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The Denning Law Journal 2018 Vol 30 pp 185-202
STATUTE NOTE
MONEY LAUNDERING, PUBLIC BENEFICIAL
OWNERSHIP REGISTERS AND THE BRITISH
OVERSEAS TERRITORIES: THE IMPACT OF THE
SANCTIONS AND MONEY LAUNDERING ACT
2018 (UK)
John Hatchard*
1 INTRODUCTION
The revelations from the Panama Papers 1 have highlighted the
potential use of off-shore shell and shelf companies based in the British
Overseas Territories and Crown Dependencies to facilitate money
laundering, tax evasion, the financing of terrorism and other serious and
organised crime. The use of such companies has enabled the natural
person(s) who ultimately owned or controlled the company to remain
concealed behind a nominee director(s) and nominee shareholder(s).2 This
has led to international interest and pressure to increase the transparency
in the beneficial ownership of such companies.
This note explores the important recent developments towards
enhancing beneficial ownership transparency, especially as regards the
United Kingdom (UK) and its Overseas Territories (OTs) and Crown
Dependencies (CDs). It is divided into five sections. This section provides
an introduction and background to the issue. Section 2 reviews some of
the ongoing international efforts aimed at improving transparency in
beneficial ownership and that is spearheaded by the Financial Action Task
Force and the G20. Section 3 considers beneficial ownership transparency
* Professor, School of Law, University of Buckingham. Email:
john.hatchard@buckingham.ac.uk
1 For details, see the website of the Consortium of Investigative Journalists
accessed 20 July 2018.
2 The Conference of State Parties to the United Nations Convention against
Corruption, Report of the International Group Meeting on Beneficial Ownership
(CAC/COSP/2017/CRP.5) para 32, also notes that corruption schemes
increasingly use new sophisticated types of corporate vehicles with so-called “tax
havens or secrecy jurisdictions” being used to facilitate the criminality.
mailto:john.hatchard@bu
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and law enforcement cooperation with reference to the UK, OTs and CDs.
Section 4 then focuses on the development of public registers of the
beneficial ownership of companies in the OTs following the passing of
the Sanctions and Money Laundering Act 2018. The final section contains
a short conclusion.
There are 14 Overseas Territories including Anguilla, Bermuda, the
British Virgin Islands, Cayman Islands, Gibraltar and the Turks & Caicos
Islands 3 whilst the Crown Dependencies comprises the Bailiwick of
Guernsey, the Bailiwick of Jersey and the Isle of Man. 4 All are of
international significance as offshore financial centres. Yet, as Nicholls et
al have pointed out, there has been “persistent criticism of the offshore
financial sector … since there exist jurisdictions in which legal
frameworks and practices obscure the identity of beneficial owners by, for
example, placing ownership in the hands of nominee directors and
shareholders”. 5 Indeed the UK National Crime Agency has reportedly
calculated that £90 billion is laundered through the UK each year and that
“this laundering can only be done, by and large, through British overseas
territories, which are central to this nefarious activity”.6
The use of off-shore shell and shelf companies to purchase expensive
real estate was highlighted in a 2014 study by Transparency International
which found that 9.3 per cent of properties in the City of Westminster, 7.3
per cent in Kensington & Chelsea, and 4.5 per cent in the City of London
were owned by shell companies registered in an offshore “secrecy”
jurisdiction.7 The study further revealed that 36,342 London properties
3 The full list is set out in the British Nationality Act 1981, sch 6. For a useful
historical survey of the Caribbean OTs see Peter Clegg, ‘Non-self-governing
Territories of the Caribbean and Debates over Autonomy’ in J West (ed), South
America, Central America and the Caribbean 2016 (24th edn, Routledge 2016)
33-39: available at
accessed 10 July 2018. For a useful history of the OTs see Foreign &
Commonwealth Office, Overseas Territories: Security, Success and
Sustainability (White Paper, Cm 8374, 2012).
4 Within the Bailiwick of Guernsey there are three separate jurisdictions:
Guernsey (which includes the islands of Herm and Jethou); Alderney; and Sark
(which includes the island of Brecqhou).
5 Colin Nicholls and others, Corruption and Misuse of Public Office (3rd edn,
OUP 2017) para 23.04.
6 Andrew Mitchell MP in the House of Commons debate of the Report Stage of
the Sanctions and Anti-Money Laundering Bill Deb 1 May 2018, 42.
