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MEPs vote to name trust beneficiaries in public registries

Thursday, 20 February, 2014

The European Parliament's economics committee and justice committee have today voted to bring trusts fully into the Fourth Money Laundering Directive's transparency requirements.

The draft directive, as originally published by the European Commission last February, included clauses forcing privately owned companies and the trustees of express trusts to maintain records of the identities of their beneficial owners. However, the directive only required this information to be available to 'competent authorities and obliged entities' – i.e. law enforcement officers and persons conducting due diligence. Trust beneficiary information in particular would not have to be disclosed in an open public register – in fact the original draft did not envisage public central registers at all.

The political developments of the past year made it likely that there would be calls for company beneficial ownership to be available in public registries. But the extension of this idea to trusts – with all its privacy implications – has been strongly opposed in common law jurisdictions such as England & Wales where private trusts are widely used for family reasons. UK Prime Minister David Cameron himself opposed the extension of public registries to cover trusts.

However, in the draft directive's journey through the two parliamentary committees, further amendments have been tabled to bring trusts fully into the public registry plan. Today members of the relevant European Parliament committees voted in favour of this extension by an overwhelming margin of 45 votes to one. If this is repeated at a plenary vote in the parliament, and then by the Council of Ministers, the ultimate owners of companies and trusts will have to be listed in public registers in all EU countries.

Green MEP Judith Sargentini, who is rapporteur for the Civil Liberties committee, called the vote 'a big step forward in the fight against tax evasion.' She said all sides of the parliament had 'sent a strong signal to the Council for forthcoming negotiations' on the adoption of public beneficial ownership registers'.

'If we had decided to leave trusts ... out of the scope of this new legislation, then it would immediately have made them a perfect vehicle for criminals wishing to avoid taxation or launder their illegal money into the financial system', she added.

Krisjanis Karins, rapporteur for the Economic and Monetary Affairs committee, said criminals in Europe had for years used the anonymity of offshore companies and accounts to hide their financial dealings. 'Creating an EU-wide register of beneficial ownership will help to lift the veil of secrecy from offshore accounts and greatly aid the fight against money laundering and blatant tax evasion,’ he said.

However, the amendments include various provisions to protect privacy and to ensure that only limited information is published in the register. It will show who is behind a given trust, but would not reveal details of what is in it or what it is for. Persons wishing to access the information online will have to register and identify themselves first.

The rules will apply to banks and financial institutions, and also to auditors, lawyers, accountants, notaries, tax advisors, asset managers, trusts and real estate agents. Member states will be able to exempt some activities and people from the scope of the directive if they consider there is small risk of wrongdoing, due to the limited nature of a financial activity and its low threshold.

The amended directive also covers domestic politically exposed persons (state officials and politicians) as well as foreign (non-EU) PEPs.

The directive will be put to a plenary parliamentary vote in March. After the new parliament is elected in May, negotiations on enacting it will begin with the European Commission and the Council of Ministers.

Sources