From the editor - Nicholas Dale introduces the Swiss focus issue

Saturday, 01 October 2011
An introduction to the Swiss focus issue and a discussion on the meaning of beneficial ownership.

If you were to type in the words ‘beneficial ownership’ in one of the commonly used internet search engines, you would be confronted with millions of results. Definitions, commentaries, interpretations and articles on the subject abound. In the world inhabited by the reader of the STEP Journal, identifying the beneficial owner of a ‘legal arrangement’ and securing a suitably formal document confirming that person’s identity are often causes for celebration. In the normal course of business, I like to think that we know what ‘beneficial ownership’ does and does not mean.

That said, ascertaining beneficial ownership is not always a simple task. Compare the example of a bank account held in the name of an individual for their own account with the more complex example of trustees of a trust with the spouse of the settlor having a life interest and a whole series of offspring being discretionary beneficiaries. While the answers to the first example would be clear, the second example would probably elicit different answers.

Although the reasons to ‘know your customer’ are obvious, whether you are a practitioner or a regulator, there are clearly different interpretations of the term ‘beneficial owner’ and there are differing views on what to do with that information once the person has been identified. In the Financial Action Task Force (FATF) search for a definition, for example, ‘any other natural person exercising ultimate effective control over the trust’ would also be caught.

The preoccupation of FATF with beneficial ownership is understandably key, and this is once again demonstrated in one of its latest consultation papers, entitled The Review of the Standards – Preparation for the 4th Round of Mutual Evaluation – Second public consultation, published in June 2011. This paper states that FATF is not proposing to change its recommendations on beneficial ownership, but rather to clarify ‘the types of measures which could be used to ensure beneficial ownership information is available’.

Legal arrangements listing beneficial owners and assets do not have a place in Switzerland

One of its proposals with this in mind is to look at ‘the balance of responsibilities between countries which are the source of law for legal arrangements and those which are not’. If this is adopted, it looks as if the regulatory responsibility for trusts, foundations, fiducie and other ‘legal arrangements’ would be transferred to the jurisdiction according to the law of which the legal arrangement has been written, rather than the jurisdiction where management is conducted.

A number of the vehicles subject to the consultation, e.g. the trust, are not embedded in the Swiss legal system and one effect could be that such vehicles, currently managed in Switzerland, could come under the regulatory umbrella of the jurisdiction under the laws of which they are written; whether this would achieve one of the FATF standards requiring ‘transparency about legal persons and legal arrangements’ and making that information available is a moot point. One effect could be a significant loss of business for the Swiss wealth planning industry. No doubt there will be many voices giving some strong views on these proposals.

On the broader front, and as widely publicised in the world press, Switzerland has concluded two groundbreaking agreements with Germany and the UK which, if approved by the respective governments, are likely to enter into force at the beginning of 2013. These agreements will enable German and UK taxpayers with Swiss bank accounts to maintain confidentiality, with respect to those accounts, in exchange for a one-off payment to meet any past tax liabilities and an automatic withholding of tax in the future.

While Swiss banks are currently digesting the significance of these two agreements, Swiss officials have said that Bern has commenced informal talks with other countries over bilateral tax deals along the lines of the agreements just concluded. It remains to be seen whether these agreements create a template that can be replicated.

In this issue, Jason Lofts provides an interesting and useful analysis of the ‘beneficial owner’ discussion and reviews recent Swiss cases. Scott Devine reports on the STEP member survey about the future of the Swiss trust industry and Philippe de Salis’ article stresses the importance of Switzerland’s ratification of the Hague Trust Convention. He explains the role of the Swiss Association of Trust Companies and discusses regulation. Julien Dif and Zeinab Diallo review the STEP Suisse Romande Geneva Conference and Stuart Clements muses over a year of amalgamation for STEP Zug. And this edition is a commemorative one: we celebrate the winners of this year’s Private Client Awards in a special report from the sixth annual event.

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Nicholas Dale

Nicholas Dale TEP is Senior Wealth Advisor at HSBC Private Bank (Suisse) SA, Zurich.

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