this is the fund manager;
- the trustees(s) - in an Irish unit trust this is the depositary and the fund manager;
- the protector(s), if any - an Irish unit trust will not have a protector;
- the beneficiaries (or if they have not yet been determined, the class of persons in whose main interest the trust is established or operates), in an Irish unit trust these are the investors or class of investors in the unit trust; and
- any other natural person who exercises ultimate control over the trust by direct ownership, by indirect ownership, or by any other means.
In the case of an Irish unit trust, as neither the manager nor depositary will be natural persons, the relevant beneficial owners will be the fund's underlying investors, or at a minimum the class of investors (who are natural persons), as well as any other natural person who exercises ultimate control over the trust by direct or indirect ownership or by any other means. Unlike the regulations applying to registers for corporate beneficial ownership, there is no default position with regard to naming senior managing officials as beneficial owners where individual beneficial owners cannot be determined. Also, there is no guidance or thresholds with regard to determining the ultimate control of the trust.
WHAT ARE THE TRUSTEE'S OBLIGATIONS?
A trustee must take all reasonable steps to obtain and hold adequate, accurate and current information regarding the trust's beneficial owners. The trustee must therefore obtain the name, date of birth, nationality and residential address of each beneficial owner and enter this information on the trust's beneficial ownership register. The register must be called an "express trust (beneficial ownership) register".
The date upon which the beneficial owner is entered on the register as well as the date upon which a beneficial owner ceases to be such must be entered on the register. To ensure that the register is current, it must also be updated as soon as practicable when a person ceases to be a beneficial owner of the trust or there is any change which renders the details on the register incomplete or incorrect.
Where a trustee enters into an occasional transaction (which is any transaction that requires the application of customer due diligence measures under the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010) or forms a business relationship with a designated person (such as a credit institution or other financial institution), it must inform the designated person in writing that it is acting as a trustee and, upon request, promptly provide all information identifying the beneficial owners of the trust. In the case of a class of beneficiaries, this requirement will be satisfied by specifying the class of persons that are beneficiaries or potential beneficiaries under the trust. The designated person must be notified within 14 days of the trustee becoming aware of any changes in these particulars.
WHO HAS ACCESS TO THE REGISTER?
Upon request a trustee must provide the Revenue Commissioners, the Central Bank of Ireland, the Minister for Justice or any other competent authority that the Minister may prescribe with timely access to the trust's register. This information may also be disclosed to any corresponding competent authority in another EU Member State. Further, under the Fifth EU Money Laundering Directive ("5MLD"), Member States are required to establish a central register of beneficial ownership of trusts, which will be accessible to competent authorities, Financial Intelligence Units (in Ireland, the Garda Síochána), obliged entities and any natural or legal person that can demonstrate a legitimate interest. This central register must be established by 10 March 2020. A publicly accessible central register of corporate beneficial ownership must also be established by 10 January 2020 (For more information on 5MLD, please see our previous briefings here and here).
A trustee must keep a record of the steps it has taken to identify the beneficial owners of the trust. These records must be retained for five years after the date that the final distribution under the trust is made and, subject to certain exceptions, must be destroyed at the end of this period.
Failure to comply with the requirements is an offence liable on summary conviction to a fine of up to €5,000.
The Regulations have been effective since 29 January 2019 and so managers of Irish unit trusts should now ensure compliance with the Regulations by:
- establishing and maintaining a register;
- ensuring that the relevant information is adequate, accurate and current;
- establishing processes around:
- the regular review of the register to ensure its adequacy, accuracy and that it is current;
- the making and timing of required notifications under the Regulations; and
- record retention.
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.