7 Transparency International, Corruption on your doorstep: How corrupt capital
is used to buy property in the UK (Transparency International, 2014) 16.
http://eprints.uwe.ac.uk/27446/3/sac.essay.21.2.pdf
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were held by offshore companies with the vast majority being registered
in the OTs and CDs.8
The Organisation for Economic Cooperation and Development
(OECD) has defined shell companies as: “… entities established not to
pursue legitimate business activity but solely to obscure the identity of
their beneficial owners and controllers”9 and noted further that a shell
company functions as a corporate veil, providing an effective screen
separating criminals from illicit financial activities. Findlay has also
commented that “Shell companies that cannot be linked back to the real
individuals in control create near-insuperable obstacles for regulators and
law enforcement officials”.10 “Shelf companies” have also been identified
as posing a particular problem as they “provide individuals with a
company history and a set of company officials unrelated to the corrupt
individual”.11
In this context, a beneficial owner is defined in the Financial Action
Task Force (FATF) Recommendations as follows:
“Beneficial owner refers to the natural person(s) 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”.12
Reflecting the often complex ownership and control structures of
companies, the FATF Recommendations add:
“Reference to “ultimately owns or controls” and “ultimate
effective control” refer to situations in which ownership/control is
8 Ibid 5. More than one third of all foreign companies holding London property
were incorporated in the British Virgin Islands (13,831 properties), Jersey 14%
(5,960 properties), the Isle of Man 8.5% (3,472 properties) and Guernsey 8%
(3,280 properties).
9 OECD Steering Committee on Corporate Governance, Behind the Corporate
Veil: Using Corporate Entities for Illicit Purposes (Paris, 2001) 17.
10 Michael Findlay, Daniel Neilson and Jason Sharman, ‘Global Shell Games:
Testing Money Launderers’ and Terrorist Financiers’ Access to Shell
Companies’ (Centre for Governance and Public Policy, 2012) 5 <
http://www.gfintegrity.org/wp-content/uploads/2014/05/Global-Shell-Games-
2012.pdf> accessed 20 July 2018.
11 CoSP (n 2) para 50.
12 Glossary to the FATF Recommendations.
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exercised through a chain of ownership or by means of control
other than direct control”.13
Thus the need to identify the beneficial ownership of companies, (and
not just shell and shelf companies), has become of international and
national significance in the fight against serious crime.
2 INTERNATIONAL EFFORTS TO IMPROVE
TRANSPARENCY
International efforts to improve the transparency and availability of
beneficial ownership information are of relatively recent origin and have
particularly focused on the work of the Financial Action Task Force and
the G20.14
2.1 The Financial Action Task Force (FATF)
The FATF is an inter-governmental body comprising 37 members.
However, through its system of FATF-style regional bodies, some 190
countries are now members of the FATF “family”. Its role is to set
internationally recognised standards to combat money laundering and this
is done through the FATF Recommendations.15 In 2003 the FATF for the
first time addressed the issue of beneficial ownership and in particular the
need for “competent authorities”16 to have access to beneficial ownership
information for the purpose of investigation and prosecution. The most
recent set of FATF Recommendations are the International Standards on
13 Ibid.
14 Another key player is the Global Forum on Transparency and Exchange of
Information for Tax Purposes. The Global Forum is “an international body for
ensuring the implementation of the internationally agreed standards on tax
transparency and exchange of information in the tax area”: see
accessed 15
July 2018.
15 See further accessed 25 July 2018. The UK is a
member of FATF. The OTs and CDs are not members but are subject to
assessment as to their compliance with the FATF Recommendations.
16 “Competent authorities” refers to “all public authorities with designated
responsibilities for combating money laundering and/or terrorist financing”. This
includes law enforcement and prosecutorial authorities, supervisory authorities,
tax authorities and financial intelligence units: see the Glossary to the FATF
Recommendations.
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Combating Money Laundering and the Financing of Terrorism &
Proliferation (the FATF Recommendations). Published in 2012 they
contain (amongst many other things) “essential measures” that all
members of the FATF “family” are required to have in place “to enhance
the transparency and availability of beneficial ownership information of
legal persons and arrangements”. In particular, Recommendation 24 states
that:
“Countries should [must]17 ensure that there is adequate, accurate
and timely information on the beneficial ownership and control of
legal persons that can be obtained or accessed in a timely fashion
by competent authorities…”.18
Further, an Interpretive Note to Recommendation 24 states that:
“Competent authorities should [must] be able to obtain, or have
access in a timely fashion to, adequate, accurate and current
information on the beneficial ownership and control of companies
and other legal persons (beneficial ownership information) that are
created in the country”.
