On 21 April 2014, BIS published a paper resolving to create a public register of beneficial owners of companies incorporated in the UK.
All UK companies are already required to file an annual return which lists the legal owners of shares in the company. However, those shareholders may not be the beneficial owners of the shares, as they may be holding the shares on behalf of other another person or persons.
Vince Cable melodramatically claimed the creation of this public register of beneficial owners would tackle “the darker side of capitalism and the smoke and mirrors which have existed for too long”. He believes that the requirement to disclose the ultimate owners of UK companies will make it more difficult for companies and individuals to evade tax or funnel corrupt funds.
As a Partner in a solicitors’ firm in Tunbridge Wells, I have acted for a large number of corporate clients where there are completely legitimate reasons to separate legal and beneficial ownership.
Whilst there may well be a very small minority of individuals or companies who hide their beneficial identity for slightly shady purposes, my suspicion is that there are perfectly innocent reasons for the vast majority of circumstances where legal and beneficial ownership are not identical.
But since when has the government considered proportionality in its crusade for rafts of anti-avoidance legislation?
As a result, in addition to the standard register of members, all companies will have to maintain a separate register of beneficial owners.
The test for who constitutes a beneficial owner will be based on the same test used in the existing anti-money laundering (AML) legislation.
At its most basic, it should include any person who holds 25 per cent of the shares or voting rights in a company, or someone who otherwise exercises control over the company and its management.
This apparently simple definition throws up all sorts of complexities when you dig a little deeper. There are pages and pages of guidance issued by various regulatory bodies seeking to assist their respective professions in the implementation of the AML legislation. It is difficult enough for us regulated professional firms to get to grips with the various beneficial ownership tests, so I sympathise with the small to medium sized companies which now have to struggle with the same concepts.
Will the introduction of this register of beneficial ownership achieve its purpose? I do not think so.
In order to succeed, the concept of disclosure of beneficial ownership will have to be embraced and implemented by foreign jurisdictions. Otherwise, anyone seeking to hide behind an opaque corporate identity will simply incorporate his company in a more privacy-friendly jurisdiction. This has been the case for decades. The UK government is being extremely optimistic if it thinks the authorities in the BVI, Channel Islands, Delaware and other “tax havens” will voluntarily relinquish the reason why so many businesses incorporate there.
It is all very noble trying to lead the fight against tax evasion and funnelling corrupt funds, but a leader should never jump before ensuring that others will follow.
When measured against the considerable administrative burden which will be imposed on UK companies by the introduction of a register of beneficial owners, I cannot escape the feeling that UK government has shot itself (or, more specifically, its business community) in the foot.
Nicholas Gabay is a partner Thomson Snell & Passmore.
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