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Our clients often wonder how much governments know about them and how exactly the ‘Big Brother’ State works: One of the key points here is the UBO register.

We have talked in the past about how transparent we are with States. There are multilateral agreements such as the CRS, and bilateral agreements such as double taxation agreements and other information exchange agreements that allow the tax authorities to know about the money we have deposited outside their borders even automatically, without having to expressly request the information.

The point is that the exchange of financial information has certain limits and traps that can be used to avoid it. Apart from the existence of agreements that allow the tax authorities to know about the money we have in foreign accounts, they have also made an effort to create registers to find out who is behind the companies and, for this purpose, there is the Ultimate Beneficial Owner (UBO) register.

The Ultimate Beneficial Owner (UBO) register is the common term used internationally to refer to a number of local reporting obligations. The purpose of UBO registers is to record information about those individuals who either have executive control over, or own, legal entities.

Thus, for example, the 4th and 5th EU Directives on the prevention of money laundering specifically address the ‘who’ is the beneficial owner of financial transactions (including corporate profits), as well as persons with public liability (PEPs) and bank account holders. The 6th Directive entrenches both directives with very strict criminal provisions.

Tax inspectors frequently uncover ‘shell companies’ during their investigations in cases of bankruptcy fraud, VAT fraud and other practices in breach of existing tax laws. ‘Fictitious addresses’, ‘postcodes’ or ‘registered offices at the home addresses of individuals’, ‘companies whose corporate purpose is unclear’, or those that ‘do not submit their annual accounts’, … are some examples of what governments want to combat and it is, without doubt, what the European Union has been pursuing for several years through its anti-money laundering Directives such as BEPS, its blacklist of non-cooperative countries or the CFC rules.

In today’s article we will present the 3 main Directives established by the European Commission to prevent any form of money laundering and to unmask the persons with real names and surnames who hold the beneficial ownership (UBO). We will also discuss in more depth the transposition of these directives into Belgian law, so that you can get a better idea of how it works based on such an example.

Finally, we will also discuss the beneficial ownership register in the United States, which comes into force in 2024. As we will see, it is quite different from the European one.

The regulatory framework

In its fight against money laundering, the EU lays down the rules at European level by means of the AML (Anti-Money Laundering) or AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) Directives, also known as AMLD (Anti-Money Laundering Directive): AMLD4, AMLD5 and AMLD6 Directives.

However, these directives are implemented at different rates in each country (see this page for information on how they are implemented and where the register is located in each European country). This means that a country can make its own decisions regarding the criteria for its local UBO registry. The requirements therefore vary from country to country, which makes life difficult for international companies that must adapt to where they operate. Moreover, states can determine whether the register is public or closed* (and therefore who may or may not have access to it), as well as the type of information that is recorded there.

*In this regard, it is interesting to note that on 22 November 2022, the Court of Justice ruled against the Luxembourg business register and invalidated the requirement introduced by Directive 2018/843 amending Directive 2015/849. This directive stated that Member States must make the information on beneficial ownership of legal persons contained in the beneficial ownership register accessible to the general public].

In principle, a beneficial owner (UBO) is an individual who:

  • holds at least 25% of the capital of the legal entity, or
  • is entitled to exercise at least 25% of the voting rights at the general meeting of shareholders, or
  • is the beneficiary of at least 25% of the capital of the legal person.

However, as mentioned above, this definition is not always followed in each and every jurisdiction in the same way.

The Beneficial Ownership Register concerns: banks, leasing companies, insurance companies, lawyers, notaries, real estate agents, bureaux de change, investment institutions, accountants, company auditors, diamond dealers, security companies, casinos, etc. For a detailed list of all professional categories involved in the application of the law, please refer to Article 1 of the law.

The information to be collected by the registries and shared with public bodies and persons demonstrating a ‘legitimate interest’ is as follows:

  • name of the beneficiary (or beneficiaries)
  • date of birth (month and year)
  • nationality
  • country of residence
  • nature and size of their financial and/or controlling interest.

