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BRIEFING PAPER

Number 8259, 10 May 2018

Registers of beneficial ownership

By Federico Mor

Contents: 1. Background 2. Registers of beneficial

ownership in the UK 3. Registers in the rest of the

world

2 Registers of beneficial ownership

Contents Summary 3

1. Background 4 1.1 What is beneficial ownership? 4 1.2 What is a register of beneficial ownership? 4

2. Registers of beneficial ownership in the UK 5 2.1 Companies 5 2.2 Properties and land 7 2.3 Trusts 8

3. Registers in the rest of the world 9 3.1 Overseas Territories and Crown Dependencies 9 3.2 EU countries 12 3.3 Tackling tax evasion with registers of beneficial ownership: the exchange of

information 12

Cover page image copyright: Contract consultation / image cropped. Licensed under CCO Public Domain – no copyright required.

3 Commons Library Briefing, 10 May 2018

Summary Beneficial ownership refers to the person(s) who ultimately own(s) or control(s) an asset (for example, a property or a company) and benefit(s) from it. The concept of beneficial ownership exists because the direct legal owner of an asset is not necessarily the person ultimately controlling and benefitting from the asset. For example, the direct legal owner of a residential property may be an anonymous company registered overseas.

Registers of beneficial ownership play a key role in the ongoing debate about transparency of ownership.

The UK has registers of beneficial ownership for three different types of assets: companies, properties and land, and trusts. Information on the beneficial ownership of companies is publicly available. For properties owned by overseas companies and legal entities, the Government plans to launch a public beneficial ownership register in 2021. The register for trusts is not public.

Around the world, a large number of countries has created or has plans to create registers. Among British Overseas Territories and Crown Dependencies, public registers are the exception at the moment, but will become the norm for companies by the end of 2020. In the EU, the making public of beneficial ownership information is becoming mandatory soon.

Related briefings

The Commons Library briefing on the May 2016 international anti-corruption summit (CBP 7580) offers a brief history of UK legislation on beneficial ownership in the context of the summit and what emerged from it.

The Commons Library briefing, Foreign investment in UK residential property (CBP 7723), asks whether overseas investment is a problem and examines whether it affects (for example) affordability or availability of housing.

Other Commons Library briefings on related topics are available on Parliament’s topic pages for financial services and financial institutions, in particular:

Tax avoidance: recent developments (CBP 7984)

Money laundering law (SN 2592)

Corporate economic crime (CBP 7359)

Banking services: reform and issues (CBP 7234)

4 Registers of beneficial ownership

1. Background The ongoing debate about transparency of ownership tends to highlight two separate (but related) issues:

• the exchange of information between governments and law enforcement agencies and

• the making public of information about beneficial ownership.

1.1 What is beneficial ownership? Beneficial ownership refers to the person(s) who ultimately own(s) or control(s) an asset (for example, a property or a company) and benefit(s) from it. The concept of beneficial ownership exists because the direct legal owner of an asset is not necessarily the person ultimately controlling and benefitting from the asset. For example, the direct legal owner of a residential property may be an anonymous company registered overseas.1

1.2 What is a register of beneficial ownership?

When an entity (e.g.: a trust, a company) records who its beneficial owner(s) is (are), it creates a register of beneficial ownership. When a regulator or an official registrar collects and collates this information in one place, it creates a central register of beneficial ownership. Some registers can be accessed by anyone (in which case they are “public”), while others are only accessible by law enforcement and tax authorities.

1 E.g.: The Guardian reported on the amount of London property owned by offshore

firms: “Revealed: 9% rise in London properties owned by offshore firms”, 26 May 2017.

5 Commons Library Briefing, 10 May 2018

2. Registers of beneficial ownership in the UK

The UK has central registers of beneficial ownership for three different types of assets: companies, properties and land, and trusts.

