No one seems to We're happy about it, but it's coming anyway: the UBO register. This list of directors originated in Brussels and is intended to reduce the risk of financial and economic crimes in all EU member states and increase public transparency by providing insight into who is pulling the strings at legal entities. Directors of foundations, associations, and religious communities also need to be held accountable. We spoke with UBO specialists Onno Cusell and Dennis Evertsz about the consequences of vague and opportunistic legislation that will affect all foundation directors.

At the end of last year the lawyers held Onno Cusell (Wintertaling) and Dennis Evertsz (Evertsz Law & Litigation) gave a well-attended presentation on the upcoming UBO register. Both gentlemen had already been studying this issue for some time and hesitate to call themselves "specialists," but they also recognize that knowledge of the new legislation is far from widespread. Onno Cusell: "A lot of people will be affected by this: every lawyer, notary, and even director will need to know something about it. The fact that this isn't the case now is partly due to the fact that so much is still incredibly unclear." That last point is an understatement, as will become clear in the interview.

Bill at the Senate

UBO stands for "ultimate beneficial owner." The EU has decided that each member state must establish a single central register for these UBOs. The new law was supposed to take effect on January 10, but the Netherlands missed that deadline by a long shot, and the EU has therefore formally declared it in default. The amended bill is currently before the Senate and is not expected to take effect until next summer at the earliest. The coronavirus crisis has also made that scenario uncertain. Insiders assume that the Senate, which currently has numerous questions pending with the Council of State and other parties, will ultimately approve a Dutch UBO register, which will be part of the Chamber of Commerce's Trade Register. Some of the data in the register will be made public.

What problem is the UBO register actually supposed to solve?

Onno Cusell: "The main purpose of the UBO register is to combat financial and economic crime. This includes money laundering, corruption, tax evasion, fraud, and terrorist financing. The UBO register must provide transparency into who is in charge of legal entities incorporated in the Netherlands. This includes not only directors of private limited companies (BVs) and unlisted public limited companies (NVs), but also directors of foundations and associations. Because some of the information in the register is public, individuals and organizations can make better-informed decisions about whom they wish to do business with. In this sense, it must serve as a deterrent to the misuse of an entity to the detriment of those with whom it does business."‘

The big question is: will the new legislation achieve that main goal?

Dennis Evertsz: "That's impossible to say at this stage. Too much is still unclear. But it's clear that there are already serious doubts about its feasibility. The Tax and Customs Administration commissioned an effectiveness assessment and has reached the following final conclusion: 'The proposal is feasible, but enforcement is expected to be limited.' Enforcement requires 20 FTEs on an ad hoc basis for 5 to 6 years, and 6 FTEs on a structural basis."‘

That sounds like very few civil servants on…how many UBOs?

 

 

 

 

 

 

 

 

Onno Cusell (right in the photo): "There are approximately one and a half million Dutch legal entities that are required to register. But how many UBOs are behind them? Given the broad definition, a single entity could have as many as ten UBOs."‘

Dennis Evertsz: "The Chamber of Commerce will register the UBO data, but it won't verify it. That verification task falls to the government, the Bureau for Economic Enforcement. A massive contamination of the UBO register is not inconceivable."‘

Let's return to the directors of foundations, such as charities and endowment funds, but also religious groups. Who qualifies as a UBO?

Dennis Evertsz: "For a foundation or association, you qualify as a UBO if you meet at least one of the following three criteria: a direct or indirect ownership interest of more than 25%; the ability to directly or indirectly cast more than 25% of votes in decisions on amendments to the articles of association; and the ability to exercise de facto control over the foundation or association. The latter, in particular, is formulated so broadly and offers little practical support."‘

In a two-tier model, will foundation supervisory board members, in addition to directors, also fall under this UBO regime?

Onno Cusell: "That's already a twilight zone. It depends, for example, on the structure of the articles of association, regulations, (voting) agreements, and contracts, and whether the supervisors can be qualified as senior management. That's a factual test. UBO entities will, in any case, be contacted by the Chamber of Commerce (KvK) to report the UBO. This does not alter the fact that the directors themselves also have the obligation to report the UBO. And for WWFT institutions, such as banks, notaries, and lawyers, there is a reporting obligation. All these obligations are sanctioned. My advice would be to register everyone in case of doubt (unless there are serious objections to this for privacy reasons), given the sanctions policy that will be applied. The responsibility lies with the board, and there is a duty to cooperate for the other UBOs."‘

And those sanctions are not mild to begin with.

