The Fourth EU Anti Money Laundering Directive (the “Directive”), which has just made its way through the EU’s legislation, is designed to update and improve the EU’s Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) laws. The changes are in line with the recommendations issued in 2012 by the Financial Action Task Force (FATF).
An issue which the Directive evidently tackles is that it obliges, for the first time, EU member states to maintain central registers listing information on the ultimate beneficial owner of corporate and other legal entities, as well as trusts in certain cases. Special focus is made on the impact, if any; the Directive has on the institute of trusts. These central registers were not envisaged in the European Commission’s initial proposal, but were included by MEPs in negotiations. The central registers will be accessible to the authorities and their financial intelligence units (without any restriction), to “obliged entities” (such as banks doing their “customer due diligence” duties), and also to the public.
Nevertheless, to access a register, a person or organisation (e.g. investigative journalists or NGOs) will have to demonstrate a “legitimate interest” in suspected money laundering, terrorist financing and in “predicate” offences that may help to finance them, such as corruption, tax crimes and fraud. Such person will be provided with beneficial ownership information such as the beneficial owner’s name, date of birth, nationality, residence and details on ownership. Access to the information on beneficial ownership shall be in accordance with data protection rules and may be subject to online registration and to the payment of a fee. The evident failure by the Directive to define “legitimate interest” may give rise to confusion and uncertainty as well as potential room for abuse.
As far as trusts are concerned, the FATF recommendations have likewise obliged countries to take measures to prevent the misuse of legal arrangements for money laundering or terrorist financing. The FATF recommendations have specified that countries should ensure that there is adequate, accurate and timely information on express trusts, including information on the settlor, trustee and beneficiaries that can be obtained or accessed in a timely fashion by competent authorities. This was faithfully transposed in Articles 30 of the Directive which provides that Member States shall require that trustees of any express trust governed under their law obtain and hold adequate, accurate and current information on beneficial ownership regarding the trust. This information shall include the identity of the settlor, the trustee(s), the protector (if any), the beneficiaries or class of beneficiaries, and of any other natural person exercising effective control over the trust.
The Directive further provides that Member States shall ensure that trustees disclose their status and provide in a timely manner the information referred to above to obliged entities (such as banks in the course of undertaking customer due diligence measures), when, as a trustee, the trustee forms a business relationship or carries out an occasional transaction above the threshold set out in points (b), (c) and (d) of Article 11 and accessed in a timely manner by competent authorities and FIUs.
Inevitably, there is now an ongoing debate as to the part the right to confidentiality plays when bearing in mind this easy access to information, especially due to the trusts’ wide use to protect the interests of vulnerable family members. As professionals, we believe there are two sides of the same coin. On the one hand, professionals appreciate the importance of having measures in place to prevent the movement of illicit funds, and commit to ensuring that such measures are effective. On the other hand, professionals have a commitment to preserve the legitimate confidentiality of their clients’ financial affairs.
As a consequence, after intense lobbying by professional bodies, the final version of the 4th Money Laundering Directive limited the circumstances in which information concerning trusts ought to be published on the new registers. Only trusts governed by the national law of an EU Member State will be under an obligation to disclose the relevant information, and only where the trust generates tax consequences. The central register shall ensure timely and unrestricted access by competent authorities and FIUs, without alerting the parties to the trust concerned. Moreover, information on trusts will only be available to competent authorities. Ultimately this information could nonetheless be collected by tax authorities as a result of automatic exchange of tax information agreements and therefore one does not envisage that the impact on the institute of trusts will be too major in this sense.
The abovementioned strict limitations placed on access to trust registers were naturally welcomed by trust practitioners especially when one considers that trusts in common law countries are regularly used to protect vulnerable beneficiaries, some of whom could be at significant risk if their identities were published. Hence, said limitations allowed families to maintain their fundamental right to respect for a private family life recognised by the Charter of Fundamental Human Rights of the European Union.