2.1 Companies The UK Government introduced provisions to establish a register of beneficial ownership as part of the Small Business, Enterprise & Employment Act 2015. The register launched in 2016 and is known as the People with Significant Control (PSC) register. Global Witness said this was the world’s first publicly available register of the beneficial ownership of companies.2 The Government said it was the first in the G20.3

To find out who has significant control over a company (the beneficial owner), one can search the company on the Companies House website, and click on the ‘people’ tab. For example, the company that used to own BHS, Taveta Investments Limited, has one person with significant control: Lady Cristina Stuart Green (the wife of Philip Green). Alternatively, the entire PSC register can be downloaded.

Before the PSC register existed, searches for similar information could only be done by looking at a company’s Annual return with full list of shareholders. These shareholders could, indeed often are, other companies, thus hiding the identity of the person in control. For example, the racing driver ‘Lewis Carl Davidson Hamilton’ appears on the PSC for Project Forty Four Limited. The Annual Return, on the other hand, only lists one shareholder: the company Inday Rose Ltd, registered in the British Virgin Islands.

However, analysis of the PSC data (November 2016) by Global Witness identified several weaknesses in the register:

Almost 3,000 companies listed their beneficial owner as a company with a tax haven address - something that is not allowed under the rules. There are problems with how the data has been inputted. For example, you can write anything in the nationality field and we found over 500 ways of putting “British”, including ten people who wrote “Cornish”. […]

Just under ten percent of companies claimed to have no beneficial owner. This is possible under the legislation, because you have to own at least 25 percent of a company to be considered its beneficial owner. We think that’s quite a high threshold, which could be exploited by people looking to stay under the radar. […]

Another big challenge is the lack of unique identifiers for individuals and some companies. We were relying on using name and day and month of birth to try and identify individuals. This is fine if you’re someone with an unusual name, but proves more

2 Global Witness, 10 lessons from the UK’s public register of the real owners of

companies, 23 October 2017 3 Alan Duncan (FCO), Sanctions and Anti-Money Laundering Bill [Lords] debate, 20

February 2018, Volume 636

6 Registers of beneficial ownership

tricky for the John Smiths or Mohammed Iqbals of this world. […] One solution could be to assign beneficial owners a unique number to allow better cross-matching.4

Global Witness and OpenOwnership suggested the following improvements to the register (October 2017):

• Defining a beneficial ownership threshold lower than 25%

• Beneficial owners’ holding of shares should be reported in exact percentages

• The register should use unique identifiers in addition to personal data such as name and month and year of birth

• Basic data validation systems such as multiple choice fields should be used to improve data quality

• A range of systems should be established to improve data quality, to verify data and to pro-actively pursue companies that report non-compliant data.5

One of the criticisms of the register stems from the fact that the information submitted by companies is not verified. Companies House is a registrar, not a regulator. By and large, it does not verify the accuracy of what it receives.

In answer to a Parliamentary Question on the matter, the responsible Minister, Andrew Griffiths MP, stated that there are no plans to introduce ‘automated verification’ of the information on the register, but outlined other activities undertaken by Companies House to improve the quality of the data:

1. contacting companies where they believe the company has misunderstood the requirements, to ensure that the records are corrected and that they comply with their legal requirements;

2. pursuing companies that have not provided PSC information in their confirmation statement or that have not provided a statement of additional matters;

3. following up with companies and PSCs where they have issued notices to their PSC (asking the PSCs to provide them with information), or restrictions (where a PSC has failed to provide information), to ensure they update the information on their company records;

4. seeking compliance from companies where there has been a complaint about missing or incorrect PSC information.6

Another Parliamentary Question asked how many submissions have been challenged by Companies House since the introduction of the register. On behalf of the Government, Andrew Griffiths responded:

69,543 confirmation statements were rejected for reasons specifically related to the provision of beneficial ownership details between 1 July 2016 and 31 January 2018. However, the majority

4 Global Witness, What does the UK beneficial ownership data show us?, 22

November 2016 5 Global Witness and OpenOwnership, Learning the lessons from the UK’s public

beneficial ownership register, October 2017 6 Andrew Griffiths (BEIS), Companies: Ownership: Written question 127851, 20

