Ultimate Beneficial Owner: to Whom May the Information Be Disclosed?

Under populist political pressure, many offshore financial centres are setting up public registers of UBOs, i.e. ultimate beneficial owners of companies, trusts, foundations.

The fact is, offshore companies today are not intended to hide your identity from the government or the tax authorities of your country of residence. Even if closed registers are maintained in the jurisdiction of incorporation, identification of ultimate beneficial owners is an essential part of the job of compliance officers of banking and payment institutions, trust companies and company formation agencies.

What is the reason for this, and exactly what information do such registers of beneficial ownership contain? Let’s try to understand in detail. Who is considered an ultimate beneficial owner? Why is it necessary to provide one’s data even in jurisdictions with no public access to the registers?

Beneficial Owner

Company’s Ultimate Beneficial Owner: Legal Definition

In order to properly assess the risks and possible legal consequences, it is necessary to determine who or what is the ultimate beneficial owner of a company, trust or foundation. 

According to the FATF definition, a beneficial owner is defined as a natural or legal person who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.

However, this definition is open to wide interpretation. In particular, the beneficial owners may include persons who are the ultimate beneficial owners and/or own at least 25 percent of the share capital of the controlled entity. Another important point is that beneficial owners may also be defined as other persons who directly or indirectly influence the decisions made regarding the company, including the cases when these persons have no formal ownership of shares of the legal entity. 

Our experts will help beneficial owners of offshore and other foreign companies and trust structures to minimize the risks by using a well thought out and professionally planned business structure.  

It is important to keep in mind that, according to the laws of a particular jurisdiction, beneficial owners may be defined as persons who were not originally defined as ultimate beneficial owners. In most countries with public UBO registers, this category may include executive directors and board members of the company. Practice shows that the most commonly used estimation method takes into account the share in the company’s share capital, i.e. holders of 25 percent of shares or more.  

Important note. Beneficial owners of offshore companies may only be identified by registered agents and banks based upon their consent. 

Disclosure of Information on the Actual Owner: When and to Whom? 

Information on the beneficial owners contained in public registers is available to both the authorities and third parties. In such jurisdictions, your information is wide open – this data can be found by any interested competitor, kidnap-for-ransom cartel, journalist, corporate raider or gold digger, if they know where to look for it. 

In jurisdictions with closed registers, your information is not subject to automatic disclosure to third parties. In this case, the information is provided to entities or individuals only on a ‘need to know’ basis. If a request is sent by the competent authorities, for example, the national regulator, the tax service or Interpol, the data will be disclosed based on a court decision – possibly without notifying the beneficial owner or other interested party. 

Is it possible to avoid providing information on the actual owner of an offshore company in order to reduce the risks? The answer is no. Today, it is illegal and impossible for the following reasons:

  1. The registered agent in the jurisdiction of incorporation must have this information. Otherwise you won’t be able to establish a business. 
  2. No bank account can be opened without detailed information on the ultimate beneficial owner.
  3. KYC and AML rules require the financial institution to verify the identity of the actual owners and ultimate beneficial owners (generally speaking, this means holders of 25 percent of shares or more).

It is important to understand that disclosure of such information in jurisdictions with confidential/closed registers is only possible upon decision of an international court or judicial authority of the same country. In most countries with public UBO registers, disclosure is either paid for or requires special permission. 

As for the supervisory authorities, access to such information upon court decision can be obtained by:

  • Customs and Tax Departments;
  • Control bodies;
  • Judicial and law enforcement agencies;
  • Prosecutor’s office;
  • Financial intelligence;
  • Specialized national or regional units interested in combating tax evasion;
  • Domain registration administrations;
  • National authorities in charge of combating economic crime;
  • Other national departments of justice. 

The list of regulators and supervisory authorities having the right to obtain the beneficial ownership data varies from one country to another and depends on their domestic legislation. 

 As for third parties, offshore jurisdictions with closed registers have strict data security rules, the violation of which is considered a criminal offense and is punishable quite seriously. Therefore, strong and well-reasoned grounds supported by documents are required for information disclosure. 

Here you can find a summary table of registers of the beneficial owners in the jurisdictions that are popular with business persons for setting up international companies. 

Why are countries introducing UBO public registers en masse?

Ukraine became the first country in the world to set publicly available registers of the actual owners of companies. On October 14, 2014, a special law was passed that makes all business owners provide information to the State Register of Legal Entities, Sole Proprietors and Public Associations (effective date September 26, 2015). 

