AML guidance warning over Irish share arrangements

Under Ireland’s Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, anyone wishing to carry on business as a trust or company service provider (TSCP) must obtain authorisation from the Minister of Justice.

The Department of Justice has confirmed its view anyone acting or arranging for another person to act as a nominee shareholder is a TSCP under the Act, requiring authorisation from the Department, although it will consider the facts of an individual case or application. Operating as a TCSP without obtaining authorisation is an offence under Section 87 of the Act.

Neil Keenan, a corporate governance expert with Pinsent Masons Ireland LLP in Dublin, explained that while the law itself has not changed, the evolving nature of anti-money laundering practice requires a shift in practice.

“This issue is an interesting example of how AML practice can evolve and catch structures that it was previously thought would not be subject to these requirements,” he said.

“It is important that Irish employers with a nominee structure in place for a share scheme do take advice to determine whether this change in practice will impact on their structure.”

In employee and executive share option or participation schemes, legal ownership of shares is often held by a nominee company on a bare trust for employees or executives who are the beneficial owners, with shares usually issued to the nominee company when options are exercised and formalised by a nominee agreement or declaration of trust.

Although the nominee company itself does not hold any beneficial interest in the shares and is not exposed to liabilities, the Department of Justice has indicated it views nominee companies as a business under AML legislation but will look at these issues on a case-by-case basis.

Keenan, who served on a Law Society of Ireland sub-committee established to address this shift, added that while money laundering risks are remote in cases with a nominee structure, it does not mean such schemes fall outside AML requirements, based on senior counsel advice.

The guidance means practitioners must now take care to evaluate using nominee arrangements for employee or executive share schemes in light of the shift in AML practices.