As regards trusts, Recommendation 25 states that countries “should
[must] ensure that there is adequate, accurate and timely information on
express trusts, including information on the settlor, trustee and
beneficiaries that can be obtained or accessed in a timely fashion by
competent authorities”.19
Improving the transparency and availability of beneficial ownership
information remains a high priority, especially as few countries, including
17 The Glossary to the FATF Recommendations states that “For the purposes of
assessing compliance with the FATF Recommendations, the word “should” has
the same meaning as “must”‘.
18 The Fourth European Union (EU) Money Laundering Directive was published
in 2015 and reflects the additional AML obligations contained in the FATF
Recommendations. EU Member States were required to implement the Directive
by June 2017.
19 In 2014 the FATF published its Guidance on Transparency and Beneficial
Ownership. This requires States to ensure that measures are in place to: prevent
legal persons or arrangements from being used for criminal purposes; make legal
persons/arrangements sufficiently transparent; and ensure that accurate and up-to-
date basic and beneficial ownership information is available on a timely basis.
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G20 countries, have effective cooperation mechanisms in place.20 Clearly,
this remains work in progress. It might also be noted that the focus of the
FATF is on law enforcement cooperation and there is no mention in the
FATF Recommendations of the need for member countries to establish a
public register of beneficial ownership of companies or trusts.
2.2 G20
The G20 is an informal group of 19 countries and the European Union
that addresses issues relating to international economic cooperation.
Reducing corruption remains a high priority and at its 2014 meeting in
Australia the G20 High-Level Principles on Beneficial Transparency
Ownership (the Principles) were agreed. These are a set of “core
principles on the transparency of beneficial ownership of legal persons
and arrangements and are built on existing international instruments and
standards”.21 The Principles include the following:
1. Countries should have a definition of “beneficial ownership” that
captures the natural person(s) who ultimately own or control the legal
person or legal arrangement;…
3. Countries should ensure that legal persons maintain beneficial
ownership information onshore and that information is adequate, accurate
and current;
4. Countries should ensure that competent authorities (including law
enforcement and prosecutorial authorities, supervisory authorities, tax
authorities and financial intelligence units) have timely access to
adequate, accurate and current information regarding the beneficial
ownership of legal persons and legal arrangements.
Again, there is no reference to a requirement for states to introduce a
public register of beneficial ownership.
20 The FATF has reported that to date (July 2018) “… few countries have
demonstrated that information is available to competent authorities on the
beneficial owner of legal persons and arrangements, or that these persons and
arrangements are prevented from being misused.” FATF Report to the G20
Finance Minister and Central Bank Governors (Paris, 2018) para 23
accessed 27 July 2018.
21 accessed 15 July
2018.
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3 BENEFICIAL OWNERSHIP TRANSPARENCY AND
LAW ENFORCEMENT COOPERATION: THE UK, OTS
AND CDS
3.1 The constitutional relationship between the UK, OTs and CDs
Examining the constitutional relationship between the UK and the
OTs and the UK and the CDs respectively is fundamental to an
understanding of recent developments concerning beneficial ownership
transparency.
The relationship between the UK and the OTs is set out in a 2012 UK
Government White Paper entitled Overseas Territories: Security, Success
and Sustainability (the OT White Paper):
“The UK, the Overseas Territories and the Crown Dependencies
form one undivided Realm…. Each Territory has its own
Constitution and its own Government and has its own local laws.
As a matter of constitutional law the UK Parliament has unlimited
power to legislate for the Territories. Territory Constitutions set
out the powers and responsibilities of the institutions of
government, which for most Territories include a Governor or
Commissioner, an elected legislature and Ministers. Governors or
Commissioners are appointed by Her Majesty The Queen on the
advice of Her Ministers in the UK, and in general have
responsibility for external affairs, defence, internal security
(including the police) and the appointment, discipline and removal
of public officers. Elected governments have a wide range of
responsibilities” (my emphasis).
The italicised words are crucial as they emphasise that the Crown
retains a residual power to legislate for the OTs. Indeed this is specifically
provided for in some constitutions of the OTs. For example, section 125
of the Cayman Islands Constitutional Order 2009 states: “There is
reserved to Her Majesty full power to make laws for the peace, order and
good government of the Cayman Islands”.22 The exercise of this power is
normally undertaken by means of an Order in Council. Responsibility for
the OTs falls on the UK Foreign & Commonwealth Office.
