Out-Law Analysis | 31 Jan 2020 | 10:38 am | 2 min. read
The crown dependencies – Jersey, Guernsey and the Isle of Man - and six of the overseas territories - Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar and Turks & Caicos Islands - agreed with the UK in May 2016 to create publically available registers of beneficial ownership before the end of 2020. Until that time, the exchange of notes protocol will enable the sharing of beneficial ownership information on request.
Exchange of notes is clearly specifically designed to further erode the opacity surrounding the beneficial ownership of "corporate and legal entities" incorporated within the CDOTs. The agreement coincided with the furore caused by the 'Panama Papers' offshore data leak and the 2016 UK anti-corruption summit. More than 70% of records in the subsequent 'Paradise Papers' leak of November 2017 belonged to entities incorporated in the CDOTs, indicating the persistence of the issue.
Practically speaking, the protocol allows HM Revenue and Customs (HMRC) in respect of either its tax collection or its criminal justice functions, and UK law enforcement agencies such as the Serious Fraud Office (SFO) and National Crime Agency (NCA), to request the identity of beneficial owners to be revealed to them in near real-time. Responses must be delivered within 24 hours of the initiating request unless in exceptional cases, where 60 minute returns are mandated - a feat made possible because the registers are obliged to hold sufficient beneficial ownership information to allow for responses without the need to refer to additional information.
Agencies have confirmed that the use of the resulting data has been of immense help. HMRC has used it within a number of its criminal files and the SFO has confirmed its use as part of an ongoing investigation.
The registers encompass, and in practice already frequently exceed, the globally accepted definition for beneficial ownership set out by the Financial Action Task Force: namely the natural person(s) who ultimately own, or exercise control over, a corporate or legal entity through the direct or indirect ownership of more than 25% of its shares or voting rights or ownership.
The exchange of notes protocol also ensures that requests against the newly created CDOT registers are carried out secretly, so that those connected to the enquiry of the corporate or legal entity aren't made aware of the search.
A statutory review of the mechanism, covering the period to 31 December 2018, revealed that nearly four requests a week had been made, many of which were multiple in nature and nearly all received responses within the 24 hour timetable set down. At that time, the registers contained information on 553,487 legal entities – nearly 87% of those believed to be in scope – with the remaining 13% being planned for completion before the registers are made public later this year.
Agencies have confirmed that the use of the resulting data has been of immense help. HMRC has used it within a number of its criminal files; the SFO has confirmed its use as part of an ongoing investigation; and the NCA confirmed that the process was used to confirm the beneficial ownership of a company holding high value London property, enabling investigations to obtain the UK's first unexplained wealth order.
The exchange of notes process, the opening of public registers and new international operational collaborations such as the joint chiefs of tax enforcement administrations in the UK, US, Australia, the Netherlands and Canada (the J5) make it clear that tax administrations and law enforcement agencies are more determined than they have ever been to close the net around those seeking to facilitate or undertake unlawful tax mitigation measures. The arrival of the new corporate criminal offences of failing to prevent facilitation of tax evasion is sure to be a key tool in their arsenal.
03 May 2018
10 Jan 2020