5th Anti-Money Laundering Directive and trusts

The technical consultation

In our last post about the effect of the 5th Anti-Money Laundering Directive (5^th AMLD) on trusts we looked at the requirement for trusts with tax consequences to register with the Trusts Registration Service (TRS), how this was to be extended to express trusts without tax consequences by the 5^th AMLD, and the concerns raised about how this is to be implemented. The government has now issued the promised technical consultation referred to in our last blog which has thrown some light on the various concerns.

Proposed scope of the regulations implementing the 5^th AMLD for trusts

The consultation states that “the government proposes to define the scope in a way that is proportionate to the risk”. It is suggested that the definition of which trusts will be affected should depend on whether or not a trust is stated to be out of scope; any express trust not out of scope would be required to register with the TRS as would any out of scope trusts with tax consequences.

The list of out of scope trusts includes:

• Trusts of land which arise because of the imposition of law ie joint tenancies
• Statutory trusts arising on intestacy
• Tenants’ service charge contributions protection trusts
• Co-ownership trusts where the legal and beneficial interests are concurrent and the legal and beneficial owners are the same.
• Maintenance funds for historic buildings
• Approved share option and profit sharing schemes
• Vulnerable beneficiary trusts
• Personal injury trusts
• Policies held in trust which are for protection purposes and which do not pay out until the death, terminal illness or permanent disablement of the insured
• Registered pension schemes
• Charitable trusts
• Trusts already registered in an EU member state
• A trust created by or in order to satisfy the terms of a court or tribunal order

The jury still seems to be out on bare trusts where the government says it needs more information to ascertain the risk of them being used for money laundering or terrorist financing. The list of out of scope trusts covers many trusts that are used in everyday life. The consultation asks whether other express trusts should be out of scope so others may be included in this category before the legislation is implemented.

Information required and deadlines

An express trust newly within scope that does not have tax consequences will have to provide details of the trust’s settlor, trustees and beneficiaries while those trusts already registered under the 4^th AMLD will have to provide some additional information.

It is expected that the updated TRS will be available in 2021 so the proposed deadlines for registration are:

• For trusts in existence at 10 March 2020: 10 March 2022
• For trusts set up after 10 March 2020: within 30 days or by 10 March 2022 whichever is the later
• For trusts set up after 10 March 2022: 30 days.

Changes must be notified within thirty days from when the trustees become aware of them.

Penalties

The proposed penalties are fairly light-touch. If trustees fail to register or update details they will be sent a letter reminding them of their obligations. Any further failure to update changes will bring with it a proposed £100 penalty per offence. If there is a deliberate failure to register, register on time or to update details the trustees may receive a financial penalty at the outset. There will be an appeals process.

Access to information on the TRS

The 5^th AMLD requires the government to share information on trusts and their beneficial owners with entities covered by anti-money laundering directives (known as “obliged entities” and including credit and financial institutions, lawyers, tax advisers and estate agents) if they have entered into a business relationship with the trust. The government proposes that the trustees should provide this information to the obliged entity via a PDF download from the TRS.

Information will also have to be shared with anyone who has demonstrated a “legitimate interest” for access to information on a particular trust and its beneficial owners. The consultation states that anyone can make a request but it must relate to an investigation into suspected money laundering or terrorist financing. Standardised information will be required so it can be ascertained whether the suspicion of the use of the trust for money laundering or terrorist financing is reasonable.

The final category where data is required to be shared is with persons who require information on trusts which have a controlling interest in a non-EU company which is not registered on a beneficial ownership register in an EU member state. This request will be refused where there are reasonable grounds to believe that the request is not in line with the objectives of the 5^th AMLD.

There will be an appeals process and information will be withheld if there is a “disproportionate risk” to the beneficial owner or if they are minor or mentally incapable.

The consultation ends on 21 February 2020.