Money Laundering is a process by which the origins and ownership of money generated as a result of criminal activity, can be concealed. In effect, money is “laundered” through legitimate means and as a result, the proceeds lose their initial criminal identity and appear to have originated from a legitimate source. On the other hand, terrorist financing refers to the use of the financial system channel either through lawful or illicit finances for terrorist purposes.
Directive 2015/849/EC of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission and Directive 2006/70/EC (the “4th EU Directive”), highlights the urgent need of the creation and the retention of a centralised register, in which the details of the ultimate beneficial owners of entities will be kept and the competent authorities to which the financial intelligence units of each EU Member State, shall have timely and unrestricted access.
It is also worth noting that under the 4th EU Directive any person or organization that can demonstrate a legitimate interest shall be able to access this register. For the purposes of the 4th EU Directive, “Beneficial Owner” is any natural person who owns or controls a corporate or legal entity (including trusts) or on whose behalf the entity is conducting its activity or transaction.
Under the 4th EU Directive and forthcoming Fifth Anti-Money Laundering Directive, a natural person who ultimately holds a shareholding or controlling interest or ownership interest of 25% plus one share is deemed as being the ultimate beneficial owner.
The need for accurate and up-to-date information on the beneficial owner is a key factor in tracing criminals who might otherwise hide their identity behind a corporate structure.
Member States are therefore obliged to ensure that entities incorporated within their territory in accordance with national law obtain and hold adequate, accurate and current information on their beneficial ownership, in addition to basic information such as the company name and address and proof of incorporation and legal ownership.
With a view to enhancing transparency in order to combat the misuse of legal entities and structures, Member States are also under an obligation to ensure that beneficial ownership information is stored in a centralised register located outside the company, in full compliance with EU law. Member States may, for that purpose, use a central database which collects beneficial ownership information, or the business register, or another central register, whatever they deem fit. Member States may decide that obliged entities are responsible for filling in the register.
Such register should, include at least the name, month and year of birth, nationality and country of residence of the beneficial owner and the nature and extent of the beneficial interest held. In Cyprus, it is likely that the UBO register will be managed by the Department of the Registrar of Companies and the Trust Register by Cyprus Securities and Exchange Commission.
Furthermore, the terrorist attacks in Paris and Brussels, in addition to the revelation of the Panama Papers, convinced the EU to approve the so-called 5AMLD modifying the previous 4th EU Directive. Effective immediately as of 9 July 2018, and until 20 January of 2020, EU Member States, are obligated to transpose the modified regulation into national law, with one of the most significant changes to be that the general public should be granted full access to UBO registers of EU based companies.
Additionally, Member States must implement mechanisms to ensure that information in those registers is accurate and up to date, and apply effective sanctions in cases of breach. Also, obligated entities such as banks will have to notify the authorities of discrepancies found while conducting customer due diligence between the UBO registers and the UBO information they hold.
Although the modification of the 4th EU Directive might be essential, it is also questionable with regards to the compatibility of the proposals for access to UBO registers with the union-origin data protection law leading to, amongst others, a lack of proportionality with significant and unnecessary risks for individual rights to privacy and data protection.
As a Member State, the Republic of Cyprus aims to always be in full compliance with applicable EU laws, using its best efforts to transpose any new amendment into national law on a timely manner and in a way that would not affect, but would rather enhance, the business activities within or through Cyprus.