Following a commitment made at this summer’s G8 summit, the UK Prime Minister David Cameron recently announced plans to create a public register of the beneficial owners of UK companies. It is hoped that by promoting transparency, the proposal will help prevent money laundering and tax evasion.

Who will it affect?

Companies will have to supply information relating to individuals who hold 25 per cent or more of company shares or voting rights, or who otherwise would be able to control the way the company operates.

It is estimated that the proposal will affect about 2.5 million companies and partnerships. In the vast majority of cases, the beneficial and legal owner will be identical. However, the UK government estimates that this will not be the case for around 400,000 companies. The register is not expected to apply to public companies.

Reaction

The proposal has been greeted with a mixed reaction.

Business groups such as the Confederation of British Industry and the Institute of Directors have backed the move by stating that greater transparency will lead to a “level playing field”. The World Bank Group has also praised the proposal by stating that the register will help “reduce tax evasion [and] reduce corruption”.

However, the public nature of the register has been criticised by some stakeholders.

The Law Society has criticised the government’s intention by stating that in many cases there are “legitimate reasons why people might wish to keep their ownership private”, a sentiment echoed by the accountancy institute, ICAEW. While it is thought that any legislation will include exceptions for reasons of security, commentators believe that this added complexity may be problematic by allowing some companies to avoid the transparency requirements.

What next?

The prime minister’s announcement follows the release in July of the Department for Business Innovation & Skills’ (BIS) “Transparency & Trust” discussion paper. BIS’s formal response, along with its proposals, are expected to be published during the first half of 2014.

The UK is the first G8 country to announce a firm intention to introduce such a register and many commentators have suggested that its success will depend largely on the willingness of other jurisdictions to adopt similar measures. In this regard:

• The EU is currently considering the Fourth Anti-Money Laundering directive, which increases scrutiny of the beneficial ownership of companies.
• The Cayman Islands government has announced an intention to introduce a similar register.
• The Obama administration has promised to take action on beneficial ownership and Congress is considering legislation to create private corporate registries at state level.

Public scrutiny

While the main intention of the register is to reduce corruption, increased transparency could lead to increased press scrutiny of companies who reduce their tax liability through intra-group financing.

It is believed that some companies attempt to keep some subsidiaries out of the public eye by using complex group structures and “off the shelf” company names to disguise a subsidiary’s relationship with its ultimate owner.

For these companies, the publication of details if their beneficial owners could lead to adverse press coverage and reputational damage.

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