Last September, Casey & Co Accountants gave an overview of Capital Acquisitions Tax (CAT) and the regulations that apply. This summer, we invited leading Irish law firm, RDJ, to write a piece on legislation that may be of interest to our followers. They examine a new EU Directive that will significantly alter the current system for disclosing ownership information of legal entities in Ireland.

NEW RULES ON REGISTRATION OF BENEFICIAL OWNERSHIP AROUND THE CORNER

OVERVIEW OF THE DIRECTIVE

In this piece, the EU Law 4th Anti-Money Laundering Directive (“AMLD”) of 20 May 2015 will be examined. The overall purpose for the implementation of the AMLD was to aid the detection and prevention of money laundering and terrorist financing within the European Union. The AMLD must be transposed domestically by each Member State, including Ireland, by 26 June 2017. One particular aspect of the AMLD which will be focused on in this guest piece is the requirement for each Member State to establish a central register of beneficial ownership of legal entities and the requirement for legal entities to determine their beneficial ownership. This is a significant departure from the current position under Irish law where the filing regime under the Companies Act 2014 focuses on legal ownership of shares in a company. In this piece we will also look briefly at the recently enacted Small Business, Enterprise and Employment Act 2015 (the “SBEEA 2015”) in the UK which purported to transpose some of these disclosure obligations in that jurisdiction.

CENTRAL REGISTER OF BENEFICIAL OWNERSHIP

The AMLD provides for an obligation on entities to which it applies to obtain and hold information on the beneficial ownership of these entities. A “Beneficial Owner” is defined widely in AMLD as “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” with some illustrative examples given in relation to individuals, corporate entities and trusts. It also obliges each Member State to establish a central register which will provide adequate, accurate and current information on the beneficial ownership of legal entities. The register will be publically accessible by competent authorities, financial intelligence units, obliged entities within the framework of customer due diligence and persons with a legitimate interest in the information. It is intended that this will provide for greater transparency in corporate transactions and will be an important tool for firms and companies carrying out appraisals of businesses. We will now examine some recent steps which the UK have taken in relation to the registration of beneficial ownership.

UK REGIME

The SBEEA 2015 was enacted in the UK on 9 December 2015. One of the aspects of the Act was the introduction of a mandatory requirement for UK incorporated private companies to establish and maintain a public register of persons with significant control. Two important concepts under the SBEEA 2015 are a “Person with Significant Control” and a “Registrable and Relevant Legal Entity”.

Persons with Significant Control

The following individuals are Persons with Significant Control (“PSC”):

• persons who directly or indirectly hold 25% or more of the shares in the company;
• persons who directly or indirectly hold more than 25% of the voting rights of a company;
• persons who have the authority to appoint or remove a majority of the board of directors;
• an individual who has the right to exercise, or actually exercises, significant influence or control over the company; or
• the trustees of a trust or the members of a firm that aren’t legal persons but who meet any of the criteria set out above or would do so if they were individuals, and have the right to exercise, or actually exercises, significant influence or control over the activities of that trust or firm.

All individuals with significant control over a company will be registerable unless they are non-registerable. An individual will be non-registerable if they do not hold any interest in the company except through one or more other legal entities over each of which they have significant control and each of which is a “relevant legal entity” (see below) in relation to the company.

Registrable and Relevant Legal Entities (“RRLE”)

A legal entity may be required to include information in relation to other legal entities in its own register of beneficial ownership if those entities are registrable and relevant. An entity is a “relevant legal entity” if:

(i) it would have come within the definition of a person with significant control over the company if it had been an individual; and

(ii) it is subject to its own disclosure requirements. Legal entities are registrable if they do not fall into the category of non-registrable entities. A legal entity is “non-registrable” if it does not hold any interest in the company except through one or more other legal entities over each of which it has significant control and each of which is also a relevant legal entity in relation to the company.

UK REGISTRATION REQUIREMENTS

Commencing on 30 June 2016, existing UK companies will be required to include PSC register information within their company annual returns. New companies must include a statement of initial significant control within their incorporation applications.

