The Great Unveiling - Ultimate Beneficial Owners

25 July, 2018

Global Corporate

"Every legal entity in Ireland is required to have an internal Register of Beneficial Ownership that names the Ultimate Beneficial Owner and demonstrates the formula it has used to arrive at this identification."

It may soon be a legal requirement for every corporate and other legal entity in Ireland to make the identity of their true owner accessible to the public. Associate Director, David McGuinness provides context.

Regardless of the complex legal structures which can be put in place to obscure the natural living person at the very top of corporate structures, they will soon be visible to all as the Ultimate Beneficial Owner by filing a Register of Ultimate Beneficial Ownership with the Registrar of Companies. Companies who do not provide evidence of how they came to identify their Ultimate Beneficial Owner will be at risk of a penalty or face criminal charges.

Why are companies required to name the Ultimate Beneficial Owner?

Following public controversies surrounding the ability of true company owners to 'hide' themselves from ownership - think 2015's Panama papers leak - European Union Directive 4AMLD (4th Anti-Money Laundering Directive) was transposed into Irish law in November 2016 in an attempt to make ownership of legal entities transparent.

As a result, every legal entity in Ireland is required to have an internal Register of Beneficial Ownership that names the Ultimate Beneficial Owner and demonstrates the formula it has used to arrive at this identification. This has been the case since 2016 and the registers should be readily available for inspection.

In accordance with 4AMLD, this information is also required to be uploaded to an online portal established by the Companies Registration Office (CRO). However, due to a lack of Statutory Instrument (SI) from the Department of Finance (DoF), the CRO have not yet established the portal. This is expected to go live sometime in 2018 once an SI is issued. The failure of Ireland to have a functioning portal is in fact in breach of EU law.

Further to this, 4AMLD was updated in May this year with the European Council's adoption of 5AMLD. This is a new Directive that could potentially make significant changes to the beneficial ownership rules that currently apply to companies incorporated in Ireland under 4AMLD.

How to uncover the Ultimate Beneficial owner?

4AMLD requires a company to identify the Ultimate Beneficial Owner and provide evidence of the how they arrived at that designation. It is very much a case of following a sequence of laborious steps, each requiring the drafting and issuing of bespoke documents and notices.

Under Article 3(6)(a) of 4AMLD a 'beneficial owner' means 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.

The steps for identifying a natural person as a Ultimate Beneficial Owner are:

Step 1: The Direct Shareholding Test

Where there is a shareholding of 25% plus-one-share or an ownership interest of more than 25% in the company held by a natural person, this will deem that natural person as the ultimate beneficial owner.
Bespoke notices and responses are required to confirm this.

Step 2: The Indirect Shareholding Test

Failing identification of a natural person using the above method, a Ultimate Beneficial Owner is then identified by the identification of a shareholding of 25% plus-one-share, or an ownership of more than 25% in the company held by a corporate entity, which is under the control of a natural person(s), or by multiple corporate entities, which are under the control of the same natural person(s). In this instance, the controlling natural person identified would be deemed the ultimate beneficial owner.
Bespoke notices and responses are required to confirm this.

Step 3: Senior Managing Official(s) deemed the Ultimate Beneficial Owner

Where all avenues to identify a natural person have been exhausted in Steps 1 and 2, the names of the senior managing officials (SMOs) of the entity will be added to the register as the Ultimate Beneficial Owner. SMOs are defined as the directors of the company and the CEO of the company.
Bespoke notices and responses are required to confirm this.

Registering the SMO as the ultimate beneficial owner has caused significant controversy in Ireland, particularly as the information required to be held on the Ultimate Beneficial Owner Register includes the director's name, date of birth and residential address.

What is the impact of 5AMLD on the Ultimate Beneficial Owner Register?

5AMLD may go one step further than 4AMLD and potentially grant public access to the Ultimate Beneficial Owner Registers.

Although 5AMLD is still provisional and yet to be adopted into Irish domestic law, it is expected that the Department of Finance (DoF) is waiting to release a Statutory Instrument (SI) to cover both the assignment of responsibility to the Companies Registrations Office for the maintenance of the online portal, and also the new 5AMLD requirements. Member States (MS) will have the option to amend the new provisions outlined in 5AMLD, so it is unclear what will or will not be adopted into Ireland until the DoF release a SI.

Subject to how 5AMLD will be implemented, it has the potential to make a series of significant changes to the Ultimate Beneficial Owner requirements in Ireland. Integral changes include:

Any member of public may have access to the information on the online Central Register of Beneficial Ownership, in addition to national authorities.
Member States are permitted to impose limited restrictions on access in certain circumstances, including where there is a risk of fraud / kidnapping / blackmail / violence / intimidation.
Sanctions for a breach of the beneficial ownership obligations may be increased.
Certain changes have also been proposed in relation to the disclosure obligations for trusts, under A31 of 4AMLD. Under 5AMLD, public access may be granted to ascertain essential beneficial ownership information held in registries regarding companies and trusts that engage in economic activities.

5AMLD has received staunch criticism in Ireland, yet it goes some way in attempting to improve corporate transparency. Several of the talking points surrounding 5AMLD include:

What are the positives?

Potential for improving corporate transparency.
Ultimate beneficial owners will be on statutory registers and housed centrally in an online system by the Registrar.
Filing with the Registrar will be free.
Each MS can decide on the parameters of each newly proposed item under 5AMLD.

What are the negatives?

Threat to the privacy of the ultimate beneficial owner.
Step by step notice issuance evidencing the pathway to the ultimate beneficial owner is time-consuming.
Still no way to prove who the ultimate beneficial owner of a discretionary trust is.
A company could also use a jurisdiction where there is no ultimate beneficial owner Register at all, in which case there is no accessible record of the BO of the trust.

What are the next steps for the Ultimate Beneficial Owners Register?

Once the DoF releases a SI covering what will be adopted from 5AMLD, a central UBO Register for corporate and other legal entities must be established within 18 months of the date of 5AMLD's activation. The period is extended to 20 months after the date in respect of the UBO of trusts.

As aforementioned, it is integral that companies currently have an internal Register of Beneficial Ownership and evidence of how the Ultimate Beneficial Owner was designated. This must be readily available for inspection and be in place ready for the uploading of the Register to the online portal.

Once the online portal is up and running, there is likely to be a period of six months for legal entities to file online (no fee) their Register of Beneficial Ownership without being in breach of their obligations.

We recommend that companies reach out to their corporate service provider with any queries and ensure the necessary steps have been taken to comply with legislation and avoid penalties.

How can Ocorian help with the Ultimate Beneficial Owners Register?

As an expert corporate services provider, we are prepared for this legislation and are already complying on behalf of all our current clients. We can provide bespoke administration services, taking the legwork out of the requirements 4AMLD and 5AMLD both require. We advise on:

What steps are needed to identify the Ultimate Beneficial Owner
Drafting of the various notices and responses
Creating the internal Ultimate Beneficial Owner Registers
Filing the registers using the online portal within the required timeframe
Keeping up to date with 5AMLD and equivalent for any new requirements
Making filings on your behalf if there is a change in ownership
Streamlining the process

This is just one service that the company secretarial and reporting team at Ocorian provide to our clients, take a look at our full suite of services.