22 SI No 1379. See also the Turks & Caicos Constitutional Order 2011 that is
noted below. Such Orders may be subject to judicial review: R (Bancoult) v
SoSFCA (No 2) [2008] UKHL 61, [2009] AC 453.
http://www.publications.parliament.uk/pa/ld200708/ldjudgmt/jd081022/banc-1.htm
http://www.publications.parliament.uk/pa/ld200708/ldjudgmt/jd081022/banc-1.htm
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The CDs have a very different constitutional history. The Channel
Islands (and probably the Isle of Man) have never been a colony or
conquered or ceded territory and they are not part of the United Kingdom
administratively or legally. 23 Further, they have never had any
parliamentary representation in the House of Commons.24 They are self-
governing dependencies of the Crown with their own directly elected
legislative assemblies, administrative, fiscal and legal systems and law
courts.25 The UK Ministry of Justice, Crown Dependencies Branch, is
responsible for managing the constitutional relationship with the CDs.26
As regards UK legislation, the position is as follows:
“UK legislation rarely extends to the Crown Dependencies and
should not be extended without first consulting the Islands”
23 Guernsey and Jersey were originally part of the Duchy of Normandy when
Duke William, following his conquest of England in 1066, became King William
I of England. In 1204 when King John lost Normandy to the French, the islands
elected to remain loyal to the English Crown. The Isle of Man first came under
the English Crown in 1399, in circumstances which arguably suggest that it is a
conquered territory. The point is of no significance today. See generally Ministry
of Justice, Background briefing on the Crown Dependencies: Jersey, Guernsey
and the Isle of Man (no date)
accessed 20 July 2018.
24 This provides the basis for an argument that the principle that there should be
no legislation without representation undermines the power of the UK parliament
to legislate for the CDs: see Protocol to the European Convention of Human
Rights, art 3; Mathews v United Kingdom (1999) 28 EHRR 361. A similar
argument might be made in respect in the OTs.
25 See R (Barclay) v Secretary of State for Justice [2014] UKSC 54, [2015] AC
276. As Lady Hale, giving the judgment of the Supreme Court noted: “Not being
part of the United Kingdom, unlike Wales, Scotland and Northern Ireland, the
Bailiwicks are not represented in the Parliament of the United Kingdom. They are
economically self-sufficient. They pay no taxes to the United Kingdom and they
receive no contribution from the revenues of the United Kingdom. They were not
settled by, or conquered by or ceded to, the United Kingdom as colonies. Their
link with the United Kingdom and the rest of the Commonwealth is through the
Crown, not in the sense of the ultimate executive authority in the United
Kingdom, but in the sense of the person of the Sovereign. The Sovereign’s
personal representative in each Bailiwick is the Lieutenant Governor” [8].
26 This involves a variety of different responsibilities including involvement in
key Crown Appointments, processing legislation for Royal Assent and issuing
Letters of Entrustment authorising Crown Dependency Governments to negotiate
and conclude international agreements.
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Authorities and obtaining their consent. In instances where it does
extend, it may do so either by virtue of the Act itself or by Order
in Council made with their agreement under an enabling provision
contained in the Act which provides for it to be extended to the
Crown Dependencies” (my emphasis).27
The highlighted words emphasise that UK legislation does not
normally extend to the CDs and in any event requires prior consultation
with, and consent from, each of them.28 It seems doubtful that an Order in
Council made under the prerogative could be effective in respect of
domestic matters in the CDs without the consent of the local
legislatures.29
3.2 Law enforcement cooperation between the UK, OTs and CDs
A recent United Nations report has noted that “from a law
enforcement perspective, the abuse of “foreign” corporate vehicles that
are incorporated outside the main jurisdiction where the … offence was
committed constitutes the greatest problem, as it requires international
cooperation”.30 This is particularly significant in that for the purposes of
mutual legal assistance requests, each of the OTs and CDs is a separate
jurisdiction.
At the 2016 London Anti-Corruption Summit, the then British Prime
Minister, David Cameron, proposed greater compliance by the OTs and
CDs to provide UK tax and law enforcement authorities with access to
27 UK Ministry of Justice ‘Factsheet on the UK’s relationship with the Crown
Dependencies’ (2014)
accessed 17 July
2018. This reflects the position set out, for example in the States of Jersey Law
2005, art 31.
28 For a helpful discussion on the constitutional relationship see Michael Birt,
‘The power of the UK to legislate for the Crown Dependencies without consent:
Fact or fiction?’ (2017) 21(2) Jersey and Guernsey Law Review 152.
