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Compliance alert: UK moves toward registration of beneficial owners

The UK’s corporate beneficial ownership register took a step closer last week with the government publishing a consultation exercise for the detailed registration regulations (the consultation period closes on July 17).

From January 2016, UK companies will have to register “people with significant control” (PSC) and confirm that information with a central filing by April 2016.

A copy of the consultation exercise is here (pdf).

Essentially, PSC will either directly or indirectly own more than 25% equity or have direct or indirect power to control or influence the running of the company.

The purpose of the registry is to meet the challenge of beneficial ownership and obscure company ownership structures facilitating tax evasion, money laundering, and terrorist financing. In part, it’s a belated response to the World Bank’s 2011 report which suggested that 70% of big corruption cases over the last 30 years had involved anonymous shell companies (with the UK and the U.S. being favorite jurisdictions for incorporation). Quite apart from those considerations, one might have thought that transparency of ownership should always be a pre-requisite for limiting liability and the ability to raise share capital.

Under the new regimen, which pre-empts by a year the implementation of the EU’s 4th Money Laundering Directive (pdf) (that will apply both to companies and trusts), companies must take reasonable steps to identify and maintain up to date information on PSCs who are obliged to give or volunteer the prescribed information, failing which, interests can be frozen and ultimately lead to a fine or imprisonment.

Companies already subject to the London Stock Exchange’s Transparency Directive Review DTR5 issuer regulations will be exempt.

One of the most significant entities to be affected by the requirements will be Limited Liability Partnerships (LLPs). These were set up largely at the behest of large accountancy firms following the Enron collapse and were intended to provide an entity with limited financial exposure to catastrophic professional negligence claims but with fiscal responsibilities devolving to individual members. 

As offshore companies can become members of a UK LLP, and as such operate below the fiscal radar screen, their use has mushroomed and been subject to considerable abuse. Recently, there have been highly publicized instances of LLPs being used to facilitate grand corruption in Ukraine and Moldova.

What is not entirely clear from the current consultation exercise is to what extent LLPs will be allowed to continue with members incorporated in jurisdictions that have no comparable PSC registries. In the case of Foreign Limited Partnerships, registration details will only be required of a general partner (not its membership).

The UK’s efforts to persuade its Crown Dependencies and Overseas Territories to introduce complementary PSC registries have been rebuffed. And contrary to popular belief, as a recent article in the New Law Journal makes clear, the UK’s room for legislative manoeuvre is pretty limited:

Although the UK government has (in theory) unlimited power to legislate for the overseas territories, the sensitivity of the dispute suggests that the new government might adhere to the constitutional convention not to interfere in the laws of the overseas territories.

The recent abuse of LLP status requires an urgent root and branch review by the UK authorities. Until then, there should at the very least, be a prohibition on offshore companies of non-compliant countries forming UK LLPs or continuing to be members of existing LLPs. Otherwise, the UK Prime Minister’s recent exhortations to combat corruption will rather smack of humbug.

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Alistair Craig, a commercial barrister practicing in London, is a frequent contributor to the FCPA Blog.

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