Ultimate Beneficial Owner legislation at a glance – The EU and the US – both taking steps, but are they in the right direction?

It is now one month to go before the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) publishes regulations regarding mandatory beneficial ownership reporting requirements as required by the Corporate Transparency Act. Let’s look at how this compares with the EU’s experience with UBO registers and whether there are any lessons to be learned.

The EU approach in brief:

  • The EU member states were the first globally to take action to reveal beneficial ownership status
  • The Fourth EU Anti-Money Laundering Directive (4AMLD) in 2015 required all member states to set up their own UBO registers
  • Then in 2018, 5AMLD took this one step further and granted local and international bodies the authority to investigate financial crime and money laundering
  • 5AMLD also meant that member states were now required to make their UBO registers accessible to members of the public.

All very sound in principle, however, now a year post implementation, it’s time for a reality check.

Challenges faced by the EU:

  • Two or even three-speed adoption.  Some member states were quick out of the blocks but some missed the January 2020 deadline to introduce a public register altogether. Was Covid responsible for a more lenient approach? 
  • The EU directive offers guidance on “what” should be reported and “who” it should be reported on. The lack of consistency in “how” nations are approaching tracking, reporting and communicating is leading to cross-border differences.
  • Ownership is self-declared and there is little, if any, quality assurance. The Financial Times wryly observed that “One notable company officer in the UK, now resigned, is called Jesus, Holy Christ. He gave his residence as Heaven, nationality as Angelic and occupation as creator.”
  • The completion rate of these registers is, anecdotally, underwhelming, with figures of 25% being bandied about. Perhaps local sanctions are not strong enough? If you compare Spain with Luxembourg, for example, infringement in Spain would result in a €6,000 fine, while in Luxembourg, a breach of regulation could result in fines up to €1.25million.
  • The outputs are often not very user friendly, to the extent it almost looks like lip service, rather than a public service.
  • What about cross border holdings?
  • How many levels of ownership do I have to go to to reach the ultimate owner? And is this beyond the scope of this requirement?

Is it any great surprise that there are shortcomings? The registries themselves have neither the skills, the resources, the technology nor perhaps, the inclination to get this right. Isn’t that why commercial organisations have invested many millions of dollars over many years to shine a light on ownership?

Will the US fare any better? It won’t be easy to assess unless one has a legitimate interest to access the data (they will not be made public). My fear is that getting this right will be a far more challenging undertaking than lawmakers might have imagined.

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