29 This point is beyond the scope of this note. The issue is explored by Birt who
argues that the only circumstances where the prerogative power could be
exercised contrary to the wishes of the legislature in a CD would be where there
has been a grave breakdown in law and order. In any other circumstance, it would
be unreasonable and subject to judicial review, applying Bancoult (n 23); ibid
161-162.
30 CoSP report (n 2) para 33.
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company ownership records. In April 2016 this resulted in an Exchange of
Notes between the UK Government and each of the key OTs and the
CDs.31 In each Note, the UK and respective government (referred to as the
“Participants”) recognised:
“the importance of the provision of beneficial ownership
information for the prevention and detection of corruption, money
laundering, terrorism financing, financing of the proliferation of
weapons of mass destruction and other serious and organised
crime”.32
Each individual Note focuses on three key commitments by each of
the Participants:
i) To provide the law enforcement authorities of the other Participant with
beneficial ownership information for corporate and legal entities
incorporated in their respective jurisdiction;
ii) To hold adequate, accurate and current beneficial ownership
information for corporate and legal entities incorporated in their own
jurisdictions; and
iii) To give law enforcement authorities of the Participants the
“automatic” right to the provision of unrestricted and timely (within
twenty-four hours or, where urgently required, within an hour) beneficial
ownership information held in the other jurisdiction.33
This is a startling development, especially given the fact that
previously, such information could only be requested by the UK via the
mutual legal assistance process.
These commitments were made having regard to the FATF and G20
initiatives and the UK Government’s decision to introduce a public central
register of beneficial ownership.34
The Exchange of Notes therefore provides for the “timely, safe and
secure access for law enforcement [and tax] authorities to beneficial
31 Beneficial Ownership: Exchange of Notes between the UK Government,
Overseas Territories and Crown Dependencies.
32 See Exchange of Notes between the Government of the United Kingdom and
the Government of the Cayman Islands in respect of the sharing of beneficial
ownership information, para 2.
33 A Technical Protocol is attached to each Exchange of Notes setting out the
practicalities of the arrangements (the Technical Protocol).
34 See Technical Protocol, para 3.
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ownership information”, with the security of the request and information
being provided specifically provided for in each Note.35 It remains to be
seen whether any legal challenges arise from the exchange of beneficial
ownership information in this manner, especially given the time-frame in
which the information can be demanded.36
Since then, the OTs and CDs have reportedly made “significant
progress in implementing the commitments by introducing legislation and
establishing, where they did not already exist, central registers or similar
effective systems”.37 This represents a major step forward in assisting law
enforcement agencies and tax authorities identify the ultimate beneficial
ownership of companies registered in the OTs and CDs. Indeed the
commitments place the OTs and CDs ahead of most other jurisdictions
and also exceed the current FATF requirements. In May 2018, the
Minister for Europe and the Americas, Sir Alan Duncan, informed the
House of Commons that the arrangements had been used over seventy
times and that this beneficial ownership data had “enhanced intelligence
leads and investigations on illicit finance”.38
4 THE SANCTIONS AND ANTI-MONEY ACT 2018:
TOWARDS THE INTRODUCTION OF PUBLIC
BENEFICIAL OWNERSHIP REGISTERS
Whilst making beneficial ownership information available to law
enforcement authorities is a major step forward, the Panama Papers
disclosures increased the pressure from civil society organisations, in
particular, for states to introduce a public registry of beneficial ownership.
35 See Technical Protocol, para 7(vi).
36 For example, whether the demand meets the criteria for the provision of such
information, especially if it is demanded within an hour. For a critical comment
see Fillipo Noseda, ‘Too much information: When the UK gets it wrong’ (2017)
21(2) Jersey and Guernsey Law Review 182 especially at 193-194. The author
also asserts that “the UK government managed to strong-arm the Crown
Dependencies and a number of Overseas Territories into signing [the Exchange
of Notes]” at 189-190.
37 See statement to the House of Commons by Sir Alan Duncan, Minister for
Europe and the Americas, HC Deb 1 May 2018, vol 640
accessed 10 July 2018.
