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Public list of beneficial ownership likely to be passed in crucial 4MLD vote today, say sources

Source: Thu, 20 Feb 2014 10:38 GMT
Author: Compliance Complete
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In this 2013 file photo, euro and U.S. dollar banknotes are seen in this picture illustration taken in Prague REUTERS/David W Cerny
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Martin Coyle, Compliance Complete

A crucial vote on the proposed Fourth Money Laundering Directive will take place in Brussels today with indications that a legislative change concerning the creation of mandatory public registers of beneficial ownership will be passed. A slight caveat is expected, however. 

The Economic and Monetary Affairs Committee (ECON) and the Committee on Civil Liberties and Home Affairs (LIBE) are due to vote in the European Parliament on amendments to the original proposals to replace the Third Money Laundering Directive.

The parliamentary process has been fraught with delays. A committee vote was initially expected in January, but deferred until early February, and then further postponed until today. Divisive issues such as the beneficial ownership registers, politically exposed persons (PEPs), and black and white lists, have been partly responsible for the hold-ups. 

One source close to the parliament said the ECON and LIBE rapporteurs had managed to reach agreement on beneficial ownership. It is thought a procedural element will be added in that the registers will be public but people will have to register online to access them. 

"Having the two rapporteurs reaching agreement means we are in a much more comfortable position on the issue of beneficial ownership. There was a concern that they would not find a compromise or the compromise would be less optimal. There was a concern that a 'legitimate interest' clause which would undermine the whole principle of having public access, might be added," the source told Compliance Complete.

Another source with knowledge of the negotiations said the majority of MEPs appeared to be in favour of a public register detailing beneficial ownership. Some member states oppose the move, but decisions in the European Council (of member state governments) are taken by qualified majority voting so it is possible the council might support the measure, the source said. The UK has been at the forefront of moves to bring more light into the often murky world of company ownership but UK opposes moves to introduce a Europe-wide PEPs list as the government said it would undermine the risk-based regime, and could lead to a tick-box approach.

The committees will vote on whether to include trusts in the public register, a move opposed by the UK government and described as radical by some lawyers. Information about identity of the settler, trustee, protector and beneficiaries would need to be collected in public registers, while the trust deed and letter of wishes would only be shared with competent authorities and obliged entities. 

Nienke Palstra, an EU policy officer at Transparency International (TI), supported the drive to shine light on trusts. "TI supports making beneficial ownership information for trusts transparent, through public registers. Given the fact that ownership is not a concept easily applied to trusts, this is a complicated exercise, but failing to include them in this way would risk leaving open a significant money laundering loophole," she told Compliance Complete. 

The new directive could see the creation of a register that would list domestic PEPs across member states, while firms would have to take account of domestic PEPs as well as foreign PEPs. There has been some discussion about the scope of who would be defined as a PEP and the ways that member states could share information about PEPs. Some MEPs have said the definition of PEPs was becoming too wide and therefore too unmanageable. 

4MLD will also abolish white and black lists of countries with anti-money laundering deficiencies because it goes against the risk-based approach which forms the backbone of the new directive. There has been opposition to this and it is unclear whether the rapporteurs have reached agreement.

"At the moment, money laundering is still too easy in the EU and we see countless scandals coming up time and time again; it's not just isolated incidents. It's a systemic problem. We are seeing that banks are not fulfilling their due diligence obligations but part of the problem is not having the information on who is behind these companies, trusts and foundations in the EU," Palstra said. 

"We think making this information public according to studies will be more cost effective, but simply having more eyes on this data and being able to verify it for accuracy…[will help] uncover corruption and crime," she said.

Once the two committees agree their position it will be put forward to the full parliament for endorsement, and if endorsed it will then serve as the parliament's negotiation position with the commission and the council. Full agreement between the three parties is necessary for the directive to come into force. 

Delays have made the start of trilogue negotiations between the European Council, the commission and the parliament all but impossible before the European Parliament elections on May 22. The new parliament, which will be formed after the elections, will have to consider whether or not it accepts the old parliament's position. Italy, which takes over the presidency of the EU on July 1, is expected to re-launch the negotiations in the autumn. 

The new directive is unlikely to become law in member states before 2016.

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