Central registration of interested parties in corporate entities – Shareholders register and UBO register to prevent ‘Panama-paper’ controversies?

 

The call for a central register that specifies the shareholders of corporate entities already existed before the Panama Papers became headline news. Insight in the underlying parties is considered an important asset in combating fraud, money laundering and tax evasion. Initially, only a central shareholder register was considered; now, however, Europe has imposed the establishment of a central UBO (ultimate beneficiary owner) register.

Central shareholder register overtaken by UBO register

Late December 2012, the Minister of Security and Justice announced the institution of a central register of shareholders of private and non-listed public companies. Since then, numerous debates have taken place on both the accessibility and location of such a register, and how to prevent undesired visibility, for example to prevent third parties from gaining insight into the structure of a family business or unwanted publicity for private investors.

Central shareholder register now on hold

On 10 February 2016, a letter from the Minister of Finance, also on behalf of the Ministers of Security and Justice and Economic Affairs, informed the Lower House of their choice to defer the setting up of the central shareholder register until such time as the development of the UBO register has progressed further. The UBO register will record the ultimate beneficiary of corporate entities, a step further therefore than just shareholdership.

Although the purpose of both the UBO register and the central shareholder register is to prevent fraud, money laundering and tax evasion, they differ in terms of scope and content. The view of the Ministers is, that simultaneous development of the two registers would present difficulties as regards enforceability and affordability. Furthermore – and this appears to be the real reason – the UBO register is an enforceable obligation under European law that must be implemented by 26 June 2017 at the latest.

Differences between central shareholder register and UBO register

The central shareholder register will show the content of the current ‘offline’ shareholder register, i.e. shareholder information. Shareholder information involves the right to one or more shares in a specific corporate entity. Shareholders may be either natural or legal persons. For the central shareholder register, it is irrelevant whether a shareholder has formal or effective control over a private or non-listed public company.

The UBO register specifies who has ultimate control over a corporate entity. The register passes through company layers and arrives at the ultimate natural person. Or, more specifically: the definition of UBO as laid down in the third anti-money laundering directive entails, in short, that a UBO is a natural person who, whether or not behind the scenes, ‘pulls the strings’ of a corporate or other legal entity and therefore exercises formal or effective control. Indications for control are a sufficient percentage of ownership, shares and/or voting rights, but also the right to dismiss a director. Qualification as a UBO will be determined individually using the definition given in the directive, and may vary from case to case.

What will the register include?

The directive gives the member states leeway to determine what is the UBO register is to include. The Dutch government proposes to make only the prescribed minimum information publicly accessible:

  • Name
  • Month of birth
  • Year of birth
  • Nationality
  • Country of residence
  • Nature and scale of the economic interest held by the UBO.

How will information find its way into the register?

Corporate and other legal entities will be obliged to make sufficient, accurate and current UBO information available. UBOs must cooperate to ensure that this obligation can be met. Furthermore, there will be an obligation to report under the Anti-Money Laundering and Anti-Terrorist Financing Act (Wet ter voorkoming van witwassen en financieren van terrorisme (Wwft)) for parties such as banks, notaries, lawyers and tax advisors.

The Chamber of Commerce, in its capacity as manager of the register, will determine, on the basis of the information available, which UBO information will be included in the register. Although the privacy of UBOs has been discussed, guarantees do not go much further than is currently the case for obtaining information from the Chamber of Commerce: registering and paying.

What now?

In accordance with the content of the letter to the Lower House, discussions will be held about  the further definition of these contours with the organisations involved. In addition, online consultations will take place to ensure adjustment of the relevant legislative and regulatory frameworks. In view of the fact that the UBO register must established by 26 June 2017 at the latest, and taking into account the resistance the introduction of the central shareholders register met with, this will be no easy feat. Given the recent discussions regarding the Panama papers, the first calls for registration and publicizing more information have already been heard.

To be continued.

This publication was written by Tim Carapiet

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