Out of the shadows – the spotlight on ownership

By Rachel Sharp.

What is it?

The Fourth Money Laundering Directive (4MLD) aims to strengthen the defences against money laundering, tax evasion and terrorist financing across the EEA and is part of a broader trust and transparency agenda being proposed by national governments and international organisations such as the OECD.

It contains a number of provisions covering Customer due diligence (CDD); high value cash transactions; tax crimes; Politically Exposed Persons (PEPs), risk and significantly, beneficial ownership;

  • All companies, and in many circumstances trusts, across the EEA will have to publically disclose their ultimate beneficial owners and make this information available via public national registers. The definition of who a UBO is will be broad and capture a wide stakeholder base, including individuals who may not hold an equity interest (where that’s directly or indirectly) in a company.
  • The exact form of the regulations will vary from country to country as national governments take different approaches to transposing the directive into national law; multinational corporations will need to navigate the local regulations and filing requirements across the EEA; in some cases up to 31 different regimes.

What are the key deadlines?

4MLD came into force on 25 June 2015 and member states will need to implement it by June 2017. 4MLD sets the minimum standard and we could see countries introducing stricter regulations at their discretion. The UK government is expected to produce draft regulations by the end of 2016 and finalise these by early 2017 to meet the implementation deadline.

Organizations should be preparing for the changes now. UK incorporated companies and LLPs should (from April 2016) already be maintaining a statutory register of people with significant control (PSC) to meet the requirements of the Small Business, Enterprise and Employment Act which was introduced to satisfy in part the UK Government’s commitments under 4MLD. The 4MLD may change the existing PSC regime.

What are the penalties for non-compliance?

It will be a criminal offence for failure to comply with companies, officers and shareholders open to prosecution and financial penalties which could include at least a EUR 1 million fine (or equivalent in national currency). Compliance failures could lead to companies be refused external financing and a downgrade in their creditworthiness. .

In anticipation of the 4MLD being implemented organizations should review their exposure, understand the application of the new regime and implement a compliance framework, to include ongoing maintenance requirements.

Should you wish to discuss this issue further please do not hesitate to get in touch or talk to your usual PwC Adviser.

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