Why the latest directive on UBOs is critical to combat corporate crime
When the 5th Anti-Money Laundering Directive was introduced into law by the UK and EU in January 2020, for many professionals it was a much needed addition to legislation that would significantly help business transparency and combat money laundering. In essence, it was good for business and for public and professional confidence.
All jurisdictions signing up to the 5th Directive will build and maintain UBO registries that will be publicly available at any time. UBO registries will also be set up for bank accounts and trusts, although these latter two will not be publicly available but be accessed by the relevant authority such as financial intelligence units and legal advisors looking into money laundering. Investigative journalists who can show a legitimate interest in the case can also have access, which is vital if another Panama Papers (see below) is to be uncovered. Across the UK and EU national UBO registers will be set to connect through a central European platform by April 2021.
So what is a UBO?
Ultimate Beneficial Ownership is a “natural person” who controls or owns a quarter or more of the shares or voting rights in a certain type of business. The UBO has to be written down in detail and kept on the register. Importantly, the 5th Directive puts a bigger emphasis on the transparency of a UBO. The main aim of this is to combat financial crime, particularly money laundering activities where criminals tend to hide behind complex, labyrinthine corporate structures. It actually builds on the previous 4th Directive, which was set up to ensure businesses obtain and retain accurate information about their owners, mainly for due diligence purposes.
How to comply with UBO standards
UBO standards exist in jurisdictions around the world and to comply with the latest UK and EU directive businesses must compile complete UBO data for auditors and legal advisors. Transparency is the key here. Combating opaque cross-border corporate structures needs a huge amount of intricate, collaborative analyses and most state authorities are often slow to deal with this.
As mentioned above, the Panama Papers is a classic example of how complex much of this investigative work becomes. Indeed, this one investigation alone encompassed 80 jurisdictions, 25 languages and a huge international team of journalists, lawyers and financial investigators. Astonishingly, as a result of this sheer dogged due diligence by all parties, $1.2 billion was recovered. With the best will in the world, state authorities often find themselves under resourced and incapable of uncovering such crimes.
According to Global Witness, after the UK became the first country to introduce a public UBO register in 2016, there was a 500 percent spike in the number of enquiries filed by the public regarding the activities of businesses. Furthermore, between July 2017-March 2018, there were more than 58,000 reports by the public regarding discrepancies in the UK company register.
While some are questioning the efficacy of UBOs to combat truly international crime, most agree that public UBO registers are essential for legal authorities across different jurisdictions. But public UBO registers are only as good as the data that is uploaded. This data needs to be actively monitored and maintained for quality and integrity. It’s an iterative process that will probably continue well into future directives.
According to a recent AML/KYC data survey, 46% of professionals said they thought publishing UBO registers would probably fail to increase confidence in UBO data, while 28% claimed the effects of the latest directive were still unclear. The directive will help to provide access to vital data but not necessarily give much confidence in how accurate the data is. But UBOs are clearly useful tools for fighting corporate crime and are another step in helping to engender trust between businesses and the public, as well as state authorities.
In the following pages, IR Global Members write about UBOs in their jurisdictions. Any Google search will highlight how difficult it is to gather information about UBOs in different countries. Moreover, UBOs are often couched in complex legal and financial terms that are difficult for members of the public and even businesspeople to understand. So what follows is a uniquely simple explanation by our members of UBO registration implementation in different jurisdictions, including an overview of the nuts and bolts of UBO registration, the list type of clients in the registry, the type of companies that need to register and predicted future changes in legislation.