Issue link: https://maltatoday.uberflip.com/i/981272
BUSINESS | SUNDAY • 13 MAY 2018 maltatoday B4 One of the most challenging tasks for due diligence teams on the lookout for connections to money laundering, bribery and corruption is to uncover the identities of ultimate ben- eficial owners of entities, prop- erties and third-party busi- ness partners. Can Ultimate Beneficial Ownership (UBO) registers help prevent financial crime? By way of introduction the new regulations impose an ob- ligation on all existing compa- nies registered within Malta to ensure that up to date informa- tion on the beneficial owners is held at the company's regis- tered office. Such information includes details such as the name, date of birth, country of residence and extent of benefi- cial interest (being 25% of the voting rights) held by each ben- eficial owner of the company. The regulations also impose a mandatory filing of such infor- mation to the Malta Financial Services Authority ("MFSA") on an annual basis. Further- more, in the case of compa- nies that wish to register any form of change in shareholding which occurs through either a transfer, increase or reduc- tion of shares, transmission, restricting of share capital or changes of voting rights it is now a requirement to submit a form confirming whether such change in shareholding will result in the change in the ul- timate beneficial ownership of the company. The creation of beneficial ownership registers in the Eu- ropean Union member states provides further transparency to the finance sector by ensur- ing that the true owners of cor- porate entities are adequately identified and reported to the authorities, thus making it far more difficult to use corporate entities to engage in financial crime such as money launder- ing and corruption. Such information provided by companies shall be easily ac- cessible to national competent authorities and financial intel- ligence analysis units. The new regulations shall thus facilitate the work of such authorities in investigations of illicit activities and provide an adequate tool for ongoing monitoring. Such an initiative shall save an inval- uable amount of time for both authorities and companies in the gathering of the required information on beneficial own- ership. In addition, the regulations also provide that such informa- tion may be exchanged with the national competent author- ities and financial intelligence analysis units of other states. This is also coupled with the fact that there shall be an inter- connection of the registers of each European Union and EEA member state by means of the European Central Platform and the European e-Justice portal. Such a system shall undoubted- ly facilitate the sharing of infor- mation between member states in cross-border investigations. How will these UBO registers affect customer onboarding at financial institutions? It must be noted that cus- tomer onboarding processes already require financial insti- tutions to identify the respec- tive beneficial owners. Such a task may often prove to be a long process particularly when the entity's beneficial owner- ship is spread over many layers. By having information on ben- eficial ownership freely avail- able to financial institutions, the legislator has provided an invaluable mechanism which shall result in a faster and more adequate due diligence process as the required information shall be readily available. The UBO register should make it easier for such institutions to immediately identify the entity that they shall be conducting business with. Such a factor will result in a reduced level of risk and make it easier for businesses to work with new clients. However, it should be noted that the new regulations spe- cifically state that financial institutions and other entities that are required to perform due diligence on new custom- ers, must not solely rely on the UBO register to fulfil custom- er due diligence obligations. Thus, the UBO registers are not meant to bypass customer onboarding procedures but aim to strengthen them by pro- viding a faster access to such information. The 2016 leak of 11.5 million files from the database of Pan- ama-based law firm Mossack Fonseca highlighted the chal- lenges due-diligence teams face. More than a year later, the fallout of the Panama Papers continues, strengthening the push towards greater transpar- ency. Is a UBO register enough to improve EU transparency of company ownership? In reality the need for in- creased transparency of cor- porate entities has been felt since the start of the current decade with Swissleaks, set- ting the ball rolling for a num- ber of key transparency initia- tives across the globe. This has been coupled with increased awareness on the circulation of funds received through ter- rorist financing throughout the world economy. It is fair to say that we are now moving towards a far more transparent global financial system and this is a trend which will continue in the coming years. Through holistic mechanisms and in- creased global co-operation, the new laws shall ensure that there will be no place to hide il- licit gains. The UBO Registry was first introduced in the fourth anti -money laundering directive which was drafted by legisla- tors in 2014. However, follow- ing the colossal uproar gener- ated by the Panama Papers, it was universally agreed that further transparency initiatives are required in order to restore confidence in the global finan- cial system. This thus resulted in amendments being proposed to the registry's access, well be- fore the UBO registry was even introduced in the majority of member states. The fifth anti-money launder- ing directive which is currently in the pipeline extends the ac- cessibility of the UBO register. Originally, the fourth directive stipulated that information on beneficial ownership is to be made available to competent authorities, financial intelli- gence analysis units and per- sons who demonstrate a "legit- imate interest." The proposed new directive has gone one step further and aims to have a sys- tem by which all European Un- ion citizens shall have access to information on beneficial own- ers without the need to dem- onstrate a legitimate interest in such information. Thus, what is being proposed by European Union legislators is an unprec- edented open pan-European registry which shall be accessi- ble by all European citizens. The initiatives taken by the European Union in the context of anti-money laundering and terrorist financing go hand in hand with the measures taken in the field of international taxation. Consequential to the international investigations conducted on Credit Suisse in relation to high levels of tax evasion, several initiatives seek- ing to promote the automatic sharing of taxable information between states were initiated. The United States Foreign Tax and Compliance Act (FATCA) provided for the automatic sharing of taxable information on US Citizens. Following this, the Organisation for Economic Cooperation and Development proposed an international au- tomatic information exchange model which later became known as the Common Re- porting Standard (CRS) and created a system of automatic exchange of information on taxable persons between more than ninety-eight states. In pursuance of their obligations under such legislation, further due diligence procedures are being imposed on companies. This has undoubtedly in- creased the level of company transparency. The recent an- ti-money laundering and tax evasion measures have also targeted the use of nominee shareholders. Such mecha- nisms conceal the ownership of company shares as the actual owner of the share enters into an agreement with a third party to hold such controlling inter- est on his behalf. Due diligence procedures are thus required to be performed on such nominee shareholders under both anti- money laundering legislation and CRS compliance. Another method in which beneficial ownership was pre- viously concealed was through the use of bearer shares. These types of shares are not regis- tered and are solely evidenced by the physical ownership of the share certificate as op- posed to publicly registered details. Thus, they are easily transferable between parties as the physical document is the sole means of evidence. The issuance of bearer shares is not permissible under Maltese law. However, for a number of years such shares could be is- sued by publicly traded com- panies. Recent amendments to the Malta Companies Act have completely prohibited the is- suance of bearer shares in Mal- Following publication of the Companies Act (Register of Beneficial Owners) Regulations on the 20 December 2017, Maltese companies are now required to identify and maintain a register of their ultimate beneficial owners as well as to provide information on their beneficial owners to the Malta Registry of Companies which will be keeping its own beneficial owners register. MaltaToday spoke to Luke Mizzi, Junior Associate at Mamo TCV for his take on how the register will curb abuse Fighting fraud and terrorism through ultimate benecial owners registers