Pinnacle or milestone?

10 October 2018

SANNE's  Anton Seatter and Peter Johnson discuss the practical implications of the EU’s 5AMLD 

Following the recession of the early 1990s, the G7 made a statement that ‘globalisation is creating new challenges in the feld of tax policy’ and, through the OECD, committed to ‘develop measures to counter the distorting effects of harmful tax competition’.

Then, following the terrorist attacks in September 2001, the US gained support for greater global cooperation on tackling terrorist financing, laying the initial framework for intergovernmental information exchange. The next catalyst was another recession, the global financial crisis of 2007–2008. At the London Summit in 2009, G20 leaders declared that ‘the era of banking secrecy is over’, giving the tax transparency agenda a renewed urgency.

Since 2009, the pace of change has been unprecedented, including the arrival of the US Foreign Account Tax Compliance Act in 2010, the OECD’s Common Reporting Standard (CRS) in 2014, the EU’s Fourth Anti-Money Laundering Directive (4AMLD) in 2017 and, by 10 January 2020, the EU’s Fifth Anti-Money Laundering Directive (5AMLD).

As of June 2016, all EU Member States have been required by 4AMLD to hold information about the beneficial ownership of companies incorporated in their territory on a central register. This directive has recently been amended by 5AMLD to require these central registers to be publicly accessible.

With regards to trusts, 5AMLD details that Member States shall ensure that the information on the beneficial ownership of a trust or similar legal arrangement is accessible to:

  1. Competent authorities and financial intelligence units, without any restriction;
  2. Obliged entities, within the framework of customer due diligence;
  3. Any natural or legal person that can demonstrate a legitimate interest; and
  4. Any natural or legal person that fles a written request in relation to a trust or similar legal arrangement that holds or owns a controlling interest in any corporate or other legal entity.

The information accessible to the natural or legal persons referred to in points 3 and 4 shall consist of the name, month and year of birth, country of residence and nationality of the beneficial owner, and the nature and extent of the beneficial interest held.

5AMLD also details that it should be possible for Member States to provide for exemptions to the disclosure through the registers of beneficial ownership information and to access to such information, in exceptional circumstances, where that information would expose the beneficial owner to a disproportionate risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation. However, the application of ‘exceptional circumstances’ may differ between Member States, creating a potential arbitrage position for criminal activities.

The amount of data being collected and shared is vast, and how this is handled is a concern at all levels, from the client right up to regulators and governments. The amount of personal financial information that is shared electronically makes data highly likely to be a target for criminals.

Service providers do not have an option to perform operational due diligence on data security measures adopted by foreign governments and, ultimately, have to rely on checks performed by their own government.

One positive outcome, however, of intergovernmental information sharing is that jurisdictions with robust data protection regimes (e.g. the EU’s General Data Protection Regulation) can require jurisdictions with limited protection to raise their standards, thereby driving up data protection standards globally.

Governments may also seek to implement additional safeguards, as demonstrated when the Swiss Bankers Association successfully lobbied the Swiss Parliament to incorporate provisions into its implementation of the CRS, allowing Switzerland to refuse to exchange information on safety grounds. 

Mishcon de Reya has taken legal steps (on behalf of a client) against the CRS and the beneficial ownership registers to call into question the wider repercussions for fundamental rights and the relationship between individuals and the state. As governments’ ability to handle the tsunami of additional financial data available to them grows, so will their appetite for more detailed and immediate information. It will be interesting to see whether 5AMLD is the pinnacle or just another waypoint on the journey towards total tax transparency.

Contact us:

Should you have any additional questions, please contact Anton Seatter, Director, Private Client or Peter Johnson, Director, Private Client. 

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