It is interesting to know that the UBO for which the information is requested will not be informed when sharing its registry information.

The Fourth Directive – (EU 2015/849) – ‘AMLD4’ – of 20 May 2015

on the prevention of the use of the financial system for the purpose of money laundering or terrorist financing.

This anti-money laundering directive is addressed to credit institutions, financial institutions, and several natural or legal persons (lawyers, real estate agents, certified public accountants, …). It should also apply to activities carried out via the internet.

The directive obliges Member States to keep central registers where adequate, accurate and up-to-date information on beneficial ownership is collected.

[Member States had until 26 June 2017 to transpose the directive into national law].

After the emergence and implementation of the AMLD4 and especially with the political scandals (such as the ‘Panama Papers’ or the ‘Danske Bank’), European legislators wanted to go a few steps further in their anti-money laundering package by introducing a 5th Directive.

The Fifth Directive – (EU 2018/843) – ‘AMLD5’ – of 30 May 2018

introduced new obligations to make public on whose behalf transactions are made.

This Fifth Directive extends the scope of companies and individuals targeted by the Fourth Directive, as well as adding the following measures to the Fourth Directive:

  • The beneficial ownership register (UBO) lists, set under the 4th Directive, (AMLD4) are to be made public (but recall that this was invalidated by the 22 November 2022 ruling of the Court of Justice).
  • Financial institutions must comply with the laws on beneficial ownership and, like companies, must make this information available to the authorities or to those with a legitimate interest.
  • National UBO registers should be shared at European level to facilitate cooperation and exchange of information between Member States’ authorities.
  • Member States should strengthen their UBO verification mechanisms to ensure the accuracy and reliability of the information contained therein.
  • Member States should put the beneficial ownership register of bank accounts in a separate register, as, unlike the beneficial ownership register of companies, there will be no public access except for the authorities.

The Fifth Directive (AMLD5) targets in particular the financing of terrorism and limiting the use of payments in kind. It also focuses on cryptocurrencies, the art business, and certain types of non-accredited service providers (real estate agents, tax specialists, auditors…).

[Member States had until 10 January 2020 to transpose this Directive into national law].

The Sixth Directive – (EU 2018/1673) – of 23 October 2018

on combating money laundering by means of criminal law.

This 6th Anti-Money Laundering Directive deals with sanctions and penalties. It also aims to provide financial institutions and authorities with the necessary means to step up the fight against money laundering and terrorist financing by extending the scope of application, clarifying certain regulatory details, and toughening criminal penalties throughout the European Union.

Some countries, however, did not wish to comply with this Directive, considering that their own national laws provided for such measures and even went beyond them. This was the case in the United Kingdom. Although it is no longer part of the European Union, it is not obliged to comply with EU rules either.

[Member States had until 3 December 2020 to transpose this Directive into their national laws, while regulated entities had until 3 June 2021].

The main measures of these directives are described below:

  1. Who will have access to the registers?

Under the Fifth Directive, the ownership registers of companies were to be made public. As mentioned above, this was invalidated on 22 November 2022, so the registers are no longer public.

One of the most significant changes in the Fifth Directive was that the beneficial ownership (UBO) register of legal entities was to be publicly accessible, and not only to competent authorities and those reporting entities in the framework of the fulfilment of their due diligence obligations, as stipulated in the Fourth Directive, with the exception of trusts. The beneficial ownership (UBO) register for trusts is only accessible to competent authorities and reporting entities in the framework of the execution of their due diligence obligations, as well as to any natural or legal person who can demonstrate a ‘legitimate interest.’

In Cyprus, for example, the beneficial ownership (UBO) register of trusts is accessible without restriction to:

  • Supervisory authorities (Central Bank, CySec, CyBar, ICPAC, etc.);
  • MOKAS (Unit for Combating Money Laundering);
  • Tax authorities;
  • Customs Department, etc;
  • Cypriot Police
  1. Public Access – Demonstrating a Legitimate Interest

Organisations and other institutions will have to claim a ‘legitimate interest’ to gain access to the register. The term in question will be defined according to the parameters set out below. However, the general anti-money laundering laws define ‘legitimate interest’ as the expression of a person’s interest in the suppression of money laundering activities and offences prescribed by the legislation in force.

