Alex Cobham ■ UK to introduce 5th Anti-Money Laundering Directive: eyes turn to Crown Dependencies and Overseas Territories

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The UK government has confirmed to campaigning MP Margaret Hodge that, Brexit notwithstanding, the UK will introduce the major tax transparency measures in the European Union’s 5th anti money laundering directive. As the Guardian highlights, these include the following crucial measures:

  • Public registers of company owners in every member state;
  • Access to the names of the beneficiaries of trusts for law enforcement agencies and those with a “legitimate interest”, including investigative journalists and NGOs;
  • A cross-border database of company and trust owners, overseen by the European Commission;
  • Automatic access to the names of bank account holders for national financial intelligence units

This is progress in respect of two important matters. First, it means that in this area at least, the UK government will not seek to exploit Brexit in order to lead a race to the bottom on anti-money laundering measures. And second, it means that all eyes will now turn to the UK’s Crown Dependencies and Overseas Territories, to see if they’ll follow suit, especially when it comes to transparency of trusts.

There is no explicit requirement for the 5th anti-money laundering directive (technically, this set of agreed amendments to the 4th directive) to be extended to Crown Dependencies such as Jersey, or to Overseas Territories such as the British Virgin Islands. However, past history shows that the EU position has been pivotal in driving higher standards.

Here are two examples from the original 4th directive. From the Overseas Territory which ranks as the biggest global threat in our Financial Secrecy Index, this is the official position from the Cayman Islands Financial Services Commission on beneficial ownership:

As international standards have developed, the Cayman Islands has committed to enhance its current beneficial ownership information regime. These enhancements, in the form of the introduction of a centralised search platform, will be implemented by the end of June 2017. This implementation date corresponds with the implementation target for all other British overseas territories and crown dependencies. It also coincides with the date by which EU Member States are due to introduce requirements for central registers of beneficial ownership information as part of the 4th Anti-Money Laundering Directive.”

From the Crown Dependency that featured so poorly in the recent Paradise Papers, here is a statement from the Isle of Man‘s Chief Minister:

Mr Speaker, I should advise that it is noted that the 5th Anti-Money Laundering Directive of the EU introduces a requirement for public registers of companies in the EU. The Directive has only recently been agreed and is yet to be published in the Official Journal. Whilst EU Directives and Regulations are not automatically binding on the Isle of Man, these are often considered in our policy approaches.

Consequently we have started to consider our policy position in respect of the 5th Anti-Money Laundering Directive, and monitor the situation as it develops, discussing with industry and our fellow Crown Dependencies, noting that the Directive does not come into force until sometime during the period between 2019-2021.

Whilst we may have questions on the Isle of Man about the effectiveness of public registers, last week’s events are a clear indication of the strength of support for such registers amongst policymakers in the UK and our nearest neighbours. As a modern, outward looking jurisdiction that seeks to be recognised for the high standards it applies we cannot ignore this.”

The MP Margaret Hodge is to be commended for the great work that she’s done in the UK Parliament to achieve cross-party consensus, forcing the government to require beneficial ownership transparency for companies in the Overseas Territories (notwithstanding recent threats from the some of the Overseas Territories that they will be taking legal action against the imposition of public registries).

It now seems likely that the EU’s 5th anti-money laundering directive, and the UK government’s decision to transpose it into UK law, will make public registers irresistible in the Crown Dependencies and, we think, in the Overseas Territories alike – importantly for trusts as well as companies. As I told the Guardian newspaper.

The crown dependencies, recognising the importance for their business models of maintaining full access to EU markets, are likely to align with the standard”

The continuing refusal of the United States to engage with this emerging international standard makes it increasingly the tax haven and secrecy jurisdiction of choice. But the EU has been clear that this will not stand in the way of progress. Whether the US is added to the EU blacklist of non-cooperative jurisdictions for this reason in mid-2019 remains to be seen, but the pressure for the OECD and the Financial Action Task Force to incorporate the new standard is clear.

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