This article looks at the hot topic of registers of beneficial ownership, examining the jurisdiction of Luxembourg.

The issue of beneficial ownership registers took another twist recently when the UK government moved to pressure certain UK-linked jurisdictions to adopt public registers, prompting worries about threats to legitimate privacy. On the continent of Europe, meanwhile, debate also rages around transparency and proper privacy. And in the heart of the European Union is the small state of Luxembourg, a state that is competing against other IFCs for cross-border business.

Andrew Knight, Partner (M Partners) and Evi Koutsioumpa, Associate (M Partners) at Maitland, a global advisory and administration firm providing multi-jurisdictional legal, tax, fiduciary, investment and fund administration services, consider Luxembourg’s case. The editors of this news service are pleased to share this article with readers; the editors don’t necessarily share all views of guest contributors and invite responses. Email tom.burroughes@wealthbriefing.com

On 6 December 2017, the Luxembourg Parliament published two Bills of Law with a view to transposing into Luxembourg law articles 30 and 31 of the EU Directive 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (“the 4th AML Directive”):

● Bill of Law n° 7217 that provides for the setting-up of a register of beneficial owners for Luxembourg legal entities (Registre des bénéficiaires effectifs and colloquially to be known as REBECO); and

● Bill of Law n° 7216 that provides for the holding of certain information regarding fiduciary contracts and in certain cases the setting-up of a register of fiduciary contracts.

The summary contained in this note is based on the above Bills of Law, which, at the time of preparation of this note, have not yet been formally enacted. However, no material amendments are expected in the final versions of the Laws. The enactment of the Bills of Law is expected reasonably soon on the basis that Luxembourg has passed the 26 June 2017 deadline for the implementation of the 4th AML Directive prescribed by the EU.

REBECO
The register
The REBECO will be the central register containing information on the beneficial owners of Luxembourg legal entities and will be managed by the Luxembourg Trade and Companies Register (RCSL) through a register that will be separate from the current commercial registry (known as the RCS).

Entities concerned
All Luxembourg commercial companies and any other legal entities registered on the Luxembourg trade and companies’ register are subject to the Bill of Law n° 7217. Listed companies whose securities are admitted to trading on a regulated market and common funds (FCPs) are out of scope of the REBECO obligations. The definition of “beneficial owner” in the Bill of Law is the one included in the law of 12 November 2004 on the fight against money laundering and terrorist financing as amended (“AML Law”). Under the AML Law, a beneficial owner is any natural person(s) who ultimately owns or controls the entity and/or the natural person(s) on whose behalf a transaction or activity is being conducted. Regarding corporate entities, a beneficial owner is a natural person who ultimately holds a shareholding, controlling interest or ownership interest of at least 25 per cent plus one share in a corporate entity. If no beneficial owner can be identified, the senior managing officials in the entity should be considered as falling within the “beneficial owner” definition. In cases where an entity is ultimately owned by a trust, the beneficial owners of the trust (i.e. the settlor, trustee, the protector, the beneficiaries and any other natural person exercising ultimate control) should be declared.

Obligations of the entities concerned
The entities concerned are required to:

● Obtain and hold adequate, accurate and up-to-date information on their beneficial owners and to continue to do so for a period of 5 years after its winding-up;

● Upload electronically that information on to the REBECO within a month following the event that requires submission or modification of the information but entities will have up to six months after the entry into force of the Bill of Law to register the relevant information with the REBECO; and

● Provide information on the beneficial owners upon request to certain public authorities’ self-regulated bodies and to professionals subject to the AML Law (“Professionals”) such as lawyers, notaries, financial sector professionals, within the framework of their customer due diligence obligations.

Information concerned
The name, nationality, place and date of birth, country of residence, personal address, identification number of the beneficial owners and the nature and extent of the beneficial interests held in the entities concerned must be held and reported. 

