If Luxembourg is all-set for the register of beneficial owners, a long and winding way awaits both the Luxembourg legislator and the financial stakeholders in implementing the fifth anti-money laundering Directive, says ABBL's senior legal advisor Julien Leroy.
The Law of 13 January 2019 setting up a register of beneficial owners of companies (the “Law”) was published on 15 January 2019 within the official gazette (Memorial) and enters into force on March 1, 2019.
The Law was followed up by its implementing Grand-Ducal regulation of 15 February 2019 handling the technical details companies shall comply with to proceed to the registration of their beneficial owners (“BOs”). One can now contentedly stress that almost all of the outstanding obligations of the fourth anti-money laundering Directive have now been transposed into Luxembourg Law. Still, a forthcoming Law establishing a register of trusts remains to be finalised (currently taking the form of draft Law N°7216B) and, most importantly, a long and winding way awaits both the Luxembourg legislator and the financial stakeholders in taking on board all of the novelties introduced by the fifth anti-money laundering Directive.
The Law implements article 30 of the fourth anti-money laundering Directive and creates a register of BOs of corporate and legal entities (the “registered entities”) including for instance public/private limited companies, partnerships, not for profit associations, foundations and civil companies together with Luxembourg branches of foreign companies and mutual funds ("fonds communs de placement"). The definition of a beneficial owner can be retrieved in the Law of 12 November 2004 on the fight against money laundering and terrorist financing and can be briefly described as any natural person who ultimately owns or controls a legal entity through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in that entity, or through control via other means.
Who are the BOs?
The meaning of a BO may appear to be clear at first sight, but can nonetheless quickly prove challenging for Luxembourg financial stakeholders who will have to figure out who their BOs actually are, after having duly considered the leeway granted by the Law in identifying such individuals. This, however, will be far from being unachievable given firstly that concerned stakeholders have a delay of 6 months starting from March 1, 2019 to enroll their BOs into the registry and secondly, that the Law clearly sets out a three-step approach to eventually find out the physical person who shall be considered as a BO, hence accommodating both the registered entities subject to the reporting obligation and the financial professionals undertaking their clients’ due diligence obligations.
First of all, a natural person may simply qualify as a BO of an entity because s/he notably owns a financial stakeholding of more than 25% within the entity, directly or indirectly through the interposition of other corporate entities as the case may be.
Shall it not be the case, concerned professionals would then need to switch to the second crucial factor and try clarifying if a physical person does indeed control the company “via other means”. Neither the Law nor that of 12 November 2004 shed light on what is meant by such control; even so, answers can be found in Directive 2013/34/EU on the annual financial statements as well as the legislation from neighboring Member States characterising it by the right to appoint or remove the majority of the members of the body of administrative, management or supervisory body of the entity, the right to exercise a dominant influence over the company pursuant to a contract, among others.
Last but not least, if the professionals did not identify any physical person matching the ownership or control criteria, otherwise doubt that an identified person corresponds to the actual BO, and provided that there are no grounds for suspicion, “any natural person who holds the position of senior dirigeant (manager)” shall be considered as BO.
The registered entities will then have to make available specific information on their own BOs in a dedicated registry (the "Registre des Bénéficiaires Effectifs", a.k.a. "RBE"), which will be managed by the Luxembourg Business Registers under the auspices of the Ministry of Justice.
The obligation to report BOs may also rest in the agents (“mandataires”) of the registered entities, a term that the Law unfortunately does not define. Accordingly and depending on the situation at stake and the registered entities involved, an agent could for instance encompass a legal representative, a business entity domiciling a company, a transfer agent or a director/manager of a registered entity.
Who can access the register?
As to who will be able to access the information of the RBE, it is worth mentioning that the national authorities, within the ambit of their missions, will have an unlimited access to the information stored in the RBE while any person (i.e. the public at large), including the professionals subject to AML Law, will be able to get into a limited set of information. Still, registered entities or BOs may request the registry, on a case-by-case basis and in exceptional circumstances, to only grant access to the BOs’ information to national authorities, credit/financial institutions as well as bailiffs and notaries, where such access would expose the BOs especially to a risk of fraud, blackmail, extortion, harassment or violence.
Registered entities which would not supply the RBE with information on the BOs or would do so with false or outdated information, otherwise not keep/set-up BOs’ files at their registered office may face criminal sanctions’ fines ranging from €1,250 to €1,250,000. BOs are also required by Law to provide the registered entities with the relevant information they need, failing which they may also bear the aforementioned criminal sanctions.