Proposals by the UK Government to introduce a register of beneficial ownership have been met with criticism from many quarters, including the Channel Islands, who already have their own systems in place. Dave Waller reports
In October 2013, David Cameron gave a speech highlighting the “need to shine a spotlight on where the money is flowing…”. His subject was an emotive one: who actually owns the UK"s companies. “For too long, a small minority have hidden their business dealings behind a complicated web of shell companies,” the Prime Minister said. “And this cloak of secrecy has fuelled all manner of questionable practice and downright illegality.”
The PM"s proposal? To document control in a public register, meaning that no matter what names a company"s shares were held under, anyone could follow the trail of ownership deeper, beyond what"s known as the beneficial owner (ie the one that"s registered), right to the end of the chain, and thus find out who"s really pulling the strings.
In April 2014, Vince Cable announced that the government intended to move forward with the proposals - a decision that was not universally well received.
“At the moment the UK doesn"t necessarily know who"s in charge of what companies, as there"s no need even for the companies themselves to know this,” says Mark Pattimore, Director at Heritage Group in Guernsey. “Now Cameron is proposing to go from not having that information at all, straight to making it public. The idea is that this would make it easier to root out misuse, providing a deterrent for anyone operating in the UK for criminal activities. That sentiment, at least, has to be applauded.”
One problem for the UK, however, is that not everyone is clapping. From the Channel Islands to the Law Society, the same question is being asked: a register is one thing, but wouldn"t a public database also act as a deterrent to those companies who are perfectly law-abiding and tax-paying but don"t want their affairs open to everyone for legitimate reasons?
But why should a shareholder wish to keep the their affairs away from public scrutiny if it"s all totally legitimate? There"s a range of reasons. A company, perhaps those involved in controversial practices like animal testing, may attract harassment for their beneficial owners if their identities and addresses were revealed. Or it may be more personal.
“Wealthy families often like to be economic with the truth to their own children about the value of their investment portfolio,” says Tony Lane, Senior Associate at Carey Olsen, Guernsey. “They want them to build a life without relying on getting those assets. So some may seek to maintain privacy, as opposed to secrecy, without having anything to hide. That"s an important distinction.”
The UK has written to the Crown Dependencies seeking support for its proposals, urging them to follow suit. Jersey and Guernsey have both questioned whether it would add any benefit to the UK"s ability to do business, with all the added work and costs, not to mention privacy issues it entails. But Jersey made another important point: Channel Island companies already register this information - just not publicly.
As Steve Meiklejohn, a Partner at Ogier in Jersey, explains: “Jersey told David Cameron: "We will consult on the public register. But we don"t need to go that far, as we"re already way ahead of everyone else. And we"re perfectly happy with our methods".”
Indeed, companies registered in the Channel Islands have had to disclose beneficial ownership for years, under tax information exchange agreements and "know your client" practices. The information isn"t publicly available, but the GFSC or JFSC and the police can access it as they need to.
And it goes further. Under the UK proposals a company would only have to reveal their beneficial owners if they hold at least 25 per cent of the business. Meanwhile every company in the Channel Islands, even a corner shop, has to maintain a register of beneficial owners. And the reach is even more extensive. For example, the threshold for reporting in Guernsey is currently a mere 10 per cent share of ownership.
The UK has pressed ahead with the consultation, aiming to have the legislation in place by the middle of 2015, although the exact date may be affected by the general election. But its biggest hurdle probably isn"t the nuances of the timing. It"s the glaring issue of lack of support. If the UK can"t convince other members of the international community as to the value of a public register - and no one at government level around the world has yet backed the idea - it will find itself standing alone in revealing sensitive company information to the public.
“There"s scepticism regarding the idea and how it could be successful,” says Meiklejohn. “First it may infringe privacy rights, and potentially put individuals in danger. And there"s no mechanism under the proposals for ensuring the register is up to date. And while it would affect UK incorporated companies - the only type it could control - it wouldn"t affect UK branches of foreign incorporated companies. So anybody wanting to do business in the UK would simply set up as foreign company and open a UK branch.”
Cost of transparency
As such, this may all turn into an opportunity for the Channel Islands. They"re under no obligation to follow the UK"s lead and abandon privacy, and the administrative cost of gathering ownership information is already built into the their cost model - which means no hidden surprises. “There may be companies that are happy to be tax resident in the UK but don"t wish to disclose their beneficial owners,” says Mark Pattimore. “In which case, they may wish to move residency to the Channel Islands.”
The natural question is whether the Channel Islands would ever open their books to prying eyes too. The answer is, in principle, yes - as long as everyone else was doing the same thing. If public registers became the international standard, then the Channel Islands would have to go along with it. “My view is there will be a public register here at some point,” says Tony Lane. “But we"d need to be convinced there was a benefit and a level playing field. We can"t put ourselves at a disadvantage with prospective clients over privacy. That would be detrimental to business.”
For now, it seems that"s something for the UK alone to worry about. Meanwhile, by not bowing to pressure from the UK Government, the Channel Islands should continue to reap the benefits of its own standards. And along the way they may just chip away at a dangerous subtext that lurks in the language of Cameron"s speech, and much mainstream reporting of the Prime Minister"s ideas.
“There seems to be a "naming and shaming" element to the proposals,” says Meiklejohn. “There"s a sense that it"s almost bad to have assets, and that it"s fair to allege that anyone with wealth isn"t paying their share of tax. But a company is effectively just a different form of asset ownership to a bank account. So does that mean we should all be publishing details of our bank accounts too?”
The public register proposal
Under the Prime Minister"s proposal, all UK corporate entities that currently register information at Companies House would also have to obtain and hold beneficial ownership information and submit it to a publicly accessible database. This would include not only private and public companies limited by shares, but also private companies limited by guarantee and limited liability partnerships.
Only companies that already comply with the ownership disclosure requirements of the Disclosure and Transparency Rules (DTR) and those whose securities are listed on a regulated market are proposed to be exempt.
The register would document details of anyone who owns or controls more than 25 per cent of a company"s shares or voting rights, or who otherwise exercises control over a company or its management. Details would include: the shareholder"s full name, a registered or service address, country of residence, year and month of birth, nationality, the date on which he or she acquired the beneficial interest, and details of that interest and how it"s held.
In terms of access, companies would have a choice: to keep the register themselves, opening up their books to the public if they came knocking; or to give all the information to Companies House, making it available online, which may prove popular as it"s less work.
The company would need to provide their information and update it annually. If a shareholder refused to disclose who actually owns the shares, they"d lose the voting rights pertaining to those shares, and have their dividends withheld.