Importance and Effectiveness of EU Register of Beneficial Ownership

By Christina Poursanidou, Lawyer

Money laundering scandals during the last years have created much uncertainty about the effectiveness of the EU-Anti-Money Laundering Directives (AMLDs) and the presumption that transparency over the companies structure will lead to the the prevention of future similar cases. Despite the fact that World Bank, International Monetary Fund (IMF), as well as Financial Action Task Force (FATF) were discussing the need of bringing to light the companies’ ultimate beneficial owners, the EU legislators made the creation of the Register of the Beneficial Ownership of legal entities mandatory for each Member State. More specifically, according to the Article 30 of the 4th AMLD “Member States shall ensure that corporate and other legal entities incorporated within their territory are required to obtain and hold adequate, accurate and current information on their beneficial ownership, including the details of the beneficial interests held.” Similarly, in order to enhance the transparency, 5th AMLD has made the Registers of Beneficial Ownership publicly accessible. 

Undoubtedly, the Register of Beneficial Ownership of EU companies will play a pivotal role in the attempt to combat money laundering and terrorist financing. Legal entities, payment institutions and any other person entering into a business relationship with a legal entity, may easily identify the beneficial owner of the company, without time - consuming requests for disclosure of information and investigations within complex legal structures. In the same time, the national competent authorities will have adequate, accurate and up-to-date details on the beneficial owners of legal entities during criminal investigations. Finally, criminals willing to incorporate a company in EU aiming to launder their dirty funds, knowing that their data will be recorded and publicly be available, may consider twice before taking their decision to do so. Considering the above, I will admit that in theory the Registers of Beneficial Ownership will lead to the combat of money laundering within the European Union. But, when theory is transposed into reality, usually the practical implementations of such legal structures are not the expected ones. 

First of all, the fact that a beneficial owner of the company will be recorded in the register only if he holds 25% or more of the company’s shares, shows that the legislators tried to achieve the transparency, but not the absolute transparency. “Exploiting” this threshold, the real owners of the companies will be able to divide the ownership between their family members, close associates or even nominee shareholders, in order to avoid being recorded in the Register. In the same time, the majority of the corporate service providers or accountants or auditors, which will be assigned to draft and submit the UBO Registers with the payment of the respective fee will not hesitate to follow their customers instructions to submit misleading or false information, in order not to lose this customer and his valuable funds. Even more importantly, the submission of false information concerning the beneficial ownership will not cause any problems neither to the company nor to the submitting agency any problem, simply because the competent national authorities will rarely verify the accuracy of the information received.

In the question of what can be done in order to bring the theoretical “ideal” results of the Register of Beneficial Ownership into reality, the answer is quite simple. Ensure the compliance with the Directive! Thorough verification of the information submitted to the Register by the national competent authorities, which upon the receipt of information shall review if the beneficial owner of each company has reasonable grounds to be its owner, consider why a company has a number of beneficial owners or even what is the relation between them. Moreover, the submission of fake information concerning the identity of the beneficial owners shall be subject to heavy fines both for the creator and the submitter of the information and for the Company. It shall be clear that the creation of the Register of Beneficial Ownership improperly and the pure or no verification of the information received is not what the EU legislators looked for during the drafting of the 4th and 5th AMLD. (photo:pixabay)

Read more articles by Christina Poursanidou here

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