European Union (Anti-Money Laundering: Beneficial Ownership of Trusts) Regulations 2019
European Union (Anti-Money Laundering: Beneficial Ownership of Trusts) Regulations 2019
The European Union (Anti-Money Laundering: Beneficial Ownership of Trusts) Regulations 2019 (the Regulations) were signed by the Minister for Finance and came into force on 29 January 2019. The Regulations require trustees of certain Irish trusts to establish and maintain registers of beneficial ownership. The Regulations transpose into Irish law the obligations imposed on EU member states by the Fourth Anti-Money laundering Directive (4MLD) as amended by the Fifth Anti-Money laundering Directive (5MLD), in relation to determining the beneficial ownership of certain types of trust.
What type of trust is subject to the Regulations?
The Regulations apply to any trust meeting the definition of "an express trust whose trustees are resident in the State or which is otherwise administered in the State". The term "express trust" is not defined by the Regulations, but is likely in our view to be interpreted as meaning a trust other than a constructive or implied trust, and as including any nomineeship constituted as an express trust.
The Regulations provide that, in the case of a trust which is a collective investment undertaking, a reference to the trustee of a trust includes a reference to a collective investment undertaking trustee. Moreover, the regulations provide that "collective investment undertaking trustee", in the case of a trust which is a collective investment undertaking, includes the manager or operator of the collective investment undertaking. This means that obligations under the Regulations fall on both the depositary and the manager.
First steps: what must the trustee do?
The trustee of an affected trust must:
take "all reasonable steps" to obtain and hold "adequate, accurate and current information in respect of the trust's beneficial owners".
establish and maintain a "beneficial ownership register" for the trust.
Who is a "beneficial owner"?
This is defined in the Regulations by referencing Article 3(6)(b) 4MLD. This defines the beneficial owner of a trust as "any natural person(s) who ultimately owns or controls the customer and/or the natural person(s) on whose behalf a transaction or activity is being conducted" and includes at least in the case of trusts: (i) the settlor; (ii) the trustee(s); (iii) the protector, if any; (iv) the beneficiaries, or where the individuals benefiting from the legal arrangement or entity have yet to be determined, the class of persons in whose main interest the legal arrangement or entity is set up or operates; (v) any other natural person exercising ultimate control over the trust by means of direct or indirect ownership or by other means.
Under the European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016 (the 2016 Regulations), a beneficial owner means the natural person or persons who ultimately own or control the corporate entity, through direct or indirect ownership of a sufficient percentage of the shares or voting rights of the entity, or through "control by other means", as referenced in 4MLD. The 2016 Regulations also prescribe that a percentage of 25% plus one share held by a natural person is evidence of direct ownership, and a similar percentage held by a corporate entity is evidence of indirect ownership where that entity is indirectly controlled by natural persons. See our previous bulletin on the 2016 Regulations for further information. However, such percentage qualifications do not apply in determining beneficial ownership of trusts.
Information to be entered in the beneficial ownership register
Name, date of birth, nationality and residential address of each beneficial owner.
Date on which each natural person was entered in the register as a beneficial owner.
Date on which each natural person who ceased to be a beneficial owner of it ceased to be such.
Access to the register
A trustee must provide the Revenue Commissioners or any State competent authority with "timely access", on request, to the register. Ireland's current State competent authorities are the Central Bank of Ireland, the Minister for Justice and the Property Services Regulatory Authority, as set out in the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (the CJA 2010).
The Regulations also permit State competent authorities to disclose the information in a beneficial ownership register to the corresponding competent authority of a requesting Member State.
Obligations on trustees in the event of transactions requiring due diligence
Under the Regulations, where a trustee, acting in their capacity as a trustee, enters into an "occasional transaction" (within the meaning of the CJA 2010) with a designated person, or forms a business relationship with a designated person, the trustee must:
inform the designated person in writing that it is acting as trustee, and
provide to the designated person, upon request and "without delay", information identifying all beneficial owners of the trust (which, in the case of a class of beneficial owners, may be provided by specifying the class of persons who are beneficiaries or potential beneficiaries under the trust).
