Time for transparency, the Beneficial Ownership Act 2017

The Isle of Man made commitments to the UK in 2016 in this regard, reinforcing the fact that it is a reputable international financial centre. This has led to the introduction of the Beneficial Ownership Act 2017 (the Act) which came into effect on 21 June 2017, repealing the previous 2012 legislation. Subsequently, the new central database for the storage of the data to be collected under the Act (the Isle of Man Database of Beneficial Ownership) went live on 1 July 2017.

The intention of the Act is to allow local and international law enforcement to be able to identify beneficial ownership – it is not intended as a source for public consumption. Similar legislation has been introduced in Guernsey, the BVI and the Cayman Islands. Meanwhile some European countries, such as Malta and Luxembourg, are being pushed for public registers, something the Isle of Man Government appears to be hoping to avoid for the time being.

Who is subject to the Act?
The Act applies to all legal entities incorporated, registered or established in the Isle of Man (this does not include companies only registered in the Isle of Man as a foreign company) (an IOM Body) and the aim is to ensure that the beneficial ownership of all IOM Bodies can be traced back to the ultimate beneficial owners. For the purpose of the Act, a beneficial owner is given a very wide definition and means a natural person who ultimately owns or controls an IOM Body, in whole or in part, through direct or indirect ownership, control of shares, voting rights or other ownership interest, or who exercises control via other means. In the case where a discretionary trust has an interest in an IOM Body, the beneficiaries do not have a clear identifiable or absolute interest in the trust assets, given that their interest is discretionary. Therefore these beneficiaries do not fall under the definition of a beneficial owner.

All beneficial owners must be made known to a nominated officer, which is discussed in detail below. However, only beneficial owners who control 25% or more of the IOM Body must be registered with the Isle of Man Companies Registry (Registrable Beneficial Owners). These names are registered on the database but importantly, they are not made publicly available.

Nominated Officer
The IOM Body will need to appoint a nominated officer by 1 August 2017 who is either a natural person resident in the Isle of Man or a local and licensed corporate service provider. This is a very tight timescale but hopefully not an onerous burden in most cases. The IOM Body must submit the nominated officer’s name, address and written confirmation of consent to act to the Companies Registry. Any nominated officer already appointed under the previous legislation may continue but must actively consent to such continuation of their appointment. Should the details of the nominated officer ever change, such amendments must be submitted to the Companies Registry within one month of the change.

This nominated officer will be the person who knows who all of the beneficial owners are of the IOM Body, including the Registrable Beneficial Owners. They must submit the details of the Registrable Beneficial Owners to the Companies Registry as soon as reasonably practicable after the information has been obtained or in any event by either the annual return date for the IOM Body, or the 30 June 2018, whichever is the earlier.

The nominated officer will need to know certain details of the beneficial owners and ensure those details are maintained in the Isle of Man so as to be capable of disclosing the information at any time, for a minimum of 5 years from the end of period to which the information relates (subject to longer periods where the nominated officer is aware of an investigation). This time period applies even if the IOM Body has been wound up/removed from the Isle of Man register.

Who can access the Beneficial Ownership details?
Only certain bodies are entitled to the information available to the nominated officer, and such bodies are the Financial Intelligence Unit, the Attorney General, the Assessor of Income Tax, the Financial Services Authority, the Chief Constable and the Collection of Customs and Excise (a Competent Authority). The Competent Authority must submit a notice to the nominated officer requesting the information and confirming that the request is for a Permitted Purpose (as defined in the Act). The information is to be given within 7 days of the notice if it relates to the Registrable Beneficial Owner, or within one month if it relates to another beneficial owner.

Consequences of non-compliance
It is the IOM Body’s responsibility to appoint a nominated officer, ascertain the beneficial ownership and provide the details to the nominated officer within one month of the request of the nominated officer (along with providing details of any changes going forward within one month of learning of such change or first having reasonable cause to believe such change has occurred). It is important to note that the details must be verified by information from a reliable and independent source. Failure to obtain this information is an offence for which the legal owner can be liable. If the legal owner, without reasonable excuse, knowingly or recklessly makes a false, deceptive or misleading material statement to the nominated officer then the punishment could include custody of up to two years.

If the beneficial owners do not make their details known to the nominated officer or they fail to notify them of any changes then the IOM Body can take action by placing restrictions on the rights attaching to the legal owner’s interest including on voting rights, rights to further shares, rights to payments due (capital or otherwise), rights to transfer or assign its interest and ultimately it can cancel the legal owner’s interest in the IOM Body. Further to these consequences, the beneficial owner, and an officer of the IOM Body if it failed to take reasonable steps to prevent the commission of the offence, could be subject to penalty.

The nominated officer should also take note that there are offences in place specifically for them as well, including the offence of failing to maintain and preserve the required information. In the event the nominated officer knowingly or recklessly makes a false, deceptive or misleading material statement in response to a notice from a Competent Authority, the punishment could include up to two years in custody.

As you can see, the onus has been placed on all parties from the nominated officer down to the beneficial owner. This attempt to make everybody responsible in the chain is crucial to the effectiveness of the Act and crucial if the Isle of Man Government wishes to evidence its commitment to the enforcement of the Act and the message it wishes to send to the world.