February 2018

7 Commons Library Briefing, 10 May 2018

of these are corrected by the company immediately when informed. The enforcement policy of Companies House is to help companies comply with their filing requirements, rather than immediately resorting to criminal or civil sanction. This is particularly important where there is reasonably new requirement such as the requirement to register beneficial ownership.7

2.2 Properties and land The situation for properties is the same as it was for companies. The Land Registry shows the direct legal owner of properties, but not the beneficial owner (when the two differ). Thanks to the Companies House PSC register, when the legal owner of a property is a UK company, we can find out who the beneficial owner of the property is by searching the UK company in question on the PSC register. But when a property is owned by a foreign company, then that second step is not available.

The Government is planning to introduce a beneficial ownership register for UK properties owned by overseas companies and legal entities. The then Prime Minister, David Cameron, warned foreign companies in his 2016 anti-corruption summit opening speech that they will be required to disclose the beneficial ownership of around 100,000 properties in England and Wales. In April 2017, the Government consulted on the design of a beneficial ownership register for UK properties owned by overseas companies and legal entities. In the consultation foreword, the Government said that this register would be the first of its kind in the world:

The UK is a world leader in corporate transparency. In 2016 we became the first country in the G20 to introduce a register of company ownership, allowing the public to access a central record of information about who really owns and controls UK companies.

At the International Anti-Corruption Summit held in London in May 2016, we committed to go further, by creating a new register showing the beneficial owners of overseas companies that own or want to buy property in the UK, and of overseas companies involved in central government contracts. […]

The UK property market should be seen as fair, transparent and clean in order to attract the right investors and owners. […] This register will be the first of its kind in the world.

The Government set out its timetable for the register in a written statement on 24 January 2018. The plan is for the register to be operational in 2021:

The Government intends to legislate to establish a public register of beneficial owners of non-UK entities that own or buy UK property, or which participate in UK Government procurement. It will publish a draft Bill before the summer recess this year. This will be a significant piece of legislation that delivers a streamlined policy, consistent across the UK, where currently the Land Registries for England and Wales, for Scotland and for Northern

7 Andrew Griffiths (BEIS), Companies: Ownership: Written question 127236, 23

February 2018

8 Registers of beneficial ownership

Ireland have taken different approaches to land registration and registration of overseas entities.

The Government intends to introduce the Bill to Parliament early in the second session. Following Royal Assent and the making of secondary legislation, the Government intends that the register will be operational in 2021.8

The Government said that the register will be the first of its kind in the world.9

2.3 Trusts As a requirement of the EU’s Fourth Anti-Money Laundering Directive, the UK has also introduced a non-public register of beneficial ownership for trusts (July 2017). With the Trusts Registration Service, trustees can register their trust online and provide information on the beneficial owners of the trust. The information is only available to law enforcement bodies and the UK Financial Intelligence Unit.

8 Lord Henley (BEIS), UK Public Register of Overseas Entity Beneficial Ownership:

Written statement HLWS417, 24 January 2018 9 Alan Duncan (FCO), Sanctions and Anti-Money Laundering Bill [Lords] debate, 20

February 2018, Volume 636

9 Commons Library Briefing, 10 May 2018

3. Registers in the rest of the world

At the end of 2016, a group of 53 countries had committed to the systematic sharing of beneficial ownership Information.10

The next sections look at what is happening around the world.

3.1 Overseas Territories and Crown Dependencies

The UK Government introduced provisions to establish a register of beneficial ownership for companies as part of the Small Business, Enterprise & Employment Act 2015. In April 2014, the Prime Minister had written to the Crown Dependencies and British Overseas Territories to encourage them to follow the UK’s example.11

Subsequently, just before the London Anti-Corruption Summit in May, the Government announced that the UK had completed a series of bilateral agreements with the Crown Dependencies and Overseas Territories on sharing beneficial ownership information.12

The state of development of registers in these countries, as at 6 October 2017, was as follows:

British Virgin Islands (BVI), the Cayman Islands and Gibraltar had established a central register of beneficial ownership information or similarly effective arrangement by the 30 June 2017 deadline. Bermuda already had a longstanding central register. […]