For the time being, a beneficial ownership (UBO) register of trusts or similar legal arrangements is envisaged, as well as the body responsible for the creation and maintenance of the register, the information on which should generally include the identity of:

  • the settlor,
  • the trustee,
  • the protector (if applicable),
  • the beneficiary (or the category of persons in whose principal interest the legal structure or entity is created or operates, as the case may be); and
  • any other natural person having effective and complete control of the trust.

To the extent that a trust or similar legal structure acquires or holds a controlling interest in a company or other legal entity through direct or indirect ownership, such access shall be granted upon written request.

  1. KYC of legal entities and individuals for financial institutions

From now on, financial institutions will have to verify who is behind each bank account (Know Your Customer). These institutions must ‘know the reputation of their customers’, which also includes any previous criminal liabilities they may have, as well as their involvement in money laundering investigations. To this end, the Fifth Directive provides for the interconnection of Member States’ national registers through the creation of a European platform by 10 March 2021.

  1. Cooperation and harmonisation between Member States

Member States are obliged to implement and introduce the necessary mechanisms to ensure that the information contained in the registers is duly updated and correct. Fines will be imposed in case of non-compliance. One of the proposed mechanisms is a platform where any person or company can report to the competent authorities any discrepancies between the UBOs and the information held by them. This will allow the information contained in the registers to be kept up to date and at the same time further discourage the submission of incorrect data.

For example, Article 10 (3) of the 6th AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism ) Directive states: “where a money laundering offence has been committed in the jurisdiction of more than one Member State, the Member States concerned shall cooperate in deciding which of them shall prosecute the individual or undertaking, with the objective of centralising such prosecution in a single Member State.”

The 6th AML/CFT Directive harmonises the definition of money laundering across the EU to close loopholes in the respective laws of the Member States. It therefore defines the notions of the offence (the Directive provides a harmonised list of 22 predicate offences for money laundering, including tax offences, environmental offences, and computer-related crime). Similarly, it narrows the notion of ‘aiding and abetting’ to make any collaboration with the stipulated offences punishable. The inclusion of computer-related crime as a predicate offence is significant as it is the first time that it has been included as such in a European money laundering directive.

Once the unified list of predicate offences enters into force, Member State companies will have to ensure that their AML/CFT programmes are active, which means that they will have to train or retrain their employees and adapt their AML programmes to ensure that they are able to respond to the requirements of transaction monitoring and filtering.

  1. Penalties

Those obliged to review beneficial ownership registers (UBOs) may incur fines of up to EUR 350,000 for non-compliance.

As explained above, Member States must cooperate with each other and establish their own laws to penalise ‘fraudsters.’ Thus, Article 10 (3) of the 6th AML/CFT states that “where a money laundering offence has been committed in the jurisdiction of more than one Member State; the Member States concerned shall cooperate in deciding which of them shall prosecute the individual or undertaking, with the aim of centralising such prosecution in a single Member State”.

As regards the penalty to be incurred for money laundering offences, natural persons now risk prison sentences of up to four years. That said, many of the Member States already provide in their laws for maximum penalties much higher than that imposed by the 6th Directive.

Prior to the 6th Directive, only individuals could be punished for money laundering acts; however, the 6th Directive (6AMLD) extends criminal liability to allow for the application of penalties to legal persons, such as companies or partnerships. In particular, the new rules of the 6th Directive hold both employees holding a managerial position within the legal person and employees acting in their individual capacity liable for AML/CTF. Sanctions for legal persons may range from temporary disqualification from engaging in commercial activities, or placing them under judicial supervision, to definitive closure (Article 8 of the Directive).

Some examples of transposition of the Directive

If you are interested in knowing how the different UBO Directives have been transposed in Europe, you can have a look at this page.

If you are interested in the case of Spain, you can find information here and on this page you can access the RETIR or Registro de Titularidades Reales.

