Transparency, public registers, tax investigations, compliance. It seems there is trending theme and that is a strong move towards transparency. Whether it’s the BVI or the Cayman Islands, Jersey, Isle of Man, or Guernsey – all have made commitments to public registers. What will that mean for HNWIs who are keen to protect their privacy, their assets and wealth?
Beneficial owners, namely those who own, benefit, and control an asset, do not always have to be the legal owner of a company, complex structures can be established to make direct ties between the owner and asset less evident through the use of tax vehicles. This lack of transparency is further enhanced when nominees are appointed in low tax jurisdictions.
The Indirect Effect of ‘The Panama Papers’
The ‘ Panama Papers’ published in 2016 brought to light the role that global banks have had in aiding money laundering by facilitating the flow of funds between legal entities in tax havens. In the notorious leak of client data from a global fiduciary, Mossack Fonseca, over 140 politically exposed individuals were identified as having offshore tax structures and the details of over 200,000 entities were reveal to the world. The BVI and Panama were the most popular offshore tax jurisdictions identified in the global fiduciaries’ client database.
Since then, investigative journalists have been campaigning for greater transparency. Late last month, the British Virgin Islands announced that it would be establishing a beneficial ownership registry which would be public by 2023. To date, unless all due process is undertaken, certain foreign governments and/or police can request information from the BVI company registry, so this public register would mean a more transparent, tax environment where Beneficial Owners can no longer ‘hide’.
It was not just the contentious ‘Panama Papers’ though that fueled this move, but the ‘FinCEN Files’ added pressure.
This latest leak published over 2,500 documents that banks had sent the American authorities on their clients’ accounts and activities over almost 20 years – a treasure trove of secrets which exposed PEPS and criminals the world over. The FinCEN Files published in September this year, shed light on numerous banks in global wealth hubs which have been entangled in money laundering transactions and, to the embarrassment of many a tax-haven, also highlighted their involvement.
Read more: UHNWIs and their Toys (in a brave new world)
Beneficial Owners veil is lifting Globally
Affluent business owners, investors and the ultra-rich have been relying on international tax advisers to manage their funds flows and global wealth structures through the uncanny use of low tax (or no tax) jurisdictions, succinctly sewn together to achieve the beneficial owner’s goals.
One popular goal is the right to secrecy, privacy, and an unwavering desire to protect their wealth from the long arms of creditors, competitors and estranged spouses. Whilst there is no harm in mitigating tax, the line is crossed when tax planning aids money laundering or worse the financing of terrorism.
“It is vital that the information on these registers is accurate, free to use and made available for full analysis. This would strike a major blow to the corrupt around the world, with an ever-diminishing number of places to hide their dirty money,”
Ms Rachel Davies Teka, Head of Advocacy Transparency International
In a growing trend to uphold standards of due diligence set out in the EU’s Fifth Anti Money Laundering Directive, uphold transparency and ensure compliance several tax-friendly jurisdictions been announcing the implementation of public beneficial owner registers:
- The BVI will have a public beneficial owner registry in 2023.
- Jersey will have a public beneficial owner registry by as early as year end.
- Guernsey will have a public beneficial owner registry in 2023
- Albania implemented a public beneficial owner registry in 2020 (summer)
- Cayman Islands will have a public beneficial owner registry in 2022
Why should Public Beneficial Owner Registries be implemented?
There is a growing sentiment of public outcry as ‘leaks’ raise awareness on major corruption scandals and heighten the demand for greater transparency. This sentiment permeates throughout parliaments, court rooms and on streets the world over.
- To support police, regulators, and investigative bodies in cracking down on crime. Professionals who have an obligation to meet AML standards can also ensure that their prospective clients’ are not linked to crimes.
- To increase transparency, thus mitigating the ability to evade tax and or legal process for criminal activity.
- To better monitor the flow of funds from illicit sources (arms, drugs, illegal trade, slavery etc…) and collaborate more cohesively internationally
- To enhance business competitiveness by allowing for companies to bid for procurement contracts and have their due diligence undertaken swiftly and efficiently.
The trend towards more transparency beckons a new dawn in the financial services, private wealth, and tax planning world. One where AML compliance is implemented effectively and one which leaves no room for less desirable clients whose source of funds proceeds from nefarious activities.
The trend towards public registers should be welcome, by wealth professionals, fiduciaries, HNWIs and the greater public, as its a step in the right direction.