Anguilla and the Turks and Caicos Islands have not yet established a central register or similarly effective arrangement. […]

As Montserrat had committed in November 2015 to establishing a publicly accessible central register of beneficial ownership information, the UK did not seek to conclude an exchange of notes with this Territory. Montserrat will shortly introduce new legislation to implement its central register.13

Guernsey too has a central register of company beneficial ownership information.14

At the moment, except for Montserrat, access to these registers is restricted to law enforcement authorities to protect confidentiality and privacy. Gibraltar though, being part of the EU, is soon to join Montserrat. Gibraltar will transpose the EU’s fifth anti-money laundering

10 Government correspondence, Statement on the initiative for the systematic sharing

of beneficial ownership Information, 14 December 2016 11 Prime Minister's letter on beneficial ownership, 25 April 2014 12 For more background on the events that led up to the summit see, Shining a light

on beneficial ownership: what's happening in the UK and elsewhere? , Commons Briefing paper CBP7616, 17 June 2016.

13 FCO, FOI release: Overseas Territories and Crown Dependencies 2017, 8 February 2018

14 Home Office, Companies: Guernsey: Written question 128102, 27 February 2018

10 Registers of beneficial ownership

directive, which includes provisions for public registers of beneficial ownership, by December 2019.15 (See section 3.2 on EU countries)

During the Lords Committee Stage of the Sanctions and Anti-Money Laundering Bill 2017-19, Baroness Stern moved Amendment 69G so that the Government would have to make sure that Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Montserrat and the Turks and Caicos Islands made public their register of the beneficial ownership of companies in their jurisdiction.16

Lord Ahmad of Wimbledon said that it was only in exceptional circumstances that the UK Government had legislated for the Overseas Territories without their consent. He said that doing so could undermine their cooperation:

Let me assure noble Lords that this does not mean we are content for no action to be taken in this space. It simply means that we wish to take action within the existing framework of friendly co-operation, building on the progress already made.17

He said that at present the Financial Action Task Force standards do not require countries to publish registers of beneficial ownership, and that if public registers became the internationally-required standard, the Overseas Territories would have to comply.

Minister Alan Duncan said the same in the Commons:

While we continue to push for public registers to become the global standard, we should recognise that the arrangements that the territories and dependencies have concluded with the UK exceed the international standards set by the Financial Action Task Force, which do not require private registers, let alone public registers. Nevertheless, should public registers become the global standard, we would expect the overseas territories and Crown dependencies to meet that standard.18

However, at the Report Stage of the Sanctions and Anti Money Laundering Bill 2017-19 in the Commons, facing probable defeat, the Government conceded. It agreed to a new clause which will in effect compel Overseas Territories (OTs) to establish public registers of beneficial ownership, but did not to agree a second, which would have extended this requirement to the Crown Dependencies (CDs).

The new clause which establishes public registers of beneficial ownership for the OTs was tabled by Dame Margaret Hodge. The effect was summed up by Sir Alan Duncan, Minister of State at the Foreign Office, during the debate:

New clause 6… would put a duty on the Government to work with the overseas territories to set up public registers of company beneficial ownership by 31 December 2020. If they do not do so, the new clause would require the Secretary of State to prepare a draft Order in Council, aiming to legislate directly.19

15 HC Deb 1 May 2018 c184 16 HL Deb 6 December 2017, c1108 17 HL Deb 6 December 2017, c1117 18 HC PBC Deb 6 March 2018, c140 19 HC Deb 1 May 2018 c180

11 Commons Library Briefing, 10 May 2018

The new clause, which would have made similar steps for the CDs, had been tabled by Helen Goodman MP. Sir Alan Duncan explained its effects would be as follows:

Opposition new clause 14 would require the Secretary of State to provide all reasonable assistance to the Governments of the Crown dependencies to enable them to establish a public register of company beneficial ownership, and if, by the implementation of the European Union’s fifth anti-money laundering directive, they have not, the new clause would require the Secretary of State to take all reasonable steps to ensure that the Privy Council legislates to require each Crown dependency to do so.20

New clause 6 was agreed, but following a request from the Minister, Helen Goodman chose not to put new clause 14 to a vote.21

The main difference between the OTs and the CDs is that while UK legislation can apply to OTs, it does not normally extend to the CDs. The introduction of public registers in the three CDs would, therefore, require legislation following consultation with the relevant legislative assemblies.

