Edward Craft and Marlies Braun, partner and senior associate at Wedlake Bell, looks at what a beneficial owner is and how new regulation brings it into the business spotlight.

A register of company owners means hiding in the shadows will not be an option

A register of company owners means hiding in the shadows will not be an option

Date: 06 May 2014

Article: Feature

On 21 April 2014 the UK government published its response to the consultation on Transparency & Trust: Enhancing the transparency of UK company ownership and increasing trust in UK business.

As expected, the government decided to proceed with its proposal set out in its discussion paper published in July 2013, to require UK companies to maintain a register of beneficial ownership. To shed more light on the issue, this article will be looking at the proposals to analyse its impact on UK companies – in particular those considering coming to a regulated equity market, AIM or other growth markets, and especially in light of the recently proposed amended Shareholder Rights Directive.

The register was a commitment promoted by David Cameron at the Lough Erne G8 Summit last summer.

Which entities fall within the scope of the new register?

The new obligation to maintain a register of beneficial ownership will apply to UK bodies corporate generally, thus including not only private and public companies limited by shares but also private companies limited by guarantee and limited liability partnerships.

Only companies that already comply with the ownership disclosure requirements of the Disclosure and Transparency Rules (DTR) and companies whose securities are listed on a regulated market are proposed to be exempt. Thus, in addition to companies whose securities are admitted to the Official List and traded on the LSE, companies whose securities are quoted on AIM or the ISDX Growth Market would be exempt from this new requirement as these companies have to comply with DTR 5 which already requires them to provide ownership information. This exemption is sensible and avoids duplication.

The information on beneficial owners kept at the Companies’ register will be publicly available on a central register at Companies House (with the exception of the beneficial owner’s residential address and full date of birth).

Who is a ‘beneficial owner’?

The term ‘beneficial owners’ will be defined as the individuals ‘who ultimately own or control more than 25 per cent of a company’s shares or voting rights, or who otherwise exercise control over the company or its management’. Where such an interest is held through a trust, the trustee/s ‘or any individual/s who control the activities of the trust’ will be registered as the beneficial owner/s. Typically, this will only be the trustee/s but in some circumstances this could be the settler, beneficiary or protector of the trust where they exercise such control over the trust’s activities.

The new obligation

Public companies already have the right (but are currently under no obligation) under the Companies Act 2006 to investigate who has an interest in their issued share capital (but not other issued securities). The government proposes to extend those provisions to all companies and LLPs and impose a direct obligation on companies to obtain beneficial ownership information where it ‘knows or has reasonable cause to believe’ that an individual falls within the definition of beneficial owner. This will be supplemented with a disclosure obligation on the beneficial owner. However, companies will still not have a right to discover who is behind the ownership of issued debt securities. This represents a significant and continuing risk to companies which issue debt instruments.

Importantly, the government recognises that companies cannot be held liable if the information provided by beneficial owners turns out to be false (unless the company knew or should have known otherwise).

Comment

The government’s proposals are much wider and far reaching than the European Commission’s proposal to introduce a new requirement in the amended Shareholder Rights Directive for intermediaries to identify the name and contact details of shareholders at the request of a company. Admittedly though, the UK government’s and the EC’s proposals aim to address different concerns – increased trust and transparency in UK business on the one hand and the facilitation of the exercise of shareholder rights and engagement between listed companies and shareholders on the other hand.

However, while the EC proposals may not go far enough, the benefit of making the beneficial ownership information publicly accessible (as opposed to making it accessible to certain governmental (in particular tax) authorities only) remains in our view questionable. Tracing beneficial ownership to owners outside the UK is often difficult in practice, not least due to the different national disclosure regimes within the EU itself.

Whilst a convergence of the initiatives between the European Commission, European Parliament and UK government would be desirable, this remains unlikely, despite the fact that greater transparency as to beneficial ownership of companies is one of the rare causes where the interests and objectives of the European Parliament and the UK’s prime minister are closely aligned.

For more on this story go to: http://www.growthbusiness.co.uk/growing-a-business/business-regulations/2462582/transparency-of-company-beneficial-ownership.thtml#sthash.om7OB9po.dpuf

See also iNews Cayman story published January 16 2014 “Public Consultation: Beneficial Ownership of Cayman Islands – Registered Companies” at: http://www.ieyenews.com/wordpress/reminder-public-consultation-beneficial-ownership-of-cayman-islands-registered-companies/

Related:

Djanogly is talking…

By George Turner, c/o Wrapper Towers From Tax Justice Network

Taken from “a week in tax justice $41

Last week we reported [see below] on MP Jonathan Djanogly’s attempt to derail the introduction of a public register of beneficial ownership that would help uncover corruption and tax abuse.

