Only three of the European Union’s 28 member states launched beneficial ownership databases by the bloc’s June 2017 deadline and many of the national databases will not be fully searchable until 2018 at the earliest, according to records reviewed by ACAMS moneylaundering.com.
The bloc’s Fourth Anti-Money Laundering Directive, or 4AMLD, which was adopted in May 2015, requires member states to create centralized registers listing individuals who ultimately own or control more than 25 percent of a business in the European Union, and provide financial institutions with access to those records when conducting due diligence.
“Infringement proceedings” were launched in July 2017 against Estonia, Ireland, Greece, Croatia, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia and Finland for failing to transpose 4AMLD into national law, including by creating business ownership registers.
Only the United Kingdom, Germany and Denmark established national beneficial-ownership registers that comply with 4AMLD by the June 26 deadline, and only the U.K. database is fully operational.
Corporate entities in Germany and Denmark have until October and December, respectively, to meet EU-wide requirements to submit the name, birthdate and place of residence of each individual holding a stake of 25 percent or more in a firm operating within their jurisdiction or using other means to exercise control over those businesses.
France and Sweden launched their registers in August and September, respectively, while Belgium, Estonia, Ireland, Latvia, Portugal, Romania and Slovenia are due to create their own registers by the end of the year.
EU member states scheduled to launch centralized records of business ownership in 2018 include Austria, Bulgaria, Croatia, Cyprus, Czech Republic, Italy and the Netherlands.
However, under current plans, Lithuania, Finland and Poland will not launch their databases until 2019.
Greece, Hungary, Luxembourg, Malta, Slovakia and Spain have not yet adopted legislation to mandate the establishment of their own beneficial ownership registers to comply with 4AMLD.
Several nations will require existing corporate entities to submit their beneficial ownership information over the coming year, including Austria, Czech Republic, Estonia, France, Ireland, Latvia, Slovenia and Sweden.
But the filing deadline may not arrive until 2019 in Bulgaria, Croatia and Lithuania, and as late as 2020 in the Netherlands and Poland.
Finland has set a deadline of July 2020 for existing firms to disclose their beneficial owners to the country’s national register.
Exclusions to the registers
Member states also diverge on whether listed companies and registered domestic-branch offices of foreign entities must identify their true owners, in part because 4AMLD permits nations to exclude from the rules any companies listed on regulated markets that are already subject to similar disclosure requirements or equivalent global standards.
Some countries, including the United Kingdom, do not plan to impose beneficial-ownership reporting requirements on the branches of overseas entities operating within their jurisdictions, possibly because they are subject to separate requirements in their home nations.
“It’s not clear why the U.K. has chosen to exclude overseas companies which operate through branches, especially as the U.K. has put forward plans to introduce a new register of beneficial owners of overseas legal entities that own or want to buy property in the U.K.,” Guy Wilkes, former departmental head within enforcement at the U.K. Financial Conduct Authority said.
Austria, Croatia, Hungary, Italy, Latvia and Slovakia plan to require both listed companies and foreign branches to file ownership information.
By comparison, Cyprus, Bulgaria, Finland, France, Lithuania, Poland, Portugal, Romania, Slovenia and Sweden are expected to require foreign branches but not listed companies to submit ownership information.
However, Denmark, Estonia, Germany and the United Kingdom do not intend to impose disclosure requirements on either listed companies or foreign branches.
Causes of the delays
Most member states failed to comply with 4AMLD by the June 2017 deadline for manifold reasons, including concerns over breaching data protection rules and human rights to difficulties in keeping up with a raft of new EU financial legislation seen in recent years, sources told moneylaundering.com.
The delays are also informed at least in part by the Commission’s July 2016 proposal to strengthen the requirements after millions of records leaked from Panamanian law firm Mossack Fonseca showed the extent to which legal entities are used to avoid legal and regulatory scrutiny of transactions throughout the world.
According to Laure Brillaud, AML policy officer at Transparency International’s EU branch, several EU member states have since sought to minimize the cost of implementing the new registers by waiting until negotiations between the European Council, Commission and Parliament to amend 4AMLD conclude later this year.
The amended directive, which may lower the beneficial-ownership reporting threshold from 25 percent to 10 percent for higher-risk clients and require the registers to be publicly accessible, is expected to be adopted before any infringement proceedings against member states reach the European Court of Justice, or ECJ.
The Commission is unlikely to pursue cases against countries that fail to implement 4AMLD because it will soon be an “outdated directive,” said Tove Maria Ryding, tax-justice policy manager at Eurodad, a Brussels-based network of EU nongovernmental organizations.
The Commission’s proceedings against 16 nations over their failure to transpose 4AMLD into national law is not unprecedented: in January 2008, the executive branch launched similar proceedings against more than a dozen member states for failing to implement 3AMLD.
The agency subsequently escalated action against Belgium, France, Ireland, Spain, Sweden and Poland to the ECJ in 2008 and 2009 for failing to fulfill their obligations.
The Commission also launched infringement proceedings against most member states last year for failing to transpose directives governing public procurement and concessions, tobacco products and drivers licenses.
Member states that fail to comply with an ECJ judgment may be assessed a monetary penalty ranging from hundreds to tens of thousands of euros for each day of non-compliance, depending on the seriousness and duration of the infringement and the nation’s ability to pay.
Most cases are settled before being referred to the ECJ, which rarely imposes penalties.
“If the sanctions for non-compliance were deemed by member states to be significant, this wouldn’t happen on a regular basis,” Jeffrey Greenbaum, an attorney with Hogan Lovells in Rome. “There’s nothing to indicate this is either extraordinarily more important or urgent than other previous directives, so it’s business as usual.”
Last year, the Commission asked the court to impose fines in just three cases: two against Luxembourg and one against Romania.
“The Commission would rather have compliance with the directives than the money,” said Robert Dedman, who formerly led the Bank of England’s regulatory action division.