38 Ibid.
https://hansard.parliament.uk/Commons/2018-05-01/debates/18050126000009/BeneficialOwnershipInOverseasTerritoriesAndCrownDependencies
https://hansard.parliament.uk/Commons/2018-05-01/debates/18050126000009/BeneficialOwnershipInOverseasTerritoriesAndCrownDependencies
https://hansard.parliament.uk/Commons/2018-05-01/debates/18050126000009/BeneficialOwnershipInOverseasTerritoriesAndCrownDependencies
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The UK is the first G20 country to introduce such a register. Section
81 of the Small Business, Enterprise and Employment Act 2015 amended
the Companies Act 2006 and requires companies to keep a “register of
people who have significant control over the company”. A “person with
significant control” (PSC) is an individual who meets one or more of the
following conditions:
Directly or indirectly holds more than 25% of shares in the company;
Directly or indirectly holds more than 25% of voting rights in the
company;
Directly or indirectly holds the right to appoint or remove a majority
of the directors of the company;
Has the right to exercise, or actually exercises, significant influence or
control over the company;
Where a trust or firm would satisfy one of the first four conditions if it
were an individual, any individual holding the right to exercise, or
actually exercising, significant influence or control over the activities
of that trust or firm. This is not limited to the trustee of the trust.
The annual returns by companies (known as “confirmation
statements”) must contain beneficial ownership details. The register is
accessible to the public free of charge.39
At that point, the UK Government resisted the idea of imposing
similar provisions on the OTs or CDs. In fact some significant progress
was later reported by the Overseas Territories Directorate in that several
of the OTs and CDs had already established central registers of beneficial
ownership or a similar arrangement, although only Montserrat had
committed to establish a publicly accessible register.40
In 2017 the Sanctions and Anti-Money Laundering Bill was
introduced in the House of Lords. This major piece of legislation was
39 For a review of the operation of the register see Global Witness ‘In Pursuit of
Hidden Owners Behind Companies’ (2018)
accessed 19 July 2018.
40 Foreign & Commonwealth Office, Overseas Territories Directorate Freedom of
Information Act 2000 Request Ref: 0896-17: ‘Overseas Territories and Crown
Dependencies 2017’ 8 February 2018
ttps://assets.publishing.service.gov.uk/government/uploads/system/uploads/attach
ment_data/file/679038/FOI_0896-17_response.pdf> accessed 20 July 2018. In
fact Jersey established a central register of current beneficial ownership in 1989
as did Bermuda in 1981.
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designed, amongst other things, to prevent money laundering through the
use of Scottish Limited Partnerships and to provide power to impose
sanctions on individuals for the purpose of preventing, or in response to, a
gross human rights abuse or violation.41
Originally it contained no provision relating to the establishment of
public beneficial ownership registers in the OTs and CDs and an
amendment to do so was rejected by the Government. Lord Ahmad of
Wimbledon stated that it was only in exceptional circumstances that the
UK would legislate for the OTs without their consent and that the
Government wished “to take action within the existing framework of
friendly cooperation, building on progress already made”. 42 He also
pointed out that the FATF Recommendations did not require such
registers but that the OTs would comply if these became an
internationally required standard. In the House of Commons, this point
was reiterated by Sir Alan Duncan, the Minister for Europe and the
Americas, who made it clear that the UK Government “would have
preferred to work consensually with the overseas territories to make those
registers publicly available, as we have done in agreeing the Exchange of
Notes process”.43
However in the House of Commons at the Report Stage, a group of
MPs from all three main political parties tabled amendments to the Bill
requiring the UK Government to enforce public registers on the OTs and
the CDs by the end of 2020. Without an absolute majority in the House of
Commons, the Government decided to concede the point as regards the
OTs (but not the CDs) to enable the enactment of the Bill on schedule.44
Sir Alan Duncan informed the House of Commons that the UK
Government recognised the majority view and would not oppose the
amendment, this despite his view that legislating directly would damage
the autonomy of the OTs.45
The Act came into force on May 23 2018. Section 51 is headed
“Public registers of beneficial ownership of companies registered in
British Overseas Territories” and provides as follows:
41 Popularly known as the Magnitsky amendment.
42 HL Deb 6 December 2017, c1117.
43 HC Deb (n 37) 21.
44 As Andrew Mitchell MP noted in the House of Commons debate on the Bill,
the acceptance by the Government of the new provision “is evidence that, in a
hung parliament, power passes from the Cabinet room to the Floor of the House
of Commons”: HC Deb (n 37) 41.
45 HC Deb (n 43).
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“(1) For the purposes of the detection, investigation or prevention
of money laundering, the Secretary of State must provide all
reasonable assistance to the governments of the British Overseas
Territories to enable each of those governments to establish a
publicly accessible register of the beneficial ownership of
companies registered in each government’s jurisdiction”.46
Such register is to be broadly in line with the UK provisions, noted
earlier.47
Mindful of the reluctance that some OTs might display in establishing
such a register, section 51(2) carries a threat in that:
“The Secretary of State must, no later than 31 December 2020,
prepare a draft Order in Council requiring the government of any
British Overseas Territory that has not introduced a publicly
accessible register of the beneficial ownership of companies
within its jurisdiction to do so”.