Access to the information reported
The information contained in the REBECO will be accessible as follows:

● Unlimited access for competent public authorities, including but not limited to the State prosecutor, the Commission de Surveillance du Secteur Financier (CSSF), the Commissariat aux Assurances (CAA) and the tax authorities;

● Limited access (only partial information may be disclosed), for self-regulatory bodies within the context of their supervisory functions (including but not limited to the Bar Council, Notary Chamber and the Institut des Réviseurs d’Entreprises) and for Professionals when performing their customer due diligence obligations;

● Subject to the prior approval of a formal commission to be created by the Minister of Justice, to any person or organisation which is resident in Luxembourg and can demonstrate a legitimate interest and which has made an official written and duly justified request in this respect.

In cases where access to the information reported would expose the beneficial owner to a risk of fraud, kidnapping, blackmail, violence or intimidation, or where the beneficial owner is a minor or otherwise incapacitated the concerned entity may request a restriction of access to the REBECO.

Sanctions
Criminal penalties of between EUR 1,250 and EUR 1.25 million may be imposed:

● On entities concerned or on their representatives (which might include their directors) who do not register the information in the REBECO within the required timeframes, who knowingly provide incorrect or incomplete partial information or who fail to obtain and keep the information at their registered office,

● On self-regulatory bodies or Professionals if they intentionally request access to the information contained in the REBECO outside the scope of their functions.

FIDUCIARY CONTRACTS
The proposed rules dealing with the keeping of information and the maintaining of a register concern fiduciary contracts as described in the 27 July 2003 Law relating to trusts and fiduciary contracts (“Fiduciary Contracts”). A Fiduciary Contract is a contract by which a person, the fiduciant, agrees with another person, the fiduciary, who becomes the owner of certain assets subject to the terms of the contract. A typical example of a Fiduciary Contract in Luxembourg would be in the context of a securitisation structure where the fiduciary holds the assets for the bond holders.

General obligations of fiduciaries
Luxembourg fiduciaries are required to:

● Obtain, hold, and keep up-to-date information in relation to the beneficial owners of the Fiduciary Contract in respect of which they are acting as fiduciaries. Such information is to be kept for a period of five years following the cessation of their activities in relation to such contract;

● Provide information on the beneficial owners of the fiduciary arrangement to certain public authorities upon request;

● Inform Professionals as to their status as fiduciaries/trustees and provide them with the relevant information when entering into a business relationship with them and or when carrying out a transaction that exceeds the thresholds of the AML Law.

For these purposes, the beneficial owners comprise the settlor, the fiduciary, the protector (if any), the beneficiaries or class of beneficiaries and any other person exercising effective control over the Fiduciary Contract. The fulfilment by the fiduciaries of their obligations is monitored by the relevant supervisory authority as described in the AML Law.

The register
A register of Fiduciary Contracts will be set up and managed by the Administration de l’Enregistrement et des Domaines (AED). Any Fiduciary Contract that gives rise to Luxembourg tax consequences must be registered by the fiduciary on the register of Fiduciary Contracts. The register will contain details regarding the Fiduciary Contract and its beneficial owners. The Fiduciary Contract must be registered within a month following the event that requires the submission or modification of the information but fiduciaries will have up to six months after the entry into force of the Bill of Law to register any pre-existing

Fiduciary contract
The AED has the responsibility for monitoring compliance by a fiduciary of its obligations in relation to the register of Fiduciary Contracts. Access to the information contained in the Register of Security Contracts is available only to competent public authorities, including but not limited to the State Prosecutor, the Commission de Surveillance du Secteur Financier (CSSF), the Commissariat aux Assurances (CAA) and the tax authorities. 

Sanctions
A variety of administrative sanctions including but not limited to fines between €250 and €250,000 may be imposed by the AED as part of its enforcement of the rules relating to the register of Fiduciary Contracts.

Final thoughts
These transparency rules come on top of the introduction of FATCA and the Common Reporting Standard (CRS) and will apply to an even wider range of Luxembourg entities and fiduciaries all of whom will need to take on this additional compliance burden. To some extent the information to be made available will duplicate that which is already exchangeable under the CRS. Those affected can perhaps take some heart from the fact that, compared with some of its EU partners, Luxembourg is proposing to impose greater restrictions on the accessibility of this information to the public.