Beneficial Ownership Transparency Regimes

This Global Elite Panels focussed on Beneficial Ownership Transparency Regimes around the world, with a focus on the USA, Cayman, Jersey and Switzerland. With thanks to Matthew Sperry, Bhavesh Patel, James Campbell and Patricia Guerra for their excellent conversation.

USA

• The US Corporate Transparency Act was passed by Congress in January 2021, creating new Federal Reporting Requirements for Certain US Formed or Registered Entities. As it is so new, the many questions by clients about how this act may affect their entities, have no clear answers yet. 
• US entities are often used to allow clients to remain private about their ownership of assets. This will almost certainly continue, but now there is a private government maintained register of beneficial ownership,  the purpose of which may be to align with other countries in the world who are concerned about the illicit use of US business entities to conceal illegal activity like money laundering or tax evasion. 
• This only applies to business entities which are created by filing with the Secretary of State or other similar governmental figure, so it would apply to corporations, LLCs, limited partnerships and, notably, foreign entities that register and do business in the US. General exceptions include estate-planning trusts.
• These reporting requirements are not yet effective, and will not be until the Treasury Department issues the final regulations, but in any event they will be effective as of the 1st January 2022. Once they are law, existing entities have two years to report, and new entities will be reported immediately.
• Under this new act, business entities caught under the act will need to disclose information on certain beneficial owners, and to report changes in beneficial ownership. The focus of reporting will be on beneficial owners and applicants, and will include their name, DOB, address and ID number. 
• Beneficial ownership is characterised as anyone who directly or indirectly exercises substantial control over the entity, or owns or controls no less than 25% of the ownership interest. An important exception is that it excludes individuals whose only interest is by right of inheritance, but how this applies to trust beneficiaries we don't yet know. 
• It also applies to applicants, which could be a headache for firms who have a part in forming business entities like LLCs on behalf of their clients.

Cayman

• It was noted that the global clampdown on transparency, of which beneficial ownership registers are a part, have not put people off  using vehicles in these jurisdictions. 
• In Cayman, many of these regulations came into action in 2017 after a commitment made between the UK and Cayman governments to have a privately owned beneficial ownership register. The register itself is only accessible by the Cayman and UK tax authorities, and  its inspection has to come through a relevant request. 
• Similarly to the US, it includes companies and LLCs, but in Cayman it does not fall on partnerships or certain exempted companies, such as listed, licensed or regulated entities, and it does not fall on trusts. 
• The requirements are very similar to the US; the beneficial owner must have at least 25% of ownership, or voting rights, or the ability to appoint the majority of the Board of Directors, or to exert significant influence over the entity itself. 
• The regime includes the imposition of fines put into it last year, which are being implemented for non-compliance and can be up to £25,000 for a first offence, and go up to £100,000.

Jersey

• The reporting of beneficial ownership in companies is not new in Jersey, but has been in force since the 1980s under the COBO regime. The disclosure of beneficial ownership and control does not apply to trusts, however information concerning trusts may be relevant where the trustee is owning or controlling a business entity. It is also a private register in Jersey, just as in Cayman. 
• However, there is a new piece of legislation: The Financial Services Disclosure and Provision of Information Jersey Law came into force in January 2021, which replaced the old regime. 
• The rationale, as many of these changes worldwide have been, was to address Recommendation 24 on International Standards for Combatting Money Laundering and financing of terrorism. 
• Included within the changes is a more specific definition of what constitutes a beneficial owner: 'an individual who ultimately owns or controls the entity, or the individual on whose behalf a transaction is being conducted on by the entity, including an individual who exercises ultimate effective control over the entity.'
• For many structures it's easy to identity the beneficial owner or controller within a structure, but for others it's more complicated. Here, it was suggested that the three-tier test should be employed, starting 'from the bottom up' in the analysis of the structure. Tier 1 looks at those controlling ownership interest, Tier 2 at those exercising control through other means, and Tier 3 at persons exercising control through positions held. 

Switzerland

• Since the global movement towards transparency, Switzerland was forced to change their own legislation. 
• It is crucial, when opening an account or creating a structure in Switzerland, to report appropriately to the bank. Swiss banks have developed several different Forms for all eventualities, and careful analysis of what is applicable  is integral to ensure that clients are compliant. 
• If a company is a domiciliary entity, there will be certain reporting standards. If it has more than 50% ownership falling under a trust, then we have to analyse the form of the trust. What type of trust is it? Who are the beneficiaries? Who are the trustees, the protector, and can they revoke?
• If the company holding the investment account is a company exercising an economic activity, then clients will only need to report the beneficial owners. 
• Switzerland has also restricted bearer shares. There is a period until which the conversion needs to be made by the shareholders, by the end of April 2021. A purchaser of bearer shares in a Swiss joint stock corporation is now obliged to report the acquisition to the respective company within the month. The acquisition of a single bearer share is sufficient to trigger the reporting requirement.
• The most crucial thing to take into account, is that offering incorrect information; whether as a trustee, or, say, as the director of a company, have criminal consequences in Switzerland.