UK implements G20 ‘High Level Principles’ to tackle illicit finance

The UK has initiated a ground-breaking deal to tackle tax dodging and illicit finance, agreed at the G20 Summit n Hangzhou, China. This will have far-reaching implications, not least for the global mobility sector.

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In April this year, following the leaks from Panamanian offshore law firm, Mossack Fonseca, the then UK Chancellor, George Osborne along with German Finance Minister, Wolfgang Schauble, and the ministers of finance from France, Italy and Spain (the G5) wrote to their counterparts at the G20, urging international co-operation to tackle tax evasion and money-laundering.

The move has widespread support among the public. An HMRC survey carried out February 2016 showed that the majority of those polled viewed legal ‘tax avoidance’ schemes to be as morally wrong as ‘tax evasion’, with six out of 10 respondents believing that the use of legal tax avoidance schemes were widespread in the UK – a perception at odds with HMRC's own estimate that just 0.5 per cent of all tax revenues are lost to tax avoidance.

The problem with 'shell companies'

In May, President Obama too announced a number of steps to combat the problem in the USA. The so-called “Panama Papers” highlighted the problem with 'shell companies' (those with anonymous or hidden ownership). Of course, it is quite normal for companies to be established around the world in this manner – shell companies can be used to hold assets, transfer funds and open bank accounts overseas. Property developers, for example, often use them to purchase real estate without triggering price inflation and they are not in themselves illegal, but they can be used to disguise illegal activities.

The owner of such a company is known as a “beneficial owner” and so the G20 meeting in China has agreed a set of “High Level Principles on Beneficial Ownership Transparency”.

The initiative has resulted in the UK government confirming its commitment to the High Level Principles by implementing the Financial Action Task Force (FATF) Recommendations.

This means that the UK government has now published a national risk assessment of money laundering and terrorist financing in consultation with the private sector and civil society, as well as with UK law enforcement agencies, supervisors and policy makers across Government.

What the policy paper includes:

  • The government will aim to ensure that Company Law and UK Money Laundering Regulations clearly define the criteria for ownership and control that identify a person as the ‘beneficial owner’ of a company. This legislation will oblige companies to know who owns and controls them, by requiring that companies obtain and hold adequate, accurate and current information on their beneficial ownership. Companies will also be required to make this information accessible to domestic competent authorities.1

  • Companies will also be required to report beneficial ownership information to a central register. This information must be accurate and up-to-date and accessible to domestic competent authorities without alerting companies. Following a consultation, the UK has also committed to make this register publicly accessible.
  • Trustees of express trusts must obtain and hold adequate, accurate and current beneficial ownership information for their trusts, including the settlor(s), trustee(s)and beneficiaries. Mechanisms will be put in place to ensure that domestic competent authorities also have access to this information. Following a consultation, the UK has committed to make this register publicly accessible; the public register is expected to become operational in June 2017.
  • A central register will hold the beneficial ownership information of trusts that generate tax consequences in the UK. Domestic competent authorities will again be able to access this information.
  • The government will ensure that financial institutions and designated non-financial businesses and professions (DNFBPs) undertaking customer due diligence are able to access information held on the central register of company beneficial ownership information. Trustees of express trusts will disclose their status, and provide beneficial ownership information of their trusts, when acting in their capacity as a trustee.
  • Mechanisms will also be put in place to share beneficial ownership information, in line with bilateral and multilateral agreements, and work to improve international co-operation – including the timely and effective exchange of information with foreign competent authorities.
  • The UK has committed to further action to improve company transparency, and following consultations has amended Company Law to:

Prohibit UK companies from issuing bearer shares and require existing bearer shares to be surrendered and exchanged for registered shares, or cancelled and compensated.

Prohibit use of corporate directors, with exceptions, and update how legal duties apply to shadow directors to align more closely with legal duties for individual directors.

  • The UK government has further committed to consult on extending beneficial ownership transparency to foreign companies investing in high value property or bidding on UK public contracts.

Unless otherwise stated, these commitments will be implemented in 2017 through the new UK Money Laundering Regulations, which will transpose the requirements of the 4th EU Anti-Money Laundering Directive.

1 Including law enforcement, tax authority, supervisory authorities and financial intelligence unit.

Source: Policy paper – UK G20 Beneficial Ownership implementation plan, Cabinet Office, HM Revenue & Customs and Prime Minister’s Office, 10 Downing Street

Implications for the global mobility sector

This undoubtedly means additional complexity for the global mobility sector and will require mobility professionals to seek expert advice. As the levels of mobility and wealth have increased, so has the capacity for authorities to exchange information via ever-more sophisticated technology and enforce the collection of revenue.

Tax rules will always differ across nations, but with this new agreement, (and in light of the current public attitude towards tax evasion) it is likely that there will be significantly increased levels of co-operation between national tax authorities, particularly in their treatment of high net worth individuals.

Governments worldwide seem to be scrambling for revenue and a crackdown on the perceived connection between offshore financial centres and the very wealthy is an easy vote-winner. However, the vital need for economies to remain competitive may affect the extent to which nations are willing to pursue such measures.

If you are a member of the FEM Community with expertise on this matter, or have experience of dealing with the challenges of cross-border compliance, please get in touch, share your comments or post an article.

Go to the profile of Claire Tennant-Scull

Claire Tennant-Scull

Global Director, Content & Events, Forum for Expatriate Management

Claire Tennant-Scull is Global Director of Content & Events at the Forum for Expatriate Management (FEM). She produces and chairs all FEM’s Conferences and Summits in Amsterdam, the Americas, APAC and EMEA and oversees FEM's global awards (EMMAs). Claire works closely with key clients, leads FEM’s London Chapter and oversees the FEM website, reports and publications. In addition to her experience in Global Mobility, Claire has more than 20 years’ expertise in publishing, working as a managing editor, writer, journalist and broadcaster, both in the print and digital world. With thousands of contacts across the Global Mobility community, Claire is always keen to welcome new members and to broaden the FEM community.

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