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Money Laundering - Who's Who?

By Richard Simms

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How can you identify ‘beneficial owners’ with regards to the MLR? Richard Simms, MD of The Anti Money Laundering Compliance Company and FA Simms & Partners, explains all.

Except where your client is an individual, the Money Laundering Regulations 2007 require you to identify your client’s ‘beneficial owner’ and normally to verify this information by obtaining documentary evidence to support what you have been told. In most cases this will be straightforward, as they will be the larger shareholders of a company or partners of a partnership, etc. Consequently, you can confirm ownership via the company’s statutory records and simply verify the beneficial owner’s identity in the same way that you would for an individual client.

However, in some circumstances, this will be much more complicated. For example, if your client is a company that belongs to another corporate entity it is not sufficient simply to document that. Instead, you need to follow the chain of ownership all the way up until you identify a real person or persons who between them control the entity. In complex situations this can be time-consuming and onerous, but should normally be possible.

There will occasionally be situations where your client states they are unable to provide details of the ultimate beneficial owner. Guidance on what to do in this situation has historically been messy with different contrasting views provided. In particular, there has been an argument that if someone such as a solicitor confirms they are aware of the identity of the beneficial owner that is sufficient for you to act. However, in a recent ICAEW article discussing how beneficial owners should be established and verified, it was stated that: “For most clients, this is not an issue as their structure is simple and ownership is clear. However, it can be a major issue when you have structures involving anonymity, such as trusts or companies in Panama, BVI and Cayman Islands, or other offshore as well as some onshore territories. The regulations require any client using anonymous structures to be treated as high risk. You must have the same level of identification for high risk beneficial owners as you do for the client’s principals. Without evidence to support this beneficial ownership you cannot act.”

Our advice has always been that if the client cannot provide all the information you require it is best not to act. If you are unsure of whether the evidence obtained is sufficient, ultimately you should obtain legal advice.

EU Directive update

Since Spring 2013 we have been explaining to our clients that the new EU Directive would require changes to UK law and practice by early 2015. Generally, the changes should be relatively minor and we are still awaiting draft proposals from the Government. However, in one particular area, the Government has already explained its plans, and this should help in situations such as the one highlighted here.

The Government is proposing to introduce a new Companies House register of company beneficial ownership and to impose obligations on companies and individuals to identify and disclose information on beneficial interests. This would extend to all UK corporate entities that currently register information on their members at Companies House, including companies limited by guarantee and LLPs. It would also apply both to new and existing entities. However, listed companies would be exempt as listing regulations already contain similar provisions.

The new law will use the existing definition of beneficial ownership, i.e. information will be required on individuals who ultimately own or control more than 25% of a company’s shares or its voting rights, or who otherwise exercise control over a company or its management. This information will need to be obtained and held by the company and provided to Companies House. Where a qualifying beneficial interest is held through a trust, in most cases this will require only the trustee(s) to be registered.

The Government also proposes to prohibit companies from issuing new bearer shares and existing bearer shares will also be abolished (bearer shares are those which do not require their owner to be known to the company – the owner of the share is simply the person holding the certificate). Once again, this will remove a problematical issue, which accountants occasionally come across.

The Government is also planning to prohibit (with some limited exceptions) corporate directors. They are consulting on whether this should also be extended to prevent corporate members of LLPs. The exemptions will apply where the use of corporate directors is regarded as both higher value and lower risk, such as in-group structures including large listed or unlisted companies and charities. Depending on the availability of the exemptions, this may be a significant change for many groups of companies, although the Companies Act 2006 did introduce a requirement that all companies should have at least one director who is a natural person.

The changes described above are not simply driven by the new Directive. However, they will hopefully help firms complete the client identification and verification procedures required by law even in the most complex situations.

Published October 2014