In France

France has partially transposed the 6th Directive (EU) 2018/1673 (‘AMLD6’) in the following references:

  • articles 324-1, 324-2, 321-1, 321-2, 324-6, 121-4 by 121-7, 121-2, 131-37, 131-38, 131-21, 113-2, 113-6 of the penal code;
  • Article 415 of the Customs Code;
  • article 324-6 of the penal code stipulated by law no. 96-392 of 13 May 1996 on combating drug laundering and trafficking and on international cooperation for the seizure and confiscation of the proceeds of crime;
  • articles 695-9-54 and 695-9-55 of the code of criminal procedure stipulated by law no. 2015-993 of 17/8/2015 entailing the adaptation of criminal procedure to European Union law;
  • articles 695-4, 706-73, 706-80 et seq. of the code of criminal procedure.

Transposition in Belgium

Belgium has transposed the Fifth Directive (EU) EU 2018/843 (‘AMLD5’) by virtue of the law of 20/7/2020 with entry into force on 15/8/2020.

-Draft law: 08/6/2020 (Parliamentary document 55-1324) – Publication MB: 05/8/2020 – Entry into force: 15/08/2020

The extension of the scope of application of taxable persons is:

  1. to providers of exchange services between virtual currencies and legal tender, and of custody wallet services for virtual currencies that are established on Belgian territory.
  2. Art dealers and managers of dedicated warehouses where the transaction is for an amount of EUR 10,000 or more.
  3. Any person offering tax consultancy services as his first activity.
  4. To the high-level professional football sector.
  5. Virtual currencies and custodian wallet services:
  • Virtual currencies: “numerical representations of a value which are not issued or endorsed by a central bank or public authority, and which are neither linked to legal tender nor possess the legal status of currency or money, but which are accepted as a medium of exchange by natural or legal persons and which can be transferred, stored and exchanged by electronic means.”
  • Custodian wallet service providers: “an entity that provides custody services of private cryptographic keys on behalf of its customers for the purpose of holding, storing and transferring virtual currencies.”

Registration with the FSMA (Financial Services and Markets Authority).

  1. Art trading
  • Natural or legal persons buying, selling, or acting as intermediaries in the trade in works of art or movable property more than 50 years old where the sale price of one or a set of such works or property is EUR 10,000 or more.
  • Natural or legal persons owning or managing warehouses, including customs warehouses, or warehouses located in a free port, which specifically offer a storage service for works of art or movable property more than 50 years old and only in relation to such goods and works.

Registration must be made with the SPF Économie, PME, Classes moyennes et Énergie (Federal Public Service for the economy, small and medium-sized enterprises, middle classes and energy) which is the Belgian administration body responsible for competitiveness, sustainability of goods and services market, maintenance of Belgium’s position on the international market, promotion of fair trade and dissemination of economic information.

  1. Tax consultancy
  • Natural or legal persons who undertake to provide, either directly or through the intermediary of other persons with whom they are associated, material help, assistance, or advice in tax matters as their principal economic or professional activity.
  • Those who provide tax services without being subject to external control.

The registration must be made in the list provided for this purpose by the ITAA (Institute for Tax Advisors and Accountants)-> (!) Action for annulment Constitutional Court n. º 7463 (09/11/2020).

  1. Professional football
  • High-level professional football clubs.
  • Sports agents within the football sector.
  • ASBL (Association Sans But Lucratif – non-profit association) Union Royale Belge des Sociétés de Football-Association (Royal Belgian Football Association).

Not required by the Fifth Directive (AMLD5) -> Action for annulment in the Constitutional Court.

  1. Concerning the anonymity of prepaid cards referred to in the Directive:

Reduction of the anonymity of prepaid cards. The threshold for identification of prepaid card holders by issuers of electronic currency is lowered from €250 to €150:

  • The identification/verification obligation will be exempted when:
    • the means of payment is not rechargeable or cannot be used in Belgium other than for the payment of a maximum monthly limit of €150; or
    • the maximum amount stored on the medium does not exceed €150.
  • Exemption not applicable in case of reimbursement in kind/withdrawal in kind for the monetary value of the electronic currency > €50, or in case of remote payment transactions > €50 per transaction.
  • Prepaid cards issued in third countries: same conditions.

