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April 11 — Tax justice campaigners warn that the U.K. public beneficial ownership register won't meet transparency needs when it's introduced in June 2016 because of the lack of resources put in place to verify disclosures or impose sanctions on noncompliance.
The Panama Papers revelations last week have accelerated concerns, with tax justice activists warning that if authorities aren't given the powers necessary to maintain the beneficial ownership register, efforts will lead to noncompliance and further opportunities for tax fraud.
Fears on transparency have also been fueled by the BBC, the U.K.’s public broadcaster. The BBC's “Panorama” program, one of the 100 media outlets involved in the Panama Papers investigations, reported how Mossack Fonseca & Co., the Panamanian law firm at the center of the scandal, offered services to hide the real beneficial owners from financial authorities. During a televised report April 4, “Panorama” revealed that a wealthy individual was offered a service where the company would pay an individual to pretend to be the beneficial owner of assets head by the real owner.
In the U.K., a central register on the beneficial owners of U.K. companies will become operational in June 2016, with domestic companies being required to report “adequate, accurate and current information” on their beneficial ownership, the government said last November. The register will be publicly accessible, and domestic competent authorities will be able to access the information without notifying the companies in advance. The scope will be expanded in 2017 when additional provisions will be introduced through new U.K. money laundering regulations, which will transpose the requirements of the 4th EU Anti-Money Laundering Directive approved last May.
Following the Panama revelations, Tax Justice Network activist Richard Murphy warned April 7 that the U.K.’s beneficial ownership register will “be almost useless” if necessary powers aren't given to Companies House—an U.K. executive agency that incorporates and dissolves limited companies, registers the information companies are legally required to supply, and makes that information available to the public. He explained that the public beneficial ownership register will fail because “the disclosure that is to be made will be almost entirely voluntary” and “there is in practice no way in which Companies House will ever know whether the declarations that are made to them are right or wrong because there is no third-party check that will be imposed upon the information declared.”
Despite all banks being required to verify the identity of beneficial owners and the real directors of the companies they serve, Murphy said it is “ludicrous” that Companies House will not have the resources to examine the disclosures.
Transparency International's senior global advocacy manager, Maggie Murphy, told Bloomberg BNA April 7 via e-mail that “requirements should be in place for companies to confirm beneficial ownership information on a regular basis and as and when it changes. There should also be sanctions in place for providing wrong information. Additional funds should be provided to help triangulate information that is submitted. Independent verification is a cornerstone of strong due diligence programmes.”
Lucy Bell, senior media relations officer at the government's Department for Business Innovation and Skills, which is spearheading the U.K.’s beneficial ownership initiative, told Bloomberg BNA via e-mail April 11 that the “company and the ‘person of significant control’ have a legal responsibility to provide accurate information to the register. Providing false information will be a criminal offence for both the officers of the company and the PSC punishable by up to 2 years in prison.”
Bell said “Companies House will respond to any complaints that information is incorrect or incomplete” and “will investigate any complaints of false information being reported.” She added that a benefit “of this register being in the public domain is that false accounts will be identified and investigated more quickly” and warned that it's a “criminal offence for a PSC or company to provide false details.”
Murphy also suggested that the information held by the banks on beneficial owners should be translated into “dynamic data which can be stored at Companies House” that can then be used to “verify the true nature of the identity of those persons who own and control these companies to ensure that we are all properly informed as to who we are trading with.”
Banks could submit the data to Companies House once a year, and if the company disagreed, “it would be up to them to appeal and show why the bank had the wrong information, and in that case we would also get some understanding of the willingness of our banks to properly fulfil their own legal obligations in this area,” Murphy said.
“With these two changes, to accounting, and to the register a beneficial ownership, the UK would then be in a strong position to dictate to other countries just what is required to ensure that full transparency and accountability is available on public record with regard to the limited liability companies trading from that jurisdiction. We could, therefore, then demand that our tax havens do comply with this standard in the future,” Murphy said.
Bell said the government “absolutely” agrees with tax campaigners that registers should achieve the highest levels of integrity of information. She said, however, that the initiative must “maintain an environment that supports both the ease of incorporating a company and the growth of companies.” Bell said the “vast majority of companies are law-abiding, and provide timely and complete information. Any proposals to make changes to the system should be considered against that backdrop—the risk of imposing burdens on all companies to address issues arising from the few.”
The government also said in November 2015 that the U.K.’s new money laundering regulations and the company law will “clearly define the criteria for ownership and control that identify a natural person as the ‘beneficial owner’ of a company.”
The U.K's beneficial ownership register will be published beginning in June.
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