On 31 March 2017, the Belgian Government approved a preliminary draft act aimed at transposing the provisions of the fourth European Anti-Money Laundering Directive, which seeks to strengthen the preventive section of the fight against the use of the financial system for money laundering and terrorist financing. The Directive's most innovative measure is the obligation for Member States to establish a national "register of ultimate beneficial owners". This central register will contain information about companies and other legal entities and the underlying natural persons.
The deadline for Member States to transpose the fourth Anti-Money Laundering Directive into national law is rapidly approaching. The Directive, adopted on 20 May 2015 by the European Parliament and the Council, aims to add to the internal regulations of the Member States a number of new requirements in the preventive field of anti-money laundering practice. The Member States have until 26 June 2017 to bring into force the laws, regulations and administrative provisions necessary to comply with the Directive.
The Directive provides for three major changes to achieve more efficient prevention of money laundering and terrorist financing. First, Member States should identify and assess the risks of money laundering and terrorist financing in the various sectors, in order to be able to take appropriate measures to reduce these risks. Depending on the risk assessment, the preventive measures will then be monitored at the level of the European Commission, by the bodies of the Member States or by the entities responsible for reporting. Second, the Directive aims to introduce stricter customer due diligence measures for suspicious financial transactions with clients from third countries with an increased risk (to the Union's financial system). The third and most controversial amendment is the obligation of the Member States to establish a central register listing information on companies and other legal entities and the underlying natural persons (the "Ultimate Beneficial Owners"), the "UBO register".
Obligations for the obliged entities
Through the introduction of the UBO register, the Member States (and the European Union) will now have an additional tool in the fight against money laundering and terrorist financing. However, it is important to note that the UBO register is only an additional measure and is by no means intended to replace the reporting obligation and/or the customer due diligence of the obliged entities. These two instruments (and the ensuing obligations) remain unchanged and may lead to far-reaching administrative or criminal sanctions if disregarded.
With regard to customer due diligence, the Directive has decreased the number of cases where simplified due diligence is deemed sufficient and has substantially increased the number of situations in which standardised or stricter due diligence is required.
The obligation to report exists as soon as an obliged entity knows, suspects or can reasonably suspect that funds proceed from a criminal activity or are related to terrorist financing, regardless of their amount. The fourth Anti-Money Laundering Directive explicitly adds that the reporting obligation also arises when revenues derive from tax crimes relating to direct taxes and indirect taxes (with a minimum penalty of six months' imprisonment). Therefore, it will be important for an obliged entity to always fulfil its reporting obligation, also in case of suspicion of usage of revenues derived from tax crimes.
In addition to the above obligations, which need to be complied with towards the Financial Intelligence Processing Unit, the other (internal) obligations of the obliged entities continue to exist, including keeping certain documents for a specified period and conducting internal controls.
The UBO register according to the Directive
The fourth Anti-Money Laundering Directive now draws attention to companies and other legal entities: given the lack of transparency regarding the ultimate beneficial owners of corporate-law structures and the associated risks of money laundering and terrorist financing, Member States must henceforth have adequate, accurate and up-to-date information about the ultimate beneficial owners and should supervise all companies, trusts and other legal entities and legal structures.
The question then arises as to who qualifies as an "ultimate beneficial owner". The Directive defines the ultimate beneficial owner as any natural person who ultimately owns or controls the legal entity, through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in that entity. According to the Directive, this condition is met when a natural person has 25% of the shares, voting rights or ownership interest, although Member States may impose a lower percentage. When it is impossible to find the natural persons who are the ultimate owners of or have control over a particular entity, the Directive considers the senior management personnel of that entity to be the ultimate beneficial owners. For trusts and other similar legal structures (e.g. foundations), the settlers, trustees, protector, beneficiaries and any other natural person exercising ultimate control over the trust are considered to be the ultimate beneficial owner.
In other words, the intention is to include, for each legal entity, one or more natural persons as ultimate beneficial owners in the UBO register. Generally, this will be the (direct or indirect) shareholders holding 25% of the entity, but the members of the board of directors or other executives may also be recorded in the register.
Furthermore, the Directive stipulates that the UBO register must state at least the name, month and year of birth, nationality and country of residence of the beneficial owner, as well as the nature and extent of the beneficial interest held.
Finally, the fundamental question is to whom and to what extent access will be given to the information held in the central register. The Directive requires that the information on beneficial ownership is accessible in all cases to the competent authorities and Financial Intelligence Units of the Member States, without any restriction. Moreover, obliged entities (e.g. financial institutions, real estate agents, accountants, notaries, etc.) can consult the register within the framework of their customer due diligence. In addition, the register must be accessible to any person or organisation that can demonstrate a legitimate interest. Member States may provide for exemption to the access of obliged entities and persons with a legitimate interest to all or part of the information on the beneficial ownership, but only in exceptional circumstances.
The Belgian UBO register
On 31 March 2017, the Belgian Government approved a preliminary draft act which provides for a Belgian "Register of Ultimate Beneficial Owners". The preliminary draft was submitted for advice to the Council of State, which is currently examining the various legal questions that still exist (including a potential conflict with the right to privacy). Subsequently, the draft will be submitted to a vote in the Parliament.
It is still not clear exactly how the Belgian UBO register will be regulated: who will have access, how the access will be organised, what legitimate interests can justify access to the register and for what purposes the information can be used. These elements will be elaborated on later in a royal decree. The preliminary draft shows that the register will be managed by a newly appointed department within the General Administration of the Treasury of the Federal Public Service Finance. In this regard, it should be noted that the tax administration will only have access to the register for the purposes for which the register is introduced, namely the prevention of money laundering and the fight against terrorist financing. In the context of an ordinary tax audit, the tax authorities will not be able to consult the UBO register.
In anticipation, we recommend examining, for each legal entity, who will be registered as the ultimate beneficial owner, in order to be prepared when the new act comes into force and the Belgian UBO register is established.