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US Publishes G8 Beneficial Ownership Plan

Monday, June 24, 2013

The US Government has published an Action Plan for improving the transparency of company ownership and control, as part of its commitments to the G8 group of industrialized nations.

In Northern Ireland, the G8 leaders signed a document that sets out "core principles that are fundamental to the transparency of ownership and control of companies and legal arrangements." Its aim is to ensure that companies and trusts obtain and hold information on their beneficial ownership. It also calls for the establishment of central registries containing these details, at either national or state level, and for the robust enforcement of sanctions in cases of non-compliance.

Each G8 jurisdiction pledged to produce a national Action Plan, based on these principles, and to publish updates on the progress made.

The US Action Plan, released by the White House, commits the Government to four broad sets of actions. These are grouped around themes of risk assessment, legislative initiatives, clarification of customer due-diligence standards, and international cooperation.

Under the Action Plan, the Government will pursue the implementation of legislation which will require the identification and verification of beneficial ownership information at the time a company is formed. It will explore defining "beneficial ownership" as "a natural person who, directly or indirectly, exercises substantial control over a covered legal entity or has a substantial economic interest in, or receives substantial economic benefit from, such legal entity, subject to several exceptions."

To ensure that the information collected is accessible to the relevant enforcement authorities, the Action Plan recommends that a central registry be set up in each state.

Company formation agents would also feel the force of the Action Plan, and be forced to acquire beneficial ownership information, under reforms to anti-money laundering obligations. In a similar vein, the Government will continue the process of updating its national risk assessment documentation, which involves an investigation of money laundering channels and methods. The aim here would be to address problems associated with the abuse of legal entities.

In cases where false information or documentation is knowingly provided, civil and criminal penalties would be enforced.

Another ongoing project referred to the Action Plan is the Government's planned creation of explicit customer due diligence standards for US financial institutions. Among the options is the introduction of a general requirement to identify the beneficial owners of legal entity customers.

Lastly, the Government will assess the effectiveness of existing means for complying with requests for mutual legal assistance, and other forms of international cooperation related to the beneficial ownership of companies.

According to the White House, "Enabling access to beneficial ownership information to law enforcement and tax authorities is an essential component of US efforts to enhance financial transparency."

The National Foreign Trade Council (NFTC) has however sounded a note of caution that these changes "cannot happen outside of the context of comprehensive tax reform." It is therefore calling on the Government to reform what it says is an antiquated tax code, stressing that this would be the only way to enact the majority of the Action Plan.

Senator Carl Levin, who chairs the Senate's Permanent Subcommittee on Investigations, was more positive in his assessment of the G8's agenda. He believes that if the G8's commitments are carried out, they could "strike a hammer blow against offshore corporate tax avoidance."

Levin has further contended that President Barrack Obama "showed leadership, not only by helping put multinational corporate tax avoidance on the international agenda, but also by committing the US to taking action to stop the abuses."