The UK Government’s 2012 White Paper, The Overseas Territories, notes that Parliament has unlimited power to legislate for the OTs (emphasis added):

The UK, the Overseas Territories and the Crown Dependencies form one undivided Realm, which is distinct from the other States of which Her Majesty The Queen is monarch. Each Territory has its own Constitution and its own Government and has its own local laws. As a matter of constitutional law the UK Parliament has unlimited power to legislate for the Territories. Territory Constitutions set out the powers and responsibilities of the institutions of government, which for most Territories include a Governor or Commissioner, an elected legislature and Ministers. Governors or Commissioners are appointed by Her Majesty The Queen on the advice of Her Ministers in the UK, and in general have responsibility for external affairs, defence, internal security (including the police) and the appointment, discipline and removal of public officers. Elected governments have a wide range of responsibilities.22

On the other hand, UK legislation does not normally extend to the Crown Dependencies. A Ministry of Justice background briefing on the Crown Dependencies explains the instances where it does extend:

it may do so either by virtue of the Act itself or by Order in Council made with […] agreement under an enabling provision contained in the Act which provides for it to be extended to the Crown Dependencies. For an Act to extend otherwise than by an Order in Council is now very unusual. Departments must consult the Crown Dependencies at the earliest opportunity in the event that extension is under consideration. It is to be noted that there are different formalities in each jurisdiction which must be

20 HC Deb 1 May 2018 c180 21 HC Deb 1 May 2018 c181 22 Foreign and Commonwealth Office, The Overseas Territories, Cm8374, June 2012,

p14

12 Registers of beneficial ownership

observed before such an Order in Council can become effective, all of which have the potential to impact on Bill timetables.23

3.2 EU countries All EU member states set up central registers of beneficial ownership, as part of the Fourth Anti-Money Laundering Directive, which entered in force in June 2017.

Member states must ensure that legal entities incorporated within their territory (for example, companies) obtain and hold adequate, accurate and current information on their beneficial ownership.

Each member states must ensure that the information on beneficial ownership is held in a central register in that member state (for example, a companies register or public register). Member States can make the registers public, but at this stage don’t have to.24

However, amendments to the Anti-Money Laundering Directive (AMLD 5) agreed on 20 December 2017 between the European Parliament and the Council include provisions to make beneficial information in the registers public:

Confidence in financial markets from investors and the general public depends in large part on the existence of an accurate disclosure regime that provides transparency in the beneficial ownership and control structures of corporate and legal entities as well as certain types of trusts and other legal arrangements. Member States should therefore allow access to beneficial ownership information in a sufficiently coherent and coordinated way, by establishing clear rules of access by the public, so that third parties are able to ascertain, throughout the Union, who are the beneficial owners of corporate and legal entities as well as certain types of trusts and other legal arrangements.25

3.3 Tackling tax evasion with registers of beneficial ownership: the exchange of information

The role of registers in tackling tax evasion consists in preventing people from hiding assets and income on which they owe tax. If HMRC suspects that person X is hiding the income they earn on investments held offshore in some anonymous trust, HMRC can ask the offshore jurisdiction whether the beneficial owner of the anonymous trust is indeed X. That information will be found in the central beneficial ownership register of the offshore jurisdiction.

23 Ministry of Justice, Factsheet on the UK’s relationship with the Crown Dependencies,

p2 24 Articles 30 and 31 of MLD4. 25 Council of the European Union, Interinstitutional File: 2016/0208 (COD), 15849/17,

p. 17

BRIEFING PAPER Number 8259 10 May 2018

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