Not surprisingly, the reaction from some OTs was very critical of
these provisions with two main concerns being raised.
Firstly, the fact that a public register would put the OTs at an
economic disadvantage in relation to other off-shore jurisdictions, such as
Delaware and Panama, which do not have such a register. It was argued
that inevitably this would lead to individuals moving their companies
elsewhere and thus have a negative impact on the financial and corporate
services provided by the OTs. This is an understandable concern although
it is perhaps unlikely that this will significantly affect those who are using
these services for legitimate purposes. Of course the only way to resolve
this concern conclusively is to establish a level playing field with the
global introduction of such registers. This is considered further in the next
section.
Secondly, the threat of an Order in Council to impose a register of
beneficial ownership on the OTs undermines the right of the OTs to
internal self-government. Sir Alan Duncan in the House of Commons
46 s49(3) provides that “Money laundering” has the meaning given by the
Proceeds of Crime Act 2002, s 340(11).
47 s22(7) provides that “a “publicly accessible register of the beneficial ownership
of companies” means a register which, in the opinion of the Secretary of State,
provides information broadly equivalent to that available in accordance with the
provisions of Part 21A of the Companies Act 2006”.
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noted that “Her Majesty’s Government are acutely conscious of the
sensitivities in the overseas territories that the new [section] may
provoke”.
Indeed, criticism of the Act was soon forthcoming from the OTs. For
example, in a Statement issued on 23 May 2018 the Premier of the British
Virgin Islands said: “We are deeply disturbed by the decision in the
United Kingdom which threatens to impose public registers on the BVI….
The Government of the Virgin Islands is committed to pursuing all
available legal channels to ensure that publicly available beneficial
ownership registers are introduced in the BVI only if and when they
become a global standard, which would establish a level playing field for
all…. According to the rule of law and the BVI’s constitution, the
fundamental rights of privacy of all persons, including citizens and
corporate entities, must be protected and upheld”.48 Given the revelations
from the Panama Papers, any efforts by the OTs to prevent public
disclosure of beneficial ownership suggests that they have something to
hide.
From a constitutional perspective, the use of Orders in Council to
address UK concerns and requirements in the OTs is not uncommon. For
example the UK abolished capital punishment as well as discrimination
on grounds of sexuality in the OTs by way of Orders in Council. Perhaps
the most notable example came in 2009 when an Order in Council was
published49 effectively suspending the Government of the Turks & Caicos
Islands and vesting its powers in the Governor. This followed a report by
Sir Robin Auld which found that there was “a high probability of
systematic corruption in government and the legislature and among public
officials” in the Islands. This led to the making of the Turks and Caicos
Islands Constitution Order 201150 which increased control of the UK over
the islands. In particular section 14 provides:
“Her Majesty reserves to Herself power, with the advice and consent
of Her Privy Council, to make laws for the peace, order and good
government of the Turks and Caicos Islands”.51
48 See DS Smith, ‘Statement by Premier on the Royal Assent of the Sanctions and
Anti-Money Laundering Bill’ (Government of the Virgin Islands, 23 May 2018)
accessed 28 July 2018.
49 The Turks & Caicos Islands Constitution (Interim Amendment) Order 2009
placed before Parliament on 25 March 2009.
50 SI 1681 of 2011.
51 For a detailed discussion of the case see Nicholls and others (n 5) paras 11.74
et seq.
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Making laws designed to help combat money laundering, tax evasion
and the financing of terrorism is clearly a matter of good governance and
requiring each OT to establish and maintain a public record of beneficial
ownership falls directly into this category.
It is also worth repeating the view of the UK Government in the OT
White Paper that “As a matter of constitutional law the UK Parliament has
unlimited power to legislate for the Territories”.
During the parliamentary debate on the Bill, a clause requiring the
introduction of a similar provision for the CDs was withdrawn. This was
in recognition of the very different constitutional relationship between the
UK and the CDs, noted earlier. Thus the requirement for public registers
does not currently extend to the CDs.
