Britain and other EU member states face a new European Parliament push to open up trusts to greater public scrutiny, amid warnings that the UK may be unable to escape the rules even after Brexit, reports Financial Times.
MEPs are poised to back tougher transparency standards for trusts, which have been resisted by the UK, in a vote on Tuesday on draft EU legislation on money laundering.
The changes to the draft directive, which MEPs said were very likely to garner majority support, would oblige EU member states to operate fully public registers disclosing the “beneficial ownership” of trusts. Trust beneficiaries would be able to escape the rules only if they could show their personal safety would be at risk if the information was revealed.
Such a move would undo concessions won by the UK in a previous round of EU rulemaking, when then-prime minister David Cameron personally intervened to secure exemptions for trusts from important transparency standards.
It could constrain the UK even after it leaves the EU. MEPs told the Financial Times that the national registers on the continent would include funds set up in the UK for people based in the EU. The bloc may also take Britain’s compliance with the new rules into account when evaluating what market access the UK financial services industry should be granted after Brexit.
The new standard “takes away the possibility for the UK trust to continue as a legal construction that we cannot control”, said Judith Sargentini, one of the lawmakers leading work on the draft rules. It will mean that “those that hide something would be traceable”.
Ms Sargentini, a Dutch Green MEP, added that the public registers would include details of all the main participants in a trust: the settlor, trustees, the beneficiary and any other persons exercising control.
Parliament’s word is not final. Instead, Tuesday’s vote will decide the assembly’s stance as it prepares for negotiations on the legislation in coming months with EU member states, who have declined to back similar transparency measures in their own deliberations on the draft directive.
The EU decided to return to the issue of trusts following the 2015 Panama Papers scandal, which shone a light on the tax avoidance strategies of the rich and powerful, including their use of trusts to shift money offshore.
The UK has consistently fought against having fully public registers of trusts. “We want to strike the right balance between transparency and the fundamental rights of individuals to privacy,” a government spokesperson said.
Britain also contends that information sharing by law enforcement and tax authorities — rather than disclosure — makes the real difference in the fight against tax evasion and that the parliament’s approach risks duplicating information held by national registers.
France’s constitutional court also ruled last year that moves to set up a national public register amounted to a “manifestly disproportionate” encroachment on the right to privacy, while the EU’s data protection chief has raised concerns.
However, campaign groups accuse the UK of wanting to protect a lucrative part of its wealth management industry and have welcomed the push by parliament for more disclosure.
Peter Simon, a German member of the Parliament’s socialist group working on the draft law, adds that there should be “no back door left open ever for UK companies to do business in the European Union without sticking to our rules”.
An internal European Parliament document from last month noted that “the UK has until now taken the lead when it comes to making beneficial ownership of companies publicly available, but has resisted attempts to apply the same standards to trusts.”
“Whatever the final deal [on the draft transparency law], access to the single market for financial services for UK companies would be linked to the implementation of EU anti-money laundering rules,” it says.
Under EU rules adopted in 2015, nations are obliged to set up national registers of beneficial ownership of companies. Under the rules, which are scheduled to take full effect later this year, the data will be available to public authorities and to members of the public that can show a “legitimate interest”. While trusts were also formally covered by the law, in practice they were largely exempted from registration requirements.
The European Commission last year proposed revisiting and toughening the standards, but did not go as far as suggesting the registers should be fully public. National governments took a similar line when they agreed a joint position on the draft law last year.
Campaign groups, such as Global Witness and the European Network on Debt and Development, have warned that this approach would leave loopholes
“Since trusts pose as great a money laundering risk as companies, it is vital that the EU, including the UK, agrees to stronger rules,” Murray Worthy, a senior campaigner at NGO Global Witness, said.