The Law Society has voiced concerns over proposals to create a public register of beneficial owners as part of measures to increase transparency in UK companies.
The Small Business, Enterprise and Employment Act 2015 introduced measures to increase the accountability of companies by making it easier to see who owns or controls them, and who might be making decisions about how they are run.
A central public register of people with significant control (PSC) will make it possible for the first time to see not just who owns shares in a company but also who influences or controls a company in secret, perhaps by being able to vote on shares owned by other people.
Under the act, the only legal entities that should be recorded on a PSC register are those that have significant control of a company and are subject to their own disclosure requirements. The government proposes to add to the list legal entities with voting shares admitted to trading on a regulated market in a European Economic Area state.
Responding to a Department for Business, Innovation & Skills consultation, the Society said companies should not be made to state the exact proportion of shares or voting rights controlled, as it would impose an ‘overly onerous administrative burden’ on companies.
Questioning why a reporting error should be a criminal offence, the Society said ‘situations where a person could be 1% out and face a punishment of incarceration seem extremely disproportionate’.
Baroness Neville-Rolfe, in the consultation document, said the benefits of the register were not limited to the investment market.
‘Obscure company ownership structures can facilitate tax evasion, money laundering and even terrorist financing,’ she said. ‘Clamping down on these practices is an imperative of this government.’
However, the Society said the government needed to ensure breaches relating to the register that carry criminal offences ‘do not themselves create the proceeds of crime’.
To enforce compliance, companies freeze the interests of shareholders who provide insufficient details.
However the Society warned that such a sanction could have implications under the money laundering regulations, ‘as it could have the effect of creating new ultimate beneficial owners and a failure to report these unexpected and unknown changes could result in criminal liability for entities in the regulated sector’.
It called for greater effort ‘to outline more definitively the level of reliance which can be placed on the [register] for the purposes of client due diligence’.
Under government plans, companies will hold their own PSC register from January 2016. From April they will have to give this information to Companies House when they deliver their confirmation statement (which replaces the annual return).
Companies House will have all PSC information by April 2017 and make the information available for free in a central, searchable public register.