Last month we highlighted some of the more notable features of the revised Legal Sector Affinity Group Anti-Money Laundering Guidance 2021 (“LSAG”) and flagged up one of the new sections within it that will be important for private client lawyers in particular. The LSAG sections of particular note here are 18.104.22.168-7 dealing with the “implications arising from the register of beneficial owners of taxable relevant trusts”, and then the “practical considerations of CDD for trusts”. These two sections of the new LSAG summarise the stages of the rather troublesome development that we have seen since the Fourth AML Directive, and so as implemented here in the UK as regulation 44 of the Money Laundering Regulations 2017 (“MLR 2017”) dealing with “trustee obligations”.
The MLR 2017 required the trustees of “relevant trusts” to maintain “accurate and up-to-date records in writing of all the beneficial owners of the trust”, and of all potential beneficiaries also. These provisions were clearly linked to the requirements that have since fallen into place with greater ease in relation to the issues of the beneficial ownership of companies, based on the need to record the details of all shareholders where they hold 25+% of the shares, along with those with similar involvements.
The basic requirements set out in r.44 were for trustees of relevant trusts to provide on request information about the beneficial ownership of the trust, or the class of potential or actual beneficiaries depending on the structures in place. The trigger for this would be when entering a “relevant transaction” as defined in r.44(4), and so when the law firm or other regulated person applies CDD as a result of their obligation to do so under the MLR 2017.
Since that first step in this direction the Government has chosen to extend the regime through the Money Laundering (Amendment) Regulations 2019 which came into force in January this year. Whereas only taxable trusts were covered by the MLR 2017 this restriction will now no longer apply, with three classes of non-tax paying trusts now also being covered by the revised requirements. These are defined as trusts that are types A, B or C, and although now covered by the reporting requirements they are under a slightly lesser reporting duty than those dealt with by the earlier regulations.
- Type A trusts are those termed “UK Trusts” which are express trusts where all of the trustees are resident in the UK, or at least one of the trustees is resident in the UK and the settlor was resident and domiciled in the UK when either the trust was created, or funds were added to it;
- Type B trusts have lesser connection with the UK but will be express trusts with at least one UK resident trustee. They will not be EEA registered, however, but other than this will arise where instructions are provided to UK professionals to acquire an interest in land in the UK; and
- Type C trusts are non-UK express trusts where there are no UK based trustees, but where the trustees will acquire an interest in land within the UK.
Taken as a whole, the extension to the requirements clearly reflects the widespread concerns about the attractiveness of property purchases within the UK, and London in particular, as the means to hide wealth of a dubious provenance. This follows widespread concerns as to the large amounts of questionable or laundered funds that have been used to purchase UK property of late, and so the appeal of UK property for laundering funds not just from within the UK, but from much farther afield as well.
These extended provisions have, of course, attracted a considerable amount of comment and e-discussion amongst those lawyers and other professionals most exposed to them. Trusts will not have to register as type B trusts, for example, if the beneficial interest in a property is acquired through a nominee. Questions have also arisen as to how specific the information that will be required in all cases by HMRC will need to be. This is because much of the information required from trusts incurring a UK tax charge will not extend to the further non-taxable trusts that are now also covered by the requirements. It may well be that we can therefore expect more developments yet before this most complex of the arrangements relating to the beneficial ownership of potentially laundered funds have been fully clarified, all the more so since the deadline for these newly added non-taxable trusts is still 12 months away, with an initial registration date of the 10th March 2022.
So, to what extent does the recent LSAG guidance assist with the complexities of trust registration?
First, it is stressed that if acting for a taxable relevant trust there will be a need to maintain accurate and up to date records of all beneficial owners and potential beneficiaries of that trust. The two categories of taxable relevant trusts are confirmed as, first, UK express trusts where at least one trustee is resident here and the settlor was resident in the UK when the trust was established or had funds added to it. The second category are non-UK express trusts which in any tax year become liable to pay any of the main forms of tax in the UK in relation to income or assets based here.
Secondly, if forming a business relationship as a trustee with another agency counting also as a relevant person there will be a need to inform them that you are a trustee, and then to provide them with details on request of the trust’s actual and potential beneficiaries. In this respect the guidance note suggests that it would be advisable to extend your CDD checking processes to include potential beneficiaries as well, so as to be able to respond to their enquiries if they are directed to you. Likewise, it is recommended that firms should extend the required CDD processes to include the identity of any individuals referred to in any document provided by the settlor, such as a letter of wishes in relation to a trust, so that you would be able to respond to requests for information validly made of you.
The main point at paragraph 22.214.171.124, dealing with the practical considerations of CDD in trust situations, is that a legal adviser should ideally see any trust deed or documents relating to an existing trust if agreeing to act. In situations fairly assessed as being low risk, however, it may be possible to record an account of the terms of the trust provided by the client or another adviser who can be trusted to provide the key terms of the trust, especially if they were involved in establishing and/or then managing it.
As above, we may well see further developments with these provisions as we approach their full implementation next year, and so we will report back further if and when more is reported.