Djanogly is a former justice minister. His £67,000 MP salary is bolstered by income he receives as a part-time consultant to international law firms and private equity (fee £1,000 an hour).

Jonathan has now spoken on the subject in a debate in Parliament last week. He raised some real non-issues. He highlights that it is sometimes difficult to know who stands behind trust structures and fears that finding this out will place an unwelcome burden on British companies.

Its perhaps churlish to ask what kind of company does not know who its beneficial owners are?

Djanogly questions whether any British companies are really involved in illicit financial flows anyway (see HSBC story in today’s iNews Cayman also from The Offshore Wrapper).

He fears that Britain will lose out on investment from people who want to keep their identity secret. Instead they will just go somewhere else. The UK’s position as a first mover, Djanogly suggests, will mean that it will lose out.

Here at the Wrapper we agree, Britain as one of the most important financial centres in the world, should be content to let other nations, like Ukraine (see below) lead the way in financial transparency.

And from a week in tax justice #40

UK Beneficial Ownership Registry: kicked in the Djangoolies?

A public register of beneficial ownership is seen by many as a vital tool in the fight against global tax evasion, money laundering and other illicit flows. The UK has so far been a leader on this issue and wishes to be one of the first countries to implement such a measure.

But former Conservative justice minister, Jonathan Djanogly has been busy trying to amend the beneficial ownership draft legislation.

Djanogly’s amendments would seek to restrict the people who can view a company’s register of beneficial owners to UK tax inspectors and “national security agencies”. Overseas tax officials, journalists and campaigners, if Djanogly’s amendment wins the day, would not get a look in.

What could possibly drive Mr Djanogly to take this stance against transparency?

The Hon. Member for Secrecy

The Hon. Member for Secrecy

Could it be anything to do with the demands of his employers? And by that we don’t mean the good people of Huntington who Djanogly serves as an MP for which he receives a salary of £67,000 a year.

Dear Reader, we humbly ask whether Djangoly could be in any way swayed to limit the remit of the Beneficial Ownership Registry because he is as an advisor to Oakley Capital Limited for whom he receives up to £1,000 an hour? Oakley Capital, by the way, is the investment adviser to Oakley Capital Investments, a company registered in Bermuda.

Mr Djanogly also receives a similarly princely sum from King & Wood Mallesons LLP a leading UK law firm. Among the many things the company does is lobby the UK government and advise its clients on changes to tax legislation.

STOP PRESS: Given the huge damage that offshore secrecy across the world, we wonder what Jonathan Djanogly’s colleagues on the All-Party Parliamentary Group on Anti-Corruption will think of his sneaky little amendment.

For more on this story go to: http://www.taxjustice.net/2014/11/17/offshore-wrapper-week-tax-justice-40/

See also related story:

MP and the private eyes: Pressure on justice minister to quit for spying on aides

By MICHAEL SEAMARK FOR MAILONLINE and ANDREW LEVY FOR THE DAILY MAIL and JASON GROVES FOR THE DAILY MAIL

11 September 2010

A Tory justice minister was urged yesterday to ‘step aside’ from government after he admitted employing private eyes to spy on his local party members.

Downing Street offered only lukewarm backing for Jonathan Djanogly when it emerged that he paid more than £5,000 for the investigation while mired in the parliamentary expenses scandal.

The private detectives used subterfuge to trick several people, including the Huntingdon MP’s constituency agent, into discussing their views of Mr Djanogly.

Jonathan Djanogly

One of those targeted, the Tory ex-leader of Huntingdon Council Derek Holley, said he was ‘very angry’ and called on the minister to ‘consider his position’ in government.

‘It was a foolish step and I am amazed by his behaviour,’ said Mr Holley. ‘I’ve spent 34 years in local politics and I am angry that I’ve been investigated behind my back.’

Among those approached by investigators posing as journalists was Sir Peter Brown, Mr Djanogly’s election agent who previously represented John Major in the ultra-safe constituency, and Mr Holley, treasurer of Huntingdon Conservatives.

The Morris Chase report sent to the MP is said to have concluded that aides in his local party believed he was a poor politician who had lied over his expenses claims.

They told private eyes that Mr Djanogly was a ‘wet fish… constantly wriggling’ who had been a ‘disaster’ as an MP.

For a lot more on this story go to: http://www.dailymail.co.uk/news/article-1310704/Justice-Minister-Jonathan-Djanogly-paid-detectives-spy-colleagues.html#ixzz3K58DNHij

EDITOR: Do go to the above link – it’s a very ‘hot’ read!

IMAGE: Jonathan Djanogly www.telegraph.co.uk