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The problems with a public register of beneficial owners

Stephanie Sanderson of ISIS Law

Recently, there has been some discussion coming out of the UK regarding setting up a public list of beneficial owners of corporate entities together with a push for other jurisdictions, including Bermuda, to hop on board with this. Whilst this sounds like good politicking on the part of the UK government, the realities of such a register are a different story including where Bermuda is concerned.

The UK Government has already experienced significant pushback from within the UK. For example, the UK Law Society does not support a public register being established, believing that such a move would leave British business at a competitive disadvantage.

The reasons given for a public register include that it would curb money laundering and terrorist financing as well as bribery, tax avoidance, tax evasion and arms and drug trafficking. Often, these illicit activities are accomplished via the use of anonymous shell companies set up for the purposes of corrupt politicians, tax evaders, terrorists and criminals. Notwithstanding that this may be an issue in other jurisdictions, including the UK, Bermuda does not permit shell companies and therefore such a register would neither be applicable nor beneficial to Bermuda in this respect.

In contrast to the UK, companies incorporated in Bermuda must be processed through a service provider, such as a law firm or corporate service provider. Unlike the UK and many other jurisdictions the Bermuda Monetary Authority (BMA) receives information on direct and indirect beneficial owners, including any change in beneficial ownership in respect of exempted companies.

Such information is available to the relevant tax authorities in other jurisdictions (including the UK) via the various international exchange of information policies, laws and treaties Bermuda has in place. Law enforcement also has relatively quick and easy access to beneficial ownership information in Bermuda. Bermuda is therefore already ahead of the UK and many other jurisdictions on the issue of beneficial ownership transparency.

Directors of UK companies have fewer restrictions and precautions imposed on them than directors of Bermuda companies. For example, UK companies have no obligation to have UK-based directors. The directors of UK companies can be from any jurisdiction, without supervision from within the UK itself. Ownership of UK companies can be anonymous.

By contrast, Bermuda companies must have at least either a Bermudian director, secretary or resident representative, and entities in Bermuda must disclose beneficial ownership. Bermuda law also requires companies to have a local address and maintain a register of shareholders available for public viewing. All of these factors ensure that Bermuda operates at a much higher standard of transparency and disclosure than the UK and many other ‘onshore’ jurisdictions.

A major factor to consider in the establishment of any public register would be the extent to which the register would be publicly accessible. The UK Government proposed that such a register in the UK should include information on beneficial owners which would include full name; month and year of birth; nationality; country or state of usual residence; service address; and the date on which the beneficial owner acquired his/her interest and details of the interest including how it is held. This is a lot of detailed information to be made available to the general public. The need for transparency must be proportionate to the right to privacy. Privacy infringement issues would need to be considered.

By making beneficial owners’ information available to all members of the public it would make otherwise private information relating to legitimate wealth available to competitors, stalkers, kidnappers, identity thieves, blackmailers and other criminals as well as tabloid journalists. Most individuals set up perfectly legitimate structures, which have nothing to do with corruption, tax evasion or other crimes, and they are happy to provide their information to regulatory bodies and tax authorities so long as their information remains private and confidential.

Perhaps the most significant problem with any public register of beneficial owners is that in order to succeed, this concept will have to be embraced and adopted as a synchronised global standard. If a co-ordinated global approach is not implemented, anyone seeking to avoid public identification of beneficial ownership will simply do so in other more privacy-friendly jurisdictions.

The reality of making public registers the global standard is doubtful. While the US has promised to set up registers state-wide, the US Congress has repeatedly shut down laws to require states to create private beneficial ownership registers, let alone public ones. Canada has not even committed to promising to establish any such register. Until a public register becomes the global standard, those countries which choose to put their necks out are doing so at a great risk to business within their jurisdiction and putting them at a significant comparative disadvantage. Where transparency is concerned, Bermuda is miles ahead of competitors and we should trust that our Government and the BMA will continue to strive to keep us ahead of the curve and operating at exemplary international standards.

Stephanie Sanderson (spsanderson@isislaw.bm) is a Corporate Attorney at ISIS Law Limited. Note that this article is not a substitute for professional legal advice. Please visit www.isislaw.bm for a copy of this article or for more information on ISIS Law Limited.