The Fifth Anti-Money Laundering Directive Emily Deane, TEP Technical Counsel

4AMLD EU Fourth Anti-Money Laundering Directive (EU) 2015/849 2015 & 2016 4AMLD agreed by EU Regs came into effect 26th June 2017 in UK domestic law Trust Registration Service (TRS) launched Obligations for trusts to maintain a register of beneficial owners and potential beneficial owners of the trust Data shared with UK and EEA law enforcement authorities

Which trusts register? When the trustees of a UK trust which is an express trust incur a liability to pay one or more of the following taxes: capital gains, inheritance tax, stamp duty land tax, land and buildings transaction tax, buildings transactions tax (Scotland), stamp duty reserve tax. OR: When the trustees of a non-UK express trust incur a liability to pay any of the UK taxes in relation to UK source income; or UK assets held directly by the trust and not an underlying company

Preamble to 5 AMLD (28) it should be possible for Member States to provide for wider access to information on beneficial ownership of trusts and similar legal arrangements, if such access constitutes a necessary and proportionate measure with the legitimate aim of preventing the use of the financial system for the purposes of money laundering or terrorist financing. When determining the level of transparency of the beneficial ownership information of such trusts or similar legal arrangements, Member States should have due regard to the protection of fundamental rights of individuals, in particular the right to privacy and protection of personal data. Access to beneficial ownership information of trusts and similar legal arrangements should be granted to any person that can demonstrate a legitimate interest. It should be possible for Member States to refuse a written request where there are reasonable grounds to suspect that the written request is not in line with the objectives of this Directive. STEP PowerPoint Template

5AMLD 19 April 2018 the new Directive, previously referred to as amendments to the 4th Anti-Money Laundering Directive, updates the EU’s approach to tackling money laundering Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU 5AMLD must be implemented by January 2020 with an extended implementation date for trust registration of March 2020

5AMLD Requirements The 5AMLD requirements for registration are not only trusts with UK tax consequences (4AMLD), but All UK express trusts and, Non-EU express trusts that own UK real estate (residential or commercial property); Non-EU express trusts that have a business relationship with a UK obliged entity (to be defined by each Member State) but for trusts there is the option of linking to whether the trust owns UK assets (shares, bonds, property, cash in bank);

Excluded from registration EU resident trusts already registered on TRS in another Member State do not need to register on UK TRS. Statutory trusts Resulting trusts Constructive trusts Collective investments schemes (Unit trusts, OEICS) Some collective investments may be set up as an express trust If HMG is already collecting the information such as, Regulated trusts – charities and pensions

Access to data The data will be shared with UK and EEA law enforcement authorities and: UK Obliged Entities or FIUs, persons with Legitimate Interest, and a person that holds or owns a controlling interest in any corporate or other legal entity through direct or indirect ownership, including through bearer shareholdings, or through control via other means.

Business relationships A ‘business relationship’ is defined in 4AMLD by reference to the business of ‘an obliged entity’ (ie, the financial institutions, accountants, lawyers, tax advisers, trust or company service providers and others, who have to comply with the money-laundering rules). Article 31 talks separately about a trust forming a business relationship (in paragraph 2) and it is quite clear that, in this context, this is referring to a business relationship with an obliged entity. The result of this would be that any overseas trust which has a bank account in the UK, borrows money from a bank in the UK, has a UK investment adviser, accountant, lawyer or tax adviser would be required to register on the UK trust register

What are obliged entities? The Directive will require HMRC to share the trust data with UK and EEA law enforcement authorities as well as obliged entities and anyone with a ‘legitimate interest’. The current definition includes financial institutions, credit institutions, auditors, accountants and tax advisers. Obliged entities are required to evidence that they have taken steps to identify, assess, understand, and mitigate money laundering and terrorist financing risks which should be included in their own business plans and risk assessments.

Who has legitimate interest?   Currently only UK law enforcement agencies: the National Crime Agency, police forces and the Serious Fraud Office are allowed access, in addition to similar bodies in other Member States. It is unclear how the UK will choose to interpret the definition, and whether it will be extended beyond the scope of law enforcement agencies and competent authorities (above). HMRC will be consulting on how to define ‘legitimate interest’. Access may be expanded to persons who have the necessary skill or expertise, and a demonstrable track record in helping public authorities with the prevention, detection and investigation of money laundering or terrorist financing.

Legitimate interest A modified form of public access for “persons who are able to demonstrate a legitimate interest with respect to money laundering, terrorist financing, and the associated predicate offences, such as corruption, tax crimes and fraud”. NGOs and investigative journalists with an anti-corruption profile will be able to apply to courts for access to registers. Full public access will apply to any non-EU companies controlled by EU resident trusts. The Directive commits Member States to launching their registers by 2021. Controllers of the different registers will be required to provide mechanisms for the verification of data. At present the UK Trust Register has no provision for any form of access except for competent authorities.

Data collection TRUST Name, settlement date, country where trust is resident for tax purposes, place where trust is administered, contact address for trustees OWNERS Settlors, beneficiaries, trustees – names, NINO or UTR, address, passport or ID, date of birth, corporate entity ASSETS Type of assets Value of assets Address of UK land and property

Registration deadlines 5 October 2020 Trusts that incur income tax or capital gains tax liability for first time in 2019-2020 tax year 31 March 2021 Trusts that were created on or before 31 December 2020 31 March/ 5 October Trusts created in a given calendar year must register by 31 March after the end of that calendar year Trusts that incur income tax or capital gains tax liability for the first time in a given tax year must register by 5 October after the end of that tax year in which the tax liability was incurred

Timeframe 5AMLD came into effect in June 2018 Public consultation in winter 2018/19, which will last for eight weeks, Consultation on the draft legislation in Summer 2019, which will last for four weeks, Transposition deadline is currently December 2019, Implementation deadline of January 2020. Extended trust registration deadline of March 2020

Brexit? The UK is committed to transposing 5AMLD notwithstanding Brexit. the Government will likely agree to a post-Brexit transitional period during which EU law would continue to apply in the UK as if it were still a Member State. 5AMLD will have to be implemented if its transposition dates occur within that period.

Concluding remarks There is still a lack of awareness about the TRS under 4AMLD. The likely effect of the ‘business relationship’ is that overseas trustees will only use service providers based outside the EU. Clarity is needed about what constitutes an express trust. Who has a legitimate interest and how will it be defined? The risk of money laundering in the context of trusts is very low and there will be huge practical and costs implications for little benefit.

Useful links Directive: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018L0843&qid=1529400071737&from=en. HMTC Trust Registration FAQs: https://www.step.org/guidance-notes GOV.UK: https://www.gov.uk/trusts-taxes/trustees-tax-responsibilities Penalties: https://www.gov.uk/guidance/register-your-clients-trust STEP policy team: Policy@step.org