The UK Government considers that a public register of company beneficial ownership would:
- help tackle tax evasion, money laundering and terrorist financing;
- improve the investment climate and make doing business easier;
- ensure that businesses, investors, employees and consumers have trust in UK companies; and
- be good for both business and growth. The UK does not currently hold a central register of beneficial ownership.
The UK Government has encouraged Jersey, along with others, to join the UK in implementing a public register of beneficial ownership.
Jersey Finance does not consider that a public register of beneficial ownership would achieve the intended aims set out above but instead will damage jobs and growth in the UK.
We have set out our thoughts in this document.
Implementing a public register of beneficial ownership which is based on the premise of self-reporting, such as the UK are putting in place, is likely to be ineffective.
People misusing companies for the purposes of engaging in criminal activity are unlikely to comply with the requirements on a self-reporting basis.
Criminals can be expected to conceal their interests.
As such we consider it questionable as to whether a central register whose information is provided through self-reporting will meet the requirements of FATF Recommendation 24, which requires competent authorities to be able to obtain adequate, accurate and current information on the beneficial ownership of legal persons created in the country.
Impact on private companies
Proponents of public registries suggest that they make it easier for people to identify who really owns companies and therefore who they are transacting with.
However, this register is not just being put in place for trading companies, but also companies such as private investment holding companies legitimately incorporated to hold investments on a personal basis with no wider business engagement. Therefore, the argument of ‘who one is trading with’ is of less relevance.
First move disadvantage
The UK are committed to moving to a public register of beneficial ownership.
To date, there are only two other countries who have committed to public registers.
This reduces the incentive for other jurisdictions to reciprocate as they would already be in receipt of the benefit, i.e. the information, but without incurring the cost element in terms of collecting and sharing their own beneficial ownership information.
Measures such as a publicly available register of beneficial ownership information should only be adopted on a coordinated widely applied multilateral basis.
There are also practical reasons meaning that the success of the model would be restricted should it not be adopted at a global level. The purpose of a public register of beneficial ownership is to be able to trace ownership of companies to natural persons. However corporate structures frequently involve groups comprising parent, subsidiary and affiliated entities in multiple jurisdictions, and so unless each of these jurisdictions had a public register in place, finding out who the beneficial owners are would not be possible.
Unintended criminal consequences
One of the main objectives cited in support of increased transparency of company ownership is to reduce crime in terms of tax evasion, money laundering and terrorist financing.
However, there is a risk that the introduction of public registers will actually increase instances of crimes such as identity theft, cyber-crime and extortion. With public registers making personal, and, by extension, family information readily available legitimate concerns exist, particularly in certain cultures, in relation to physical safety with kidnap and ransom risks being heightened.
Therefore, not only may public registers prove ineffective in tackling the crimes they supposedly target, but they could give rise to different types of criminal activity.
Human rights impact
Article 8 of the UK’s Human Rights Act 1998 is as follows ‘Everyone has the right to respect for his private and family life, his home and his correspondence.’
Public registers could be argued to be an unnecessary and disproportionate intrusion of an individual’s right to privacy.
There are alternative ways by which the same ends can be met (see section 8) but without the violation of human rights.
Automatic exchange of information (AEOI)
There is a global trend towards AEOI, which provides the tools that jurisdictions need in order to tackle tax evasion.
The automatic receipt of tax payer information by relevant authorities in a person’s home jurisdiction enables that authority to take appropriate action to ensure any tax they are due is able to be collected.
Given this AEOI via gateways such as US/ UK FATCA, The Organisation for Economic Cooperation and Development (OECD) Multilateral Convention on Mutual Tax Assistance and the OECD’s Common Reporting Standard (CRS), no additional benefit would be obtained from a public register of beneficial ownership information. This has seemingly been supported by the recent announcement that, rather than each of them introducing public registers of company beneficial ownership, the competent authorities of UK, France, Germany, Italy and Spain will instead automatically share beneficial ownership information.
Reduced transparency and UK company fees
As noted above, the UK register only covers UK incorporated companies. This presents two risks:
- Criminals who had been availing themselves of UK incorporated companies may simply lie in their declaration of the company’s beneficial owner, or they may seek to undertake their activities through a non-UK company. This will result in UK law enforcement authorities having less visibility than they did under the old regime.
- Legitimate business persons who simply value their privacy may undertake activity through a non-UK incorporated company. This should not impact on the trade itself or the tax liability of the company, but it will decrease the number of UK incorporated companies, and therefore fee income for Companies House.
Together, these will serve to (counterintuitively) reduce the transparency of activities being undertaken in the UK and negatively impact fee revenue generated from UK incorporated companies.