It may seem surprising that the Money Laundering and Terrorist Financing (Amendment) (UK Exit) Regulations 2020 have received as little attention as they have. In truth, the new regulations do not have a significant impact on the general anti-money laundering regime and certainly do not announce, as some will have hoped, that the existing Money Laundering Regulations will be thrown onto the “bonfire of the red tape” that was promised in the earlier days of the Brexit debate.
The Sixth EU Directive
The UK Government does in fact remain as committed as ever to maintaining the high level of statutory and regulatory controls that were judged to be in place by the international AML monitoring body FATF when it conducted its inspection here in 2018. It will also have taken very seriously recent headlines about large scale transfers of suspect funds through the City and the consequential announcement by the US Government that it now sees the UK as a “high risk” territory for these purposes. It has been announced, however, that the UK will not adopt the latest EU AML directive which will take effect in the EU on the 6th December, but will not have to be implemented by member states until the 3rd June 2021, and so after the current transition period. This is mainly concerned with harmonising the enforcement of the money laundering offences with various measures such as the application of a common definition of money laundering and the imposition of common minimum sentences. This was judged to be unnecessary by the UK Government taking into account the comparatively strict nature of our domestic legislation.
So, back to the Exit Regulations. For the most part these contain a number of minor amendments that will be of no great concern to firms in practice. There are certain legislative provisions and definitions that are required as a result of the UK giving up its EU member status. The opportunity has also been taken to correct some minor drafting anomalies and to make a number of associated improvements.
The Trusts Registration Service
There is one area of some significance, however, which will be important to those firms providing private client services in particular. These changes relate to the Trust Registration Service – the means by which certain of those holding beneficial interests in trusts are required to be registered for inspection by those with a legitimate interest in all such information, and as administered by the HMRC.
The need for the registration of beneficial interests with the Trust Registration Service was a product of the EU’s Fourth AML Directive which provided that as the “maintenance of accurate and up-to-date information on the beneficial owner” was a “key factor in tracing criminals who might otherwise hide their identity”1 all members states should maintain suitable records of beneficial interests in a central register. In fact the UK jumped the gun on this requirement somewhat, introducing a series of regulations which took effect in 2016 for those with beneficial interests in companies and LLPs. A register of “persons of significant control” was established which would be an open register for inspection at Companies House.
The equivalent system for the registration of beneficial ownership of trusts was introduced a year later, initially as a paper-based system, but then on a computerised basis by HMRC in 2018. This would be a more complex challenge for the authorities as many private trusts would fairly have more of a claim to be allowed to operate in secret as opposed to corporate bodies where the public will be at risk in their dealings with them as a result of their limited liability status. The need to register with the Trust Registration Service would, therefore, initially be limited to those express trusts that were required to pay any one of a number of the mainstream taxes, including SDLT. In addition, registration with the Trust Registration Service was also required by all non-UK express trusts in receipt of UK sourced assets on which the trustees would incur a UK tax liability. Certain exemptions were applied, including a de minimis level of less than £100 tax being due. Trusts holding any property are exempt if that property is occupied by the beneficiary and so does not generate income, but do need to register where a paying tenant generates a rental income.
As to access to the Trust Registration records compiled under these arrangements this has been accessible to law enforcement authorities within the UK or other EEA member states on request. This would therefore include the various police authorities and the NCA amongst others. Unfortunately, the IT based system has been found very difficult to use by many professionals, as when accessing it to enter records and if trying to update data already present on it.
The aim of the Exit Regulations, which took effect on the 6th October, is to extend both the scope of the register and the range of parties that may be allowed to have access to it. These aims are mostly achieved through a new r.45ZA with new categories of type B and C trusts – type B being one where there is at least one trustee resident in the UK and that trust instructs regulated advisers or acquires an interest in land, and type C involving non-UK express trusts where none of the trustees are resident in the UK, but acting as such they acquire an interest in land within the UK. The combined effect is therefore to go some way towards the commitment made by David Cameron when Prime Minister that information should be held on the true owners of high value properties in London and elsewhere where their identities were kept secret through the operation of trust devices. For the time being, the fear remains that very substantial amounts of laundered funds are now tied up in many such properties.
Further guidance on the full list of exemptions and the default penalties that will apply will be made available in due course before the full implementation date of the 10th March 2022. Trustees of all type B and C trusts will be expected to collect the relevant data in the meantime.
Discrepancies in the PSC register at Companies House
Although not affected by the Exit Regulations it may be as well to add here a reminder as to one of the more important amendments made to the Money Laundering Regulations 2017 by the Amendment Regulations in January of this year, which gave effect to the Fifth EU AML Directive. Under a new r.30A, where a firm that is subject to the Regulations takes on a new business client (or forms a “business relationship” with one in the wording of the regulation) it must check the PSC register when so doing. If there is any discrepancy between the register as opposed to the instructions received about the shareholdings and management controls then the firm is under a duty to report this to the Registrar. This duty is stated to be subject to legal professional privilege, however, so if this becomes apparent from the instructions received from the client the likely inference is that the client should agree to the disclosure, their consent therefore amounting to a waiver of privilege on their part. Other than when onboarding a new client this duty also applies when it “otherwise becomes available” in the work they subsequently undertake for the business, or when conducting future ongoing monitoring most obviously.