Other amendments to Belgian law also include a ban on anonymous safes and greater access to information in the beneficial ownership (UBO) register to improve transparency regarding the ownership of companies, trusts and others.

You can access here the analysis of the reception and impact of the 6th Directive (EU) 2018/1673 (‘AMLD6’) in its transposition into Belgian law (art. 505 of the Criminal Code, para. 1, 2 to 4).

The beneficial ownership register in the United States

As is always the case with such laws, the US Corporate Transparency Act, passed in 2020, was launched as a step in the fight against money laundering and terrorist financing. This law requires corporations and other legal entities to disclose the identity of their beneficial owners (UBOs) to the US Treasury Department.

Under this law, entities must provide FinCEN with the UBO’s information, including name, date of birth, address, and an identifying number —such as a social security number or passport. FinCEN will collect and maintain the information in a secure and confidential registry. Unlike in the European Union, only legal authorities for investigative or enforcement purposes will have access to this register. Public disclosure of information is not allowed, and authorities requesting access must follow a formal process and provide adequate justification for their request.

When we refer to ‘legal authorities’, we mean government bodies or regulatory institutions that have the authority to conduct investigations or enforce compliance with the law. These may include, for example, police, prosecutors, tax, and intelligence agencies. These entities will have the legal ability to request and access UBO information in the United States when necessary for investigations or to ensure compliance with laws. However, they must follow a formal process and adequately justify their request, thus ensuring the protection of the UBO’s personal information and privacy.

Banks and financial institutions will also have access to beneficial ownership information (UBOs) under certain conditions, so that they can comply with their due diligence and anti-money laundering obligations. To request the information, they must follow a formal process and demonstrate that it is necessary for them to have such information to comply with applicable laws. Improper use of information received by financial institutions may result in legal sanctions. This access to UBO information is specifically designed to assist in preventing the unlawful use of corporate entities.

Finally, foreign authorities may also have access to the information in the UBO register, but this will be subject to international agreements and the legislation of each country. It is important to note that access to UBO information is not automatically granted to foreign authorities. Like local entities, they must follow a formal process and provide adequate justification for their request.

Concluding

As can be seen, the US registry is somewhat different from the European registry: It is less transparent and only allows automatic access to information to certain national entities. Access to information by foreign entities is much more limited.

If we focus on the European case, we see that the transposition of the European Commission Directives entails numerous aspects concerning the prevention and definition of fraud, as well as articles of the criminal code for sanctions (ranging from seizure of the assets involved to imprisonment).

Not all European countries are equally compliant with the rules laid down in the EU Directives, nor are they able to meet the deadlines imposed for transposition into national law. The aim is to ensure effective international cooperation (with the involvement of the European legal service Eurojust).

In summary, the European beneficial ownership register is a database containing personal information on the real owners of companies, foundations and other legal entities.

The information in the beneficial ownership register mainly concerns the natural persons who directly or indirectly own or control a legal entity. This may include shareholders, ultimate beneficial owners, and holders of voting rights. It also includes individuals who have a significant level of control over the entity, such as senior managers and executives.

Competent authorities, such as tax authorities, police, and other supervisory authorities, have full access to this register. In addition, in many cases, financial institutions may also have access to the information to fulfil their due diligence obligations. In some countries, the public may have access to certain registry information if they can claim a reason to do so, although the information in this case will be limited to protect the privacy of individuals.

What we must be clear about is that the beneficial ownership register applies throughout Europe and in some other countries, so it is very difficult to maintain absolute anonymity.

Be that as it may, Denationalize.me wants to help you identify those options that still exist, if you want us to help you create a plan to help you apply the Flag Theory and safeguard your personal information, you can book a Denationalize.me consultation.

Because your life is yours!

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