05 April 2016

Authorities Poised to Shine Light on Opaque Ownership

Over the weekend Central American law firm Mossack Fonseca has found itself at the centre of the world's largest data leak. This comes on the back of several high profile data security breaches that have released into the public domain names of companies and individuals involved in structuring their affairs through what are described to be “secret” offshore tax havens.

Background

The unprecedented leak of more than 11 million documents spanning a period from the 1970s to 2016 came from an anonymous source and was shared with the International Consortium of Investigative Journalists (ICIJ) which in turn organised an investigation by news organisations around the world. To put the scale of the leak into context “Wikileaks” in 2010 involved 1.7 gigabytes of sensitive information being stolen and publicly distributed – Mossack Fonseca involves 2.6 terabytes i.e. 1,500 times larger.

The documents (including emails, banking details and client records) date back 40 years and have attracted media attention due to the fact that they appear to include 12 current/former world leaders and 128 more politicians and public officials from around the world.

Whilst the use of offshore structures/entities in tax advantageous jurisdictions is not illegal, the opaque nature of these structures means that meaningful oversight by the enforcement authorities and their underlying purposes may not be possible. The concern is that at least some will have been used for tax avoidance, money laundering and/or to circumvent international sanctions.

That said, in parallel to what are becoming increasingly frequent data leaks, governments around the world are now also looking to toughen up their disclosure requirements and provide full transparency when it comes to who owns/controls what in the world of international finance.

New Persons of Significant Control (PSC) Register

The UK is attempting to lead the way in trying to provide a transparent platform/market in which to carry out business. From 6 April 2016 companies must keep a register of individuals who are deemed to have "significant control". An overview of the compliance requirements and issues arising from the PSC register can be found here. The PSC register represents implementation in the UK of one aspect of the Fourth AML Directive.

Assessment and consultation on the Fourth AML Directive remains ongoing across Europe with the deadline for implementation into national law being 26 June 2017.

The objective of the Fourth AML Directive is to target the prevention, detection and investigation of money laundering and terrorist financing. In particular, it aims to enhance the existing risk-based approach to anti-money laundering and counter-terrorist financing and increases the focus on the effectiveness of those systems. The Fourth AML Directive specifically addresses:

  • Customer due diligence, including provisions on “simplified” due diligence and “enhanced” due diligence – i.e. what information you should know and what enquiries should be made before you can start business with a counterparty.
  • Beneficial ownership information relating to corporates and trusts, including the introduction of central registers such as that shortly to be implemented in the UK.
  • Reporting obligations, including suspicious transaction reports.
  • Data protection and record keeping.
  • Policies, procedures and supervision, including provisions on training.

For a detailed insight into the Directive from KWM’s Luxembourg office, see here.

Conclusion

The leaked data is a never-before-seen insight into the offshore world allowing not just journalists but enforcement authorities the ability to see how assets are held and transactions structured within the global financial tax system. It is almost certain that both civil and criminal investigations will follow and the expectations as regards EU Member States tackling money laundering and terrorist financing in the years to come have just been increased significantly.

Belt and Road Hub

We explore the opportunities the Belt and Road Initiative brings for your business, and provide our comprehensive, professional services to help.

Belt and Road

A Guide to Doing Business in China

We explore the key issues being considered by clients looking to unlock investment opportunities in the People’s Republic of China.

Doing Business in China
Share on LinkedIn Share on Facebook Share on Twitter
    You might also be interested in

    It’s official. On 5 March 2021 the UK Financial Conduct Authority (FCA) announced that all LIBOR settings will either cease to be published by any administrator or no longer be representative, with...

    09 March 2021

    Keepwell deeds, also known as letters of comfort, are a credit protection tool commonly used by Chinese companies issuing debt offshore.

    23 February 2021

    This article was written by Patric McGonigal and Ramon Garcia-Gallardo. At a virtual ceremony on 11 June 2020, Singapore's Minister for Home Affairs and Law, K Shanmugam SC and the President of the...

    22 June 2020

    The UK officially left the European Union (“EU”) at 11pm on 31 January 2020

    20 February 2020

    You may also be interested in...

    Legal services for your business

    This site uses cookies to enhance your experience and to help us improve the site. Please see our Privacy Policy for further information. If you continue without changing your settings, we will assume that you are happy to receive these cookies. You can change your cookie settings at any time.

    For more information on which cookies we use then please refer to our Cookie Policy.