Draft EU Money Laundering Laws Set to Reveal Trust Owners and Beneficiaries

Under draft money laundering laws set in place by the European Parliament, the names of trust owners and beneficiaries will be put in the public domain for the first time. The move comes in further attempts to clamp down on tax evasion and criminal activity. “The fourth anti-money laundering directive will help to lift the veil of secrecy from offshore accounts and greatly aid the fight against money laundering and blatant tax evasion," said Dutch MEP Judith Sargentini, one of the proposal's architects. In a letter to the president of the European Council, Herman Van Rompuy, last November, David Cameron, the prime minister, highlighted the "important differences between companies and trusts" in the context of this legislation. The draft legislation will now be put before the European Parliament on March 11. Under the anti-money laundering directive (AMLD), as amended by MEPs, public central registers (which were not envisaged in the initial European Commission proposal) would list information on the ultimate beneficial owners of all sorts of legal arrangements, including companies, foundations and trusts. Ms Sargentini added: “If we had decided to leave trusts, for example, out of the scope of this new legislation, then it would immediately have made them a perfect vehicle for criminals wishing to avoid taxation or launder their illegal money into the financial system.”

Proposed rules detailed

Under the legislation EU member states would have to make registers "publicly available following prior identification of the person wishing to access the information through basic online registration", MEPs say. However, they have added several provisions in the amended AMLD to protect data privacy and to ensure that only the minimum information necessary is put in the register. For example, registers would show who is behind a given trust, but would not reveal details of what is in it or what it is for. The draft rules would apply to banks and financial institutions, and also to auditors, lawyers, accountants, notaries, tax advisors, asset managers, trusts and real estate agents. If done intentionally, activities such as converting property, or disguising its true nature, source and ownership, whether in a member state or in the third country, would be treated as money laundering. The same would apply to taking part in or facilitating these activities. Where there is a little risk of criminality, due to the limited nature of a financial activity and its low threshold, member states could exclude some activities and people from the scope of the draft law. However, they may also extend its scope to cover cases where there is a high risk of money laundering. Where member states do identify high risks, they should examine the background and purpose of all complex and unusual transactions. The draft rules aim to curb recklessness in establishing business relationships by identifying the customer on the basis of information and documents obtained from a reliable source. Occasional transactions, carried out in a single operation or several that are linked, should be checked when they amount to €15,000 or more. For goods paid for in cash, the threshold would be €7,500 or more.

Lack of understanding

Commentators have argued that the draft EU law poses a real threat to personal privacy, particularly here in the UK where trusts are widely used for inheritance tax planning and other practical purposes. Professionals setting up or managing trusts are already required to verify the identity of beneficiaries to prevent money laundering, it is noted. In the UK, at least, there is a widespread belief that a lack of understanding in continental Europe has led to trusts being unfairly and inaccurately linked with tax evasion.

“Trusts have endured through the centuries and form a vital part of the modern private client lawyer's armoury. Good trusts will survive and reputable lawyers and law-abiding citizens have nothing to fear from the legislation,” commented one industry observer.

For more information and advice on issues concerning wills, trusts and probate, please contact Jacqueline Almond, Partner Wills, Trusts and Probate team at IBB Solicitors, covering Buckinghamshire, West London, Uxbridge, Amersham, Chesham and surrounding counties. Email: jacqueline.almond@ibblaw.co.uk or phone 01494 790002