UK companies must take reasonable steps to determine whether someone is a registerable person or RRLE. The company must send notice to anyone whom it knows or has reasonable cause to believe to be a registrable person or a RRLE in relation to the company. The notice must call on that person or entity to state whether or not they are a registerable person or RRLE (as applicable) and if so, confirm if their particulars as set out in the notice are correct and supply any missing particulars. An addressee is bound to comply with the notice within one month. In addition, an entity or person which subsequently discovers they are a RRLE or registerable person must contact the company within one month of obtaining this knowledge. There are ongoing obligations on the company and others to keep information up to date. Examples of the type of particulars which must be included on the register are name, service address or usual place of residence, the date on which an interest in the company was acquired and the nature of the control over the company.

The PSC register is available to the public subject to limitations. Any person with a proper purpose can make a request for access to the register. If a company believes the request was not made for a proper purpose they can apply to court within five working days of receipt of the request and reply to the request saying that they have done so.

The Irish Department of Justice has opined that under AMLD, Member States have the discretion to allow unfettered access to the beneficial ownership information contained in the register. It should also be noted that AMLD provides that access to information on beneficial ownership shall be in accordance with data protection rules and that access may be subject to online registration and payment of a fee (not to exceed the administrative costs for obtaining the information). AMLD also permit Member States to provide for an exemption from access to information on a case by case basis in exceptional circumstances where such access would expose the beneficial owner to a risk of fraud, kidnapping, blackmail, violence or intimidation. It will be interesting to see the approach which Ireland takes on the extent of public access to beneficial owner information.

Penalties for Non- Compliance

It is a criminal offence under UK law not to respond to a notice without a valid reason. Criminal penalties may also be imposed for providing false or misleading information. A further consequence of the failure to respond to a notice could be that a PSC or RRLE may lose their rights in a company or have their rights suspended such as the right to vote, the right to receive dividends or to transfer shares. Irish persons with an interest in UK registered companies (including Irish registered companies) must be cognisant of these potential penalties and act diligently to respond to any notice they receive from any of said UK companies.

NEXT STEPS FOR IRELAND– INCORPORATION OF THE AMLD

Directives are legally binding acts which are enforceable against all of the Member States of the European Union. Unlike EU regulations, directives give a certain amount of leeway to Member States as to the methods of incorporation of the directive into national law and national legal measures to transpose a directive are required.

The AMLD is far more extensive than the regime under the SBEEA 2015 as it applies to all legal entities and not just companies. It will be necessary for the UK to enact further domestic legislation in order to comply with all of the provisions of the AMLD. The Irish legislature must also keep this in mind in order to give full effect to the AMLD.

In January 2016, the Department of Finance and the Department of Justice held a joint consultation process on the AMLD and the Funds Transfer Regulation. The results of this public consultation process have not yet been published. On the 8 June 2016, the Oireachtas also published its Government Legislative Programme for Bills that the Government are seeking to publish in the coming months. Included amongst the list is a Criminal Justice (Money Laundering & Terrorist Financing) (Amendment) Bill (the “Bill”) which is intended to give effect to the AMLD and the heads of the Bill are expected by the end of 2016.

CONCLUSION

It is evident that the AMLD, once implemented, will significantly alter the current system for disclosing ownership information of legal entities in Ireland. It is unclear however when exactly Irish legislation will be introduced to transpose the AMLD. The European Commission has urged Member States to transpose AMLD into national law as soon as possible.

It is important that Irish registered companies and those with a beneficial interest in them monitor the progress of the Bill which will transpose the AMLD. The deadline for transposition of the AMLD is 26 June 2017 and domestic legislation must be introduced before the expiration of this period. If Ireland does not implement legislation before this date, it could be liable to financial penalties.

For further information, please contact Sean O’Reilly, Associate, Corporate and Commercial Department, Ronan Daly Jermyn. Tel: +353 (0)21 4802700 Email: cork@rdj.ie