This initiative has cross-party support. It follows steps taken in the UK in 2016 and 2017 which in large part has resulted in a requirement that the beneficial ownership of companies incorporated in the UK be registered and made publicly available.
The EU and the Financial Action Task Force have also moved towards a position where a publicly accessible corporate registry of the beneficial ownership of the shares in companies has become the international standard. Such is the support for these initiatives that the Chief Ministers of Jersey, Guernsey and the Isle of Man jointly announced that they were moving towards a system which would meet the requirements of the EU’s Fifth Money Laundering Directive as regards availability of shareholder information to the public. The Crown Dependencies aim to be compliant by 2022.
At a political level there appears to be broad agreement that such registries are the way forward and in the best interests of society. But is that right?
There are very significant faults in the UK system. It is true that it is a crime to lie to the companies registry as to whom the beneficial owner of a company is and this is certainly a good thing. However, the problem is that nobody checks whether the information is true or false and this is a fundamental flaw. In the absence of a comprehensive verification procedures the system is wholly fallible. Does anyone really think a criminal is likely to give true information?
The risk is that such a system further encourages criminals to hide their property behind layers of nominees and straw men, increasing the likelihood of even more complex schemes being put in place to disguise true ownership.
To take an example, in the bad old days expensive London properties were held in the names of offshore companies. The shares of the companies would be bearer shares, meaning that there was no name on the share certificate. It was effectively a form of cash. The ownership of the company could be transferred by handing it from one person to another, with the certificate locked in a Swiss lawyer’s safe in Geneva. There it stayed and nobody but the lawyer knew who the owner was.
Thankfully, bearer shares are now largely prohibited, though they still exist in some jurisdictions including Switzerland, and trust and corporate service providers are subject to regulation in the offshore centres (Jersey, Guernsey and the Isle of Man). This includes site visits where their records of beneficial ownership are checked. Beneficial ownership must be disclosed to the registry and it is a crime to lie about this. That information though remains private in the absence of a request from law enforcement authorities or a court order, with court orders made for disclosure where there is evidence of wrongdoing and disclosure is necessary to remedy a legal wrong. To add to this robust system, if a trust and corporate service provider does not keep proper records it runs the risk of losing its license to do business or of individuals being banned from the industry.
The reality is that many of the International Finance Centres have registries which are much more advanced than that of the UK or many European countries. This is clear to anyone who has tried to find out the beneficial ownership of companies incorporated in some of our continental neighbours. If society wishes to move to a position where everybody knows everything about each other’s business, then so be it, but this is likely to be followed by levels of transparency which most individuals would not be comfortable with. Try asking another person about their salary.
In the modern age there are many checks carried out on the beneficial ownership of companies and lawyers and accountants in particular have a heavy responsibility on such matters. Indeed, such professionals are now expected to know all about a business transaction, including the beneficial ownership of companies.
We need to avoid the law of unintended consequences. Will public registries really reveal the ownership of companies and therefore property held by criminals? Will it not instead mean those criminals hide further behind disreputable nominees? The easy wins for asset recovery lawyers where a true beneficial owner was revealed by careful application for a court order may be coming to a close.
By Stephen Baker is a senior partner at leading offshore litigation and disputes law firm Baker & Partners