So, what is the reason for the rapid setting of public UBO registers in many countries of Europe, Asia and beyond? The AMLD5 EU Anti-Money Laundering Directive forces the authorities of many countries to comply with international standards. A similar situation is observed in many jurisdictions formerly known as tax havens. For example, a PSC Register was introduced in the UK in 2016. It lists the data of all persons with significant control over a particular company, even if they are not actual owers. At the same time, the beneficial owner can withhold their data if they prove an increased risk of disclosure.

Important. In March 2021, the European Union connected the UBO registers of its member states into a single information system.

Beneficial owner of an offshore company  

Large-, medium- and small-sized businesses should prepare for the fact that sooner or later many offshore jurisdictions will follow the European example and set public UBO registers. The British Virgin Islands, for example, is well advanced in this process. The United States also announced in 2021 that it is setting up a Beneficial Ownership Registry.

Nowadays, many countries of the world still offer a competitive zero-tax environment to offshore companies and jealously guard their ultimate beneficial owners’ information. It is therefore necessary to carry out the right structuring and planning today – so that tomorrow you can control what information appears in the public domain about you, your spouse and your kids. 

Important. The realities of today make businesses build carefully tailored mechanisms in order to enhance data security and diversify assets. Of course, the costs increase with the complexity – as the old saying goes, freedom is not free!

We recommend that you address your asset protection and privacy issues right now. This will allow your business structure to fully comply with the norms of international law, national laws of the country of incorporation and those of your countries of residence. 

Let us briefly review what popular offshore countries are planning to back down from closed registers of beneficial owners as part of enhancing tax transparency, and the time frame in which you need to review your own business structures:

  1. The British Virgin Islands, the Isle of Man and other overseas territories of the UK will do it by 2023.
  2. Gibraltar set a register in 2017. It has been available online since March 2020.
  3. Jersey will make its extended digital register public by 2023.
  4. Singapore has a closed register started July 30, 2020.

Anyway, the situation of a particular business group must be dealt with individually. Today, not all countries have the time or inclination to implement AMLD5. 

On the other hand, the registers of beneficial owners in some of the higher-profile conventional offshore jurisdictions still remain protected. For example, the Seychelles allows anonymity by means of closed registers. Information on ultimate beneficial owners and owners of the company is kept by resident agents for at least seven years from the date of liquidation of such company, after which it is destroyed. 

Beneficial Owners of Offshore Trusts

As it was discussed above, the term “beneficial owner” refers to individuals who ultimately own or control an asset and directly or indirectly benefit from it. 

The defining characteristic of a beneficial owner of a trust is that such a person has a degree of control over the asset that allows them to benefit from it. It does not matter whether they are not the legal owner (i.e., the trustee always holds the legal title) or the beneficiary of the trust. It is important to note that the “beneficial owner” must always be a natural person, since a legal entity cannot exercise “ultimate” control over an asset – companies are always directly or indirectly controlled by natural persons. 

In the legal context of trusts, there is no fixed formula – everything is case by case. Identifying who has ultimate control over the assets held in trust requires study of the trust deed itself. This is why wealthy individuals seeking privacy are increasingly attracted to offshore trusts.

Generally speaking:

  • The Trustee exercises control over the asset, but is not the ultimate controller, because the Trustee is legally bound to act for the Beneficiaries.
  • The Settlor transfers ownership of the trust assets to the Trustee for the benefit of the Beneficiary, but the Trustee may also continue to exert certain control or influence over the trust. 
  • The Beneficiary may benefit from the trust, but generally cannot exercise any control over it.

Disclosure of information on beneficial owners for corporate banking services 

Yet again we would like to draw your attention to the fact that any bank is obliged to obtain the data of the actual owners of a company, trust or foundation as part of the KYC procedure. Does this mean that your personal information will be available to the public? Not at all!

Financial institutions use it exclusively for their own internal audits, known to many business persons and investors as “compliance.” The data is provided only upon the client’s consent and knowledge.

It is important to understand that without information about the actual owners of the company, financial institutions simply will not open any accounts. With the help of our experts the probability of rejection is significantly reduced, as we have experience and practical skills in the proper preparation of documents for pre-approval or standard opening of an account for your company. 

You can find out more during consultation with our experts. Please feel free to contact us right now by email, online chat or via any of the messengers convenient for you. 

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