5 CONCLUSION
The ongoing work of the FATF and G20 highlights the fact that
developing transparency in the beneficial ownership of companies is now
a global issue in the fight against money laundering, tax evasion, terrorist
financing and other serious crime. A key goal in this regard is for tax
authorities and law enforcement agencies to have “adequate and timely
information on the beneficial ownership and control of legal persons”.52
This is facilitated by the effective exchange of beneficial ownership
information between jurisdictions. Given their position as major offshore
financial centres, the OTs and CDs play a key role especially as each is a
separate jurisdiction for the purposes of mutual legal assistance requests.
The Exchange of Notes between the UK and the OTs and CDs is therefore
an important, and seemingly effective, contribution to this goal. The
process provides an excellent example for all jurisdictions to follow and
one that the FATF and G20 should continue to actively encourage.
The introduction in the Sanctions and Anti-Money Laundering Act
2018 of a requirement for the OTs to introduce a public register of
beneficial ownership is far more controversial. The need to address the
issue is certainly urgent given the fact that, as noted earlier, £90 billion is
reportedly laundered through the UK each year with the OTs being
“central to this nefarious activity”. However, the use of the 2018 Act to
impose the will of the UK Parliament on the OTs through an Order in
Council, if necessary, highlights the uncertain constitutional relationship
between the UK and OTs. Clegg notes that the current arrangements, at
least so far as the Caribbean OTs are concerned, were not intended to be
52 FATF Recommendation 24: see the discussion in Section 2 above.
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permanent but were originally proposed as stepping stones en route to
independence. Thus the balance of administrative responsibilities is in
practice often ill-defined.53 As he also notes, it is open to any OT to move
towards full independence, if so desired. Whilst this issue is beyond the
scope of this note, it may be pointed out that the OTs have benefited
greatly economically from their continued association with the UK,
especially as compared to those former colonies which chose to become
independent states. Whatever the future constitutional relationship
between the UK and OTs, the key point is that a public register of
beneficial ownership must become a global standard and this is where the
FATF, with its global reach, must take swift action.
So far as the CDs are concerned, EU Directives and Regulations
relating to financial services, economic and monetary union and taxation
do not apply there.54 Thus they do not fall within the scope of the EU 5th
Anti-Money Laundering Directive which was published on 19 June 2018
and entered into force on July 9 2018. Amongst other things, the Directive
(which was partly influenced by the publication of the Panama Papers)
requires all states to allow “any member of the general public” access to
beneficial ownership registers to obtain information concerning the
beneficial owner’s month and year of birth, country of residence, and
nationality, as well as the nature and extent of the beneficial interest held.
Member states are obliged to transpose the regulations into national law
by January 20 2020. In practice the CDs have opted to follow many
aspects of EU legislation and standards. Given the continued importance
of the corporate and financial sectors in the CDs, complying with the EU
anti-money laundering requirements may well become necessary.
In the UK context, the ability of tax authorities and law enforcement
agencies to obtain access to beneficial ownership information from the
OTs and CDs enhances the prospect of identifying the person “with
significant control” of a shell or shelf company. Using the Land Registry
records which provide information about the legal ownership of real
estate, many of which are companies registered in off-shore jurisdictions,
it becomes possible to link the legal ownership of property to the
beneficial owner(s). If this is a foreign politically exposed person (PEP)55
53 See Peter Clegg (n 3) 2.
54 Home Office, Review of Financial Regulation in the Crown Dependencies (Cm
4109-I, 1998) para 5.3.5.
55 The Proceeds of Crime Act 2002, s 362B(7) Inserted by the Criminal Finances
Act 2017, states that a “politically exposed person means a person who is—
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or one of their family members or close associates, this will allow the UK
law enforcement authorities to consider applying for an unexplained
wealth order (UWO). Such an order requires the PEP to explain the
legitimate source(s) of their wealth. The adequacy of the response or a
refusal to provide such information can then be taken into account in any
later civil recovery proceedings.56
Given the importance of the contribution of civil society organisations
(CSOs) such as Global Witness and Transparency International in
highlighting and campaigning for transparency in beneficial ownership,
the passing of the 2018 Act is a major success. It also offers them the
prospect of enhancing their work, and that of other CSOs, on identifying
the beneficial ownership of property and enhancing further the fallout
from the Panama Papers.
(a) an individual who is, or has been, entrusted with prominent public functions
by an international organisation or by a State other than the United Kingdom or
another EEA State,
(b) a family member of a person within paragraph (a),
(c) known to be a close associate of a person within that paragraph, or
(d) otherwise connected with a person within that paragraph”.
56 See Criminal Finances Act 2017, ss 1-6.