GUEST ARTICLE: The Panama Papers And How To Treat "Persons With Significant Control"

Philip Rogers, Brown Rudnick, Partner, 11 April 2016


"Persons with significant control" is a term of increasing relevance, and relates to who is in charge of corporate and other structures. The Panama Papers affair gives new perspective on the issue.

Unsurprisingly, the private client wealth management world, along with much of the political and media fields, is abuzz over the "Panama Papers" saga. One of the most important issues at the heart of the affair is the argument that more disclosure of beneficial ownership is required, and how to balance that against the need for law-abiding persons to retain privacy. In this article, Philip Rogers, head of emerging markets, corporate, at international law firm Brown Rudnick explains new regulations that require UK companies and LLPs to disclose more details about their ownership. The views expressed are those of the author; the editors of this publication welcome responses from readers. (Meanwhile, we urge readers who are interested to view the new IFC World publication, produced by the publisher of this news service. View this link.)

As the spotlight shines on the Panama Papers’ ramifications for offshore finance policy and regulation, British authorities have implemented with uncanny timing new regulations that require companies to have a register of "person with significant control".

From Wednesday last week, the new regime requires UK companies and LLPs to register individuals holding 25 per cent of the shares or voting rights, as well as individuals who have the right to appoint or remove a majority of board members, and indeed people who otherwise exercise what has been loosely described as “significant control”.  

A further deadline arrives on 26 June when the European Union Fourth Money Laundering Directive comes into force giving EU member states two years to implement into national law a national register scheme for beneficial owners. This will be available to banks and other companies and persons with a legitimate interest, while stricter controls on KYC checks, record keeping and reporting requirements will also be brought in.

Under the new UK regime that has now been introduced, there is an obligation to look behind any offshore companies that hold shares in UK companies to disclose beneficial owners of 25 per cent of such companies or people who have significant control of such offshore companies. The PSC register cannot be left blank and all efforts must be made by UK companies to obtain information about their PSCs. Failure to do so is a criminal offence. The Fourth Anti-Money Laundering Directive disclosure requirement applies to persons who own or control the company, and a shareholding of 25 per cent plus one share is an indication of control (although member states can still set lower limits if they wish).

The UK has gone one better than the Directive by making the UK PSC register accessible to the general public upon request. In addition, as from 6 June 2016 companies and LLPs will have to disclose PSCs to Companies House when they file their annual confirmation statement (replacing the annual return). On the other hand, the Fourth Anti Money Laundering Directive disclosure requirements outdo the UK PSC regime in that they apply to trustees of any trust established under the law of a member state of the European Union. Trustees will be required to keep information on the identity of the settlor, trustee, protector, beneficiaries or any individual exercising effective control over the trust.

Taken together, these changes should lead to simpler holding structures – which cannot be a bad thing – and make KYC easier for banks and other regulated entities. The Fourth Anti-Money Laundering Directive makes specific provision to allow third party due diligence providers to perform KYC checks on behalf of banks (whilst at the same time making it clear that the ultimate responsibility rests with the banks).  

Banks have been an obvious target for regulators and, given the risks involved, we can expect to see the emergence of a burgeoning KYC industry of third party providers. All this means that those who want to use mainstream banks are going to end up having to reveal themselves.

Furthermore, with transparency requirements regarding beneficial ownership of companies and trusts, it is likely that reputable offshore centres will adopt best practice and introduce their own disclosure requirements with respect to beneficial ownership. The UK is already under huge pressure to impose such requirements on its own offshore dependencies and protectorates. It is not surprising that the UK will not wish to be seen to be protecting those who harbour the proceeds of crime. There are, however, legitimate reasons why people might wish to hide their identity but it is difficult to provide for secrecy for one category of person without creating loopholes for the unscrupulous. This explains why the laws are so widely drafted. Life is decidedly becoming difficult for those who want to hide, whether good or bad.


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