Where there is any change in the information provided during the course of the business relationship, the trustee (or any one of the trustees, where there is more than one) must notify the designated person of any such change and the date on which such change occurred within 14 days from the date on which the trustee (or any one of the trustees of the trust) became aware of the change.
For the purposes of this provision, "occasional transaction" is defined as a transaction where the designated person is required to apply customer due diligence measures. "Designated person" is defined by the CJA 2010 and can include, among others, the trust's bank, auditor, tax advisor and legal adviser.
Keeping the register up-to-date
Where a trustee enters information relating to a natural person as a beneficial owner of a trust in a beneficial ownership register, there is a duty to keep that information up-to-date and to amend the register where a "relevant change" occurs.
A "relevant change" is defined as an instance where a natural person entered on the register ceases to be a beneficial owner or any other change such that the particulars on the register are "incorrect or incomplete".
A trustee must amend the register "as soon as practicable" after the trustee learns of the fact that a relevant change has occurred.
Retention of records
The trustee of a trust is required to keep records of steps taken in the identification of the trust's beneficial owners and to retain those records for a period of "not less than 5 years after the date on which the final distribution is made under the trust".
The trustee must also "make arrangements" for those records to be deleted at the end of that period unless:
required to keep the records by or under any enactment or for the purpose of court proceedings, or
any person to whom information in a record relates consents to the retention of that information, or
the trustee has "reasonable grounds" for believing that the records should be retained for the purpose of legal proceedings.
Trustees of affected trusts who fail to comply with their duties under the Regulations commit an offence and shall be liable, on summary conviction, to a class A fine (a fine not exceeding €5,000).
Comment on the Regulations
The scope of the Regulations is broad, and may have unanticipated consequences. For example, they would appear to apply to all occupational pension schemes, regardless of how many members are in that scheme. In many cases, identifying the beneficial owners and any changes in their registrable details may prove difficult. The Regulations may also be broad enough to apply to persons who agree to hold shares of a company in trust for beneficial owners of those shares (even where such a trust is a temporary arrangement), which would add an extra layer to company administration and may also overlap with a company's separate obligations under the 2016 Regulations.
Determining the trust's beneficial owners
Unlike the position that applies under the 2016 Regulations in relation to the obligation on companies to determine who their beneficial owners are, the Regulations do not set out any particular steps that may be taken by trustees to determine the beneficial owner(s) of the trust, or impose any obligation on trustees to issue notices to persons whom the trustees believe to be its beneficial owner(s). Neither are there any obligations imposed by the Regulations on any beneficial owner(s) of the trust to provide information to the trustees.
In addition, under the 2016 Regulations, where the relevant company has exhausted all possible means to identify its beneficial owner(s) and has failed to do so, the details of its senior managing official(s) must be entered in the beneficial ownership register as an alternative means of compliance. There is no such corresponding provision in the Regulations as regards beneficial ownership of trusts.
Increased administrative obligations on trustees of affected trusts
The Regulations represent an increase in the administrative obligations placed on trustees of affected trusts. Trustees will need to understand the exact extent of their obligations under the Regulations on a range of issues, including when it is permissible to include a description of a class of beneficiary in the register instead of individual beneficiaries' personal details, and on the extent of the steps they must take to obtain the required information about beneficiaries.
The Regulations also impose an ongoing administrative burden on trustees to keep the register up-to-date and to address any relevant changes. The document retention requirements of the Regulations also mean that trustees may need to review their data protection policies.
Impact on regulated investment funds
From a regulated investment funds perspective, both the depositary and the manager of collective investment undertakings constituted as unit trusts are subject to the obligations under the Regulations. Moreover, the Regulations will pose significant challenges for such unit trusts and their operators due to the differences between the requirements applicable to them and those applicable to regulated investment funds structured as public limited companies.
Indemnification provisions in trusts
The terms of many trusts include an indemnity from the settlor or beneficiaries to the trustees protecting the trustees against any liabilities (including fines) the trustees suffer in administering the trust. Trustees should note that, for public policy reasons, the trustees might not be able to enforce such an indemnity against the person giving it if the trustees are subject to a fine for breach of the Regulations.
The Regulations took effect when they were signed on 29 January 2019. Trustees of affected trusts will now need to ensure that they understand their new obligations and put in place procedures to facilitate compliance.