Even before the Panama Papers made headlines, there was a desire for a central register listing corporate shareholders. Insight into the underlying parties is seen as a key tool in combating fraud, money laundering, and tax evasion. Initially, only a central shareholder register was discussed; now, Europe is mandating the creation of a central UBO (Ultimate Beneficial Owner) register. Given recent developments, this could gain momentum.

Central shareholder register overtaken by UBO register

At the end of December 2012, the Minister of Security and Justice announced that he would establish a central register for shareholders of private and unlisted public limited companies. Since then, discussions have taken place regarding the register's accessibility and location. They also addressed how to prevent unwanted visibility, for example, by preventing third parties from gaining insight into the family business's structure or by not necessarily disclosing silent investors.

Central shareholder register now 'on hold'‘

A letter dated February 10, 2016, to the House of Representatives from the Minister of Finance, also on behalf of the Ministers of Security and Justice and Economic Affairs, informs the House of Representatives of the decision to postpone the development of the central shareholder register until the UBO register has been further developed. The UBO register records the ultimate beneficial owner (ultimate beneficiary) in companies, which goes further than sec shareholding

Although the UBO register and the central shareholder register both aim to combat fraud, money laundering, and tax evasion, they differ in scope and content. The Ministers argue that simultaneous development of both registers would lead to problems with their feasibility and affordability. Moreover (and this seems to be the real reason), the UBO register is an enforceable European legal obligation and must be established by June 26, 2017.

Differences between the central shareholder register and the UBO register

The central shareholder register reflects what the current offline shareholder register displays: shareholder information. Shareholder information concerns rights to one or more shares in a particular company. Shareholders can be either natural or legal entities. With the central shareholder register, it is irrelevant whether the shareholder has formal or de facto control over the private or unlisted public limited company.

The UBO register describes ultimate control over a company. The register cuts through the layers of companies and reaches the ultimate natural person. More specifically: dThe definition of UBO is laid down in the Third Anti-Money Laundering Directive and, in simple terms, means that the UBO who natural a person who, either behind the scenes or otherwise, 'pulls the strings' of a company or other legal entity and therefore has formal or de facto control ('‘control'’ Indications of control may include a sufficient percentage of ownership, shares, and/or voting rights, as well as the right to dismiss directors. The definition in the Directive will determine who qualifies as a UBO on a case-by-case basis, and this can vary considerably.

What will be included in the register?

The directive allows Member States flexibility in determining what must be included in the UBO register. The Dutch government intends that only the prescribed minimum information be made generally accessible:

• Name
• Birth month
• Year of birth
• Nationality
• State of residence
• Nature and extent of the economic interest held by the ultimate beneficial owner

How does the information get into the register?

Companies and other legal entities are required to provide adequate, accurate, and up-to-date UBO information. UBOs must cooperate in this process. In addition, there is a reporting obligation under the Money Laundering and Terrorism Financing (Prevention) Act (Wwft) for parties such as banks, civil-law notaries, lawyers, and tax advisors.

The Chamber of Commerce, as administrator, decides which UBO information will be included in the register based on the available data. The privacy of UBOs has been addressed, although the safeguards appear to be little more than those currently in place for obtaining information from the Chamber of Commerce: registration and payment.

What now?

Based on the information provided in the letter to Parliament, discussions will be held with stakeholders regarding the further development of these outlines. In addition, online consultations will be held regarding amendments to the applicable laws and regulations. Given that the UBO register must be in place by June 26, 2017, and the resistance generated by the introduction of the central shareholder register, this will be a significant undertaking. Given the recent discussion surrounding the Panama Papers, initial calls for registering and publishing more information are already being heard.  To be continued.