Dennis Evertsz: "If a UBO registration is not completed, is incorrect, or is incomplete, the directors of the entity registered in the trade register and/or the UBO entity itself may be subject to a penalty payment order or an administrative fine, up to a maximum of five million euros. This fine is doubled in the event of recidivism. In addition to these administrative sanctions, a criminal sanction may also be imposed, namely imprisonment (up to two years), community service, or a fine (up to €20,750).‘

Two amendments to the bill were adopted by the House of Representatives, partly in response to strong criticism from organizations such as the Collaborative Philanthropy Sector Organizations. A director of a charitable fund is not an "owner." Thanks to the Bruins motion (Christian Union), the UBO register now clearly indicates when a director is designated as an ANBI (and therefore not an "owner"). Furthermore, the adopted Stoffers motion (SGP) monitors the privacy implications of the UBO register for ANBI directors. This all sounds reassuring, but is it so in practice? And why, with these exceptions, is a UBO registration necessary?

Onno Cusell: "It's obvious that the Netherlands must be compliant within the EU. And of course, it's not entirely nonsense. This register will undoubtedly have a preventative effect. And let's be honest: it's easier to abuse a legal entity now than after the register comes into effect. But the risks probably don't lie with ANBIs, which already have to meet many requirements. It's more with 'regular' foundations. While you do need a notary for incorporation, there are essentially no checks afterward. Yet, it seems the Dutch government hasn't fully grasped the implications of this law. It simply hasn't been given enough thought."‘

Dennis Evertsz: "While it's European legislation, there's certainly a way to implement it at the national level. The Dutch ANBI isn't unique in Europe: there are certainly similar entities in other Member States. For example, Portugal has made an exception to the registration requirement for institutions that serve the public interest."‘

Onno Cusell: "The SBF's criticism is entirely justified, but I'm curious to see if they'll make themselves heard. They could cite the Portugal example to take further action. I wouldn't be reassured by the two amendments, in any case."‘

Back to the register. What information is and isn't made public about foundation board members?

Onno Cusell: "The public section of the UBO register is searchable by company or legal entity name. Searching by UBO name is therefore not possible. Retrieving data from the register is a fee (as is currently the case for consulting Chamber of Commerce data), and this includes first and last name; month and year of birth; nationality; country of residence; and—always public—the nature and extent of the UBO's economic interest. Amounts of money are not recorded in the trade register. However, under certain conditions, it is possible to request privacy protection for certain data."‘

Dennis Evertsz: 'Not public, and only accessible to the competent authorities and the Financial Intelligence Unit: his Citizen Service Number (BSN)/foreign tax identification number (TIN); date of birth; country of birth; residential address; copy of a valid identity document and copy of document(s) demonstrating the nature and extent of his economic interest.'‘

What do you think of the trade-off the Dutch government has made for the UBO register between the public interest and individual privacy?

Onno Cusell: "There are groups arguing that the UBO register violates the European Convention on Human Rights (ECHR) and therefore its own European regulations. The Dutch government is getting away with this by arguing that it is ultimately up to the courts to determine whether individual rights are being violated."’

But wait a minute: surely the government has asked its watchdog, the Dutch Data Protection Authority, for an assessment?

Dennis Evertsz: "Yes, absolutely. I'll now show you the two-sentence answer that AP chairman Aleid Wolfsen sent to Wopke Hoekstra of Finance in November 2018: 'The draft bill gives AP no grounds for comment.'‘

That's it?

Dennis Evertsz: 'I can't make more of it.'‘

That means that…

Onno Cusell: 'The government is hiding behind this now that it has formally ticked this box.'‘

Dennis Evertsz: "It's hard to understand why, in such a privacy-sensitive bill, the Dutch Data Protection Authority didn't find it necessary to ask further questions. When it comes to people's privacy, you should at least properly weigh the purpose of processing personal data against the infringement of privacy. It's about assessing the proportionality and subsidiarity of the measure. That's currently lacking."‘

The government could also achieve its intended objectives with a register that shields some of the data to protect personal privacy.

Onno Cusell: "I would definitely advocate for that. In fact, two-thirds of the European member states have decided to do so. I presume it's for privacy reasons. The Dutch government hasn't chosen to do that."‘

Because?

Dennis Evertsz: "Brace yourself. The main reason is to reduce the administrative burden. These are practical considerations: with a 'closed register,' the Dutch government finds it too much hassle to have a civil servant assess the legitimacy of every access."‘

Onno Cusell: 'It seems the government has taken things too easy.'‘

And who will benefit most from this UBO legislation? Let me guess: notaries, lawyers...

Onno Cusell: "You can hardly blame us, but I do expect that we will be approached regularly with questions about the UBO register."‘