Dutch Anti-Money Laundering Rules May Ensnare Senior Managers

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By Linda A. Thompson

Netherlands-based senior managers may have to reassess their contracts if they want to avoid being listed as a company’s ultimate beneficial owner, a senior tax attorney warns, in light of a draft measure to combat money laundering, tax evasion, and terrorist funding.

The provision would allow companies’ senior managers to be identified as their ultimate beneficial owners in a forthcoming company ownership database.

Being appointed as a “pseudo” ultimate beneficial owner (UBO) suggests a level of involvement in the legal entities—often limited liability companies—that “does not at all correspond with economic reality” and that could result in “rather unfavorable exposure” for these senior managers, Duco Lodder, an attorney at the Rotterdam-based Duco Lodder Corporate Law Boutique, told Bloomberg Tax May 11.

Senior managers who don’t wish to be listed as an entity’s ultimate beneficial owner might negotiate for this as part of their contract. “Alternatively, the ‘pseudo’ UBO could request that the entity provides him with adequate indemnity as well as an adequate directors and officers coverage with a leading liability insurance provider with the right type of coverage,” Lodder said in an email.

The provision, in draft regulation released May 7, follows a European anti-money laundering directive requiring all EU countries to track the beneficial ownership of various financial vehicles to prevent funds from evading tax or being used for terrorism and various financial crimes. Under the proposal, resident legal entities would be required to report the identity of their ultimate beneficial owners to the Dutch authorities. The database will be operated by the Dutch Chamber of Commerce.

Lodder warned that the proposed measure might also be used to conceal the identity of an entity’s true beneficial owners. “It cannot be ruled out that constructions will be mounted with the sole goal of directing third parties to what is merely a pseudo UBO” rather than the real person pulling the strings, he said.

De Facto Manager

Thomas Dasselaar, a tax lawyer at the Amsterdam-based Van Doorne NV, noted that senior management will only come into view when no one has 25 percent of the shares or more, or 25 percent control of a legal entity.

“So senior management will only come into play when, for instance, every party only has 5 percent of the shares and no-one really has a controlling interest,” Dasselaar said told Bloomberg Tax May 11.

Dasselaar said it was hard to estimate how many resident entities would fall into this category. However, he pointed out that wealthy family business owners shouldn’t expect that this provision will help them maintain their privacy or conceal their identity from public scrutiny.

“It’s not as if you can say as a wealthy family: ‘I’m going to appoint my de facto manager as the ultimate beneficiary owner and remain outside the register.’ This is really only possible after it has proved impossible to identify the ultimate beneficiary after having made a reasonable effort,” he said.

Dasselaar also pointed out that the measure comes on top of other recent measures such as country-by-country reporting and the exchange of cross-border rulings between tax authorities. “The administrative burden on companies will increase because it will take some time and effort to continually update the register and ensure it is accurate,” he said.

According to an April 20 letter from the Finance Ministry, the definitive register proposal will be sent to the House of Representatives early 2019.

To contact the reporter on this story: Linda A. Thompson in Brussels at correspondents@bloomberglaw.com

To contact the editor on this story: Penny Sukhraj at psukhraj@bloombergtax.com

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