A recent IFSP seminar attended by over 200 practitioners discussed the impending imposition of a beneficial ownership register for all forms of a legal vehicle be it a company, a partnership, a trust or a foundation. Other member states have already concurred and had implemented it by June 2017 yet Malta is a bit late in implementing a requirement imposed by the 4th Anti Money Laundering Directive (AMLD) introduced to address lack of transparency around the ownership of corporate and other legal entities. It has now transposed the law and a number of legal notices were issued on the last day of Parliament before it closed for the Christmas holidays.
On 20 December, a number of urgent legal measures were published as if by stealth. During a heated discussion at an impromptu IFSP meeting, there was much confusion on how this sudden obligation will affect a number of existing practices. For instance, it was argued that the Data Protection Commissioner should be involved in the debate since privacy to family life (ownership interests, income earned and so on.) is a human right protected by the Constitution of Malta and the European Convention on Human Rights. It is obvious that processing of personal data collected for one purpose or another, and possibly for a completely unrelated purpose, infringes the data protection principle of purpose limitation and threatens the implementation of the principle of proportionality.
Some IFSP members strongly suggested that the directive should permit access only to entities that are in charge of enforcing the law. Others expressed concerns that the amendments extend policy purposes other than countering money laundering and /or combating financing terrorism (AML/CFT) that do not seem clearly identified. This raises questions as to why certain forms of invasive personal data processing, acceptable in relation to AML/CFT, are necessary out of context. Regardless of any inconveniences and lack of privacy in certain situations, the law as it stands now expects member states to ensure that information on beneficial ownership of legal entities/arrangements is adequate, accurate and current.
Directors and officers (mostly company secretaries) can be found personally liable if shareholders declarations of ownership are not truly disclosed in a central register. The law specifically says that information in the registers should be verified on a regular basis (for example by a designated authority) to avoid discrepancies with information collected by subject persons as part of their due diligence procedures.
In Article 30 of the 4th AMLD, all corporate and other legal entities are now required from 1 January to obtain and hold, accurate and current information on their beneficial ownership (including details of the beneficial interests held). In addition to information about legal owners, these entities must provide firms carrying out due diligence measures with information on their beneficial owner. Access to beneficial ownership information at the Registry may be subject to online registration and payment of a small fee. It comes as no surprise to practitioners that currently there is much debate in Brussels about the new 5th AMLD at the European parliament, as this is intensively lobbying for full public access for all private information concerning corporate ownership details.
The question arises: who will have free and unfettered access to such registers? Section 7 says that such information held by the Registrar in the register of beneficial owners shall, in accordance with data protection requirements, be accessible to: (i) national competent authorities with designated responsibilities for combating money laundering and terrorist financing; (ii) national competent authorities that have the function of investigating or prosecuting money laundering, associated criminal offences and terrorist financing, or of tracing, seizing, freezing and confiscating criminal assets; (iii) the Financial Intelligence Analysis Unit; (iv) national tax authorities. The directive grants access to the above without any restriction and without alerting the company concerned. It is pertinent to ask who the subject persons are. The definition is wide and this will add heavy costs to local administrators providing services to companies, trusts, foundations and all types of partnerships.
As the law stands, this means that any person or organisation acting on a written request that can satisfactorily demonstrate and justify a legitimate interest shall be granted access by the Registrar to full details of the underlying beneficiaries. But are there any safeguards against fishing expeditions to combat unscrupulous enquiries which serve no legitimate purpose but to slow commerce. The answer is that the Registrar needs to entertain all requests combating the prevention, detection and combating of money laundering or the financing of terrorism. The law simply states that such enquiries shall be justified based on previous activities and a proven track record - this rule is rather vague and can lead to abuses.
The fly in the ointment is that the Registrar now has to act as judge and jury to determine if access is denied once he decides that it would potentially expose the beneficial owner to the risk of fraud, kidnapping, blackmail, violence or intimidation, or if the beneficial owner is a minor or otherwise incapable. This is quite an onerous task for the Registrar and may lead to contestations and slowing down of its functions causing a degradation of its vital service to the commercial community. Will it also scare away new business? Are we using a sledgehammer to crack a nut?
Naturally, readers may question if this sudden awareness towards transparency has not been influenced by negative media pressure following the Apple mega tax evasion case in Dublin or recent visits by the Pana Committee to Malta investigating Panama secret companies registered by auditors Nexia BT for top political persons, the alleged Pilatus Bank money-laundering charges, and challenges to the rule of law following the brutal assassination of a journalist. Carmel Cacopardo, chairman of Alternattiva Demokratika (aka the Greens), opines that the fiscal rules permitting the refund of tax paid by foreign owned companies based in Malta is the reason for the current spotlight.
One may disagree with the Greens in Brussels that habitually criticize our tax regime (operating under full EU scrutiny for many years) even though a recent vote in European Parliament declared it not to be a tax haven. In conclusion, while other jurisdictions complying with the AML directive tend to focus on the UBO to provide the information, our legislation seems to be going a step further and places such obligation on other officers of the company, such as directors and company secretaries. Such officers may potentially incur consequential penalties for non-compliance as this law extends the duties of the company secretary not just to keeping a register of members, or to attend and record board meetings, but now also includes the responsibility of obtaining full and regular updates about the UBO. In practice, this means obtaining latest information from firms acting as presta-nomine. This task involves chasing nominees who act legitimately and are fully monitored by MFSA as regulated under the Trusts and Trustee Act. Not unsurprisingly, company secretaries did not relish this additional and mostly unremunerated duty serendipitously wrapped as their Christmas gift to be relished next year.
Wishing a prosperous New Year to all.