As part of the global transparency push, the G20 has committed to implement rules requiring the disclosure of beneficial ownership of legal entities (in addition to automatic exchange of financial account information and the BEPS related transparency measures). On 13 February 2017, Treasury released a consultation paper dealing with part of this agenda – to consult on means to establish a register of beneficial ownership of companies.
As it seems likely from the paper that existing mechanisms for disclosing beneficial ownership of listed companies will be revamped, the paper is of most interest to non-listed companies, and particularly closely-held private companies. We hasten to add that the focus on companies does not mean that trusts will be left out – they will just come later in the process as the G20 includes trusts in its commitment.
Compared to BEPS and automatic exchange of financial account data, the beneficial ownership project has been developing at a relatively modest pace. The G8, led by the UK, committed in 2013, after which the G20 agreed very general principles in 2014 at the Brisbane summit (allowing Australia to pose as a leader in the process to judge by the consultation paper). Then matters went quiet as some bureaucratic infighting seems to have occurred at the OECD and elsewhere over whose baby beneficial ownership is, since various areas of regulation are involved – tax evasion, money laundering, terrorism financing, corporate fraud etc.
The G20 and OECD announced in October 2016 that effectively custody of the new baby will be shared between the Global Forum on Tax Transparency, which has responsibility for tax information exchange, and the Financial Action Task Force (FATF), which concerns money-laundering and terrorism-financing. The principles developed by the FATF will guide the global agenda but the less-than-outstanding performance of FATF in enforcing the principles by peer review of countries’ performance will be gingered up by the Global Forum’s expertise and efficiency in peer review (though of course the bureaucratic ceasefire is covered over by diplomatic language).
As countries have a significant degree of flexibility in implementing the FATF principles, the consultation paper is very open-ended and quite alive to the practical difficulties of making any system work. It discusses definitions of beneficial ownership, outlines current requirements to maintain registers, indicates the commitments Australia has given and summarises the recently implemented UK system involving a central public register of ultimate beneficial ownership of companies. Without any trace of irony the paper notes that, shortly before the Brexit vote, the UK committed as part of the “Euro 5” to set up a system of exchange of information in registers of beneficial ownership.
Chapter 4 of the consultation paper contains a brief discussion of the practical issues (who, what information, how to record and how to enforce). The challenges are formidable but the issue is not going away, so affected parties should give serious thought to providing input. Submissions are due by 13 March 2017.