From 10 January 2020, the Fifth Anti-Money Laundering Directive (2018/843) is in force in the UK and around the European Union. The changes are not as extensive as those that were introduced in the Fourth Directive, such as the concept of risk based due diligence, but the Fifth Directive will impact an increasing number of businesses who must now have regard to money laundering laws.
What is Ultimate Beneficial Ownership?
A beneficial owner is any person controlling or owning more than 25% of the shares or voting rights. The details of beneficial owners must be recorded and held on a central register accessible to competent authorities. Ultimate beneficial owner refers to someone who ultimately owns or controls the customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement. An ultimate beneficial owner (UBO) is always a natural person.
While the Fourth Directive set out requirements for its members regarding ultimate beneficial ownership (UBO), including that companies must obtain and hold “adequate, accurate and current information” about their beneficial owners, the Fifth Directive places greater emphasis on transparency around ultimate beneficial ownership. This is part of a targeted attempt to fight back against financial criminals who hide behind often complex and opaque corporate structures.
Under the Fifth Directive, member states are required to maintain inter-connected, publicly available national UBO registries. Separate UBO registries for bank accounts must also be created, although these will only be accessible by authorities. UBO regulations will also extend to trusts. The Fifth Directive introduces “effective, proportionate and dissuasive measures or sanctions” for those failing to comply with UBO-related requirements.
It also extends the requirements relating to central registries, requiring that the registries contain information which is adequate, accurate and current. In many circumstances, members of the general public will be able to access this information, although a legitimate interest test has been maintained for trusts.
Beneficial Ownership Registers
Some EU nations such as France, Germany, the UK and Ireland have already introduced beneficial ownership registers, while others are still in the process of setting them up.
Under the Fifth Directive, beneficial ownership registers for corporate and other legal entities must be set up by 10 January 2020, and for trusts and other similar legal arrangements by 10 March 2020.
Centralised, automated mechanisms for identifying holders of bank accounts, payment accounts and safe-deposit boxes must be set up by 10 September 2020.
National registers will be connected via the European Central Platform by 10 March 2021.
Access to UBO registers for trusts will be available without restriction to competent authorities, financial intelligence units, professional sectors subject to anti-money laundering rules such as banks and lawyers, and to other persons that can demonstrate a legitimate interest such as NGOs and investigative journalists.
Complying with UBO rules
Differing standards for UBO rules exist around the world. In some instances, the term UBO includes those with a 25% or greater equity interest or voting rights, but may also encompass those who control a legal entity or those who benefit from a legal entity.
To comply with the Fifth Directive, organisations must secure access to reliable, accurate and complete UBO data as well as have the capability to unravel even the most complex corporate structures. This is important in order to identify UBOs to required thresholds before screening them for potential links to financial crime.
Anti-money laundering compliance resource page
VinciWorks regularly updates its bank of anti-money laundering resources with relevant course demos, webinars, policy templates and articles, including a comprehensive guide to the Fifth Directive.