Private Client

The Financial Action Task Force (FATF) developed a series of Recommendations that are recognised as the international standard for anti-money laundering (AML) and combating the financing of terrorism (CFT). First issued in 1990, the FATF Recommendations have been revised to ensure that they remain up-to-date and relevant, and they are intended to be of universal application.

As a result, all corporate and trust service providers and financial institutions have a statutory duty to implement KYC procedures for all clients, new and old. Clients must expect to supply proof of identity, proof of residential address and references. They must also explain the source and business purpose for any substantial movement of funds. Compliance with these standards brings additional costs and inconvenience but is entirely unavoidable. KYC is now mandatory under local and international regulations and/or laws.

OECD Common Reporting Standard (CRS) – At the G20 summit in 2013, the world’s 20 largest economies mandated the OECD to create a single global standard for the automatic exchange of information. The CRS provides for annual automatic exchange between governments of financial account information, including balances, interest, dividends and sales proceeds from financial assets, reported to governments by financial institutions and covering accounts held by individuals and entities, including trusts and foundations. As of June 2019, there were close to 4,000 bilateral exchange relationships activated with respect to more than 100 jurisdictions committed to the CRS, with next exchanges between these jurisdictions set to take place at the end of September 2019.

US Foreign Account Tax Compliance Act (FATCA) – FATCA, which was enacted in 2010 and came into effect in 2014, is designed to target non-compliance by US taxpayers using foreign accounts. It requires foreign financial institutions (FFIs) and certain other non-financial foreign entities to report information to the IRS, either directly or via their local revenue authority, about financial accounts held by US taxpayers, or held by foreign entities in which US taxpayers hold a substantial ownership interest. If not, they will be subject to withholding on withholdable payments. FATCA compliance will differ depending on whether or not an FFI is in a country with an inter-governmental agreement (IGA) with the US. There will be further differences according to the type of IGA – Model 1 or Model 2 – and whether the IGA has provisions requiring US reciprocity.

Base erosion and profit shifting (BEPS) – BEPS refers to tax planning strategies that exploit gaps in the architecture of the international tax system to artificially shift profits to places where there is little or no economic activity or taxation. At the request of G20 Leaders in 2015, the OECD developed the new Inclusive Framework on BEPS, which is now composed of 129 members and 14 observers, including over 70% of non-OECD and non-G20 countries and jurisdictions from all geographic regions. Exchanges of information on more than 21,000 tax rulings have taken place and there are currently more than 2,000 relationships in place for the exchange of Country-by-Country reports, under the Convention for Mutual Administrative Assistance in Tax Matters, bilateral tax treaties and tax information exchange agreements (TIEAs)

International standards on beneficial ownership transparency are emerging. The FATF has recommended that public registers become the international standard by 2023 and all EU member states have committed to introduce public registers in 2019 as set out by the Fifth Anti-Money Laundering Directive.

Beneficial owners, often referred to as ‘persons with significant control’ (PSCs), are typically defined as someone: holding more than 25% of shares or voting rights in a company; with the right to appoint or remove the majority of board of directors; who otherwise exercises significant influence or control.

In April 2016, the UK, Germany, France, Italy and Spain agreed to an automatic exchange of beneficial ownership information agreement that would enable “international real-time access to tax and law enforcement agencies on company ownership”. It covers “companies, trusts, foundations, shell companies and other relevant entities and arrangements”. Over 40 countries have now joined this agreement.