Regulation

Should there be a mandatory register of beneficial ownership of corporate structures in every country?


By Paolo Panico, Solicitor (Scotland) and Avocat (Tableau IV), Luxembourg (01/12/2017)

NO

The creation of central registers of beneficial owners of companies and trusts has been championed in some political quarters and in the press in the wake of the ‘Panama Papers’. It is an easy political ‘sale’ but it is wrong and potentially dangerous.

Central registers of beneficial ownership cannot be an end by themselves. They may be a means to prevent the abuse of corporate vehicles and other legal entities from criminal activities. In order to achieve this purpose, the information on beneficial ownership must be accurate and up-to-date. This condition can be met only if the information is obtained, verified, recorded, and updated by professionals subject to anti-money laundering obligations such as lawyers, accountants, notaries, bankers, and other financial advisors. In many jurisdictions the formation of a company or of another legal entity requires the involvement of one or more such professionals. It is therefore sufficient to ensure that the existing anti-money laundering laws and regulations are strictly complied with and that the competent authorities can access the relevant information held by the professionals in a timely and effective manner. The creation of a central register may be an unnecessary additional administrative burden.

However, some offshore jurisdictions, such as Jersey, have maintained a central register of beneficial owners of companies for more than 20 years. Other financial centres have created central registers this year. In all these cases the information is filed by qualified professionals and is kept in a closed platform with no external connectivity, which is accessible only to a restricted number of designated officials for specified purposes. These extreme measures are intended to mitigate the risk of hacking and other forms of unauthorized or abusive access.

Central registers of beneficial owners must not be open to the public. Unrestricted public access to such registers is a breach of the fundamental right to privacy and, far from preventing criminal activity, can significantly increase its incidence. The respect of private and family life and of private personal data is a fundamental human right, protected under the EU Charter on Human Rights as well as in the UN Convention.

On these grounds, a public register of trusts was quashed as contrary to the Declaration of the Rights of Man and of the Citizen of 1789 by a decision of the French Constitutional Court on 21 October 2016. Similarly, the European Data Protection Supervisor has expressed serious concerns about a proposal to amend the 4th EU Anti Money Laundering Directive with a view to allowing unrestricted public access to beneficial ownership information of trusts and companies. The current version of the Directive, which has not yet been transposed by all EU member states, makes the registers available only to persons with a ‘legitimate interest’.

An instrument such as the register of Persons with Significant Control (PSC) in the UK is useless for the prevention of corporate abuse but raises concerns for other serious crimes. The entries of the PSC Register are not subject to any verification. Criminals can file incorrect information or just fail to submit it. On the other hand, the details of the beneficial owners of UK companies and partnerships are readily available to curious neighbours and voyeurs, as well as (more worryingly) gangsters and blackmailers. Incidentally, just a few weeks ago, the English Court of Appeal ruled that the access to a company’s register of members (which may include nominees) can be denied when it is sought for an improper purpose . Why shouldn’t it apply also to the PSC register?

 At a time when the Western way of life is threatened by repeated terrorist attacks, it is irresponsible to sacrifice privacy, one of the fundamental values of the Western civilization, for the sake of a misconceived idea of transparency.