Trusts and the EU’s Fourth Money Laundering Directive

13 March 2014

It is rare for trusts to cause a rumpus. However, the European Commission’s latest draft EU Money Laundering Directive has put trusts in the spotlight and resulted in some alarming press reports. So what’s going on and who will be affected by the changes proposed by the Directive?

Article 30 of the draft Directive requires trustees of trusts (or other types of legal entity and arrangements with a similar structure and function to trusts) established in or governed by a law of an EU Member State to disclose to ‘obliged entities’ that they are acting in their capacity as trustees. ‘Obliged entities’ is a widely drawn definition which includes financial institutions, accountants, tax advisers, lawyers, trust providers and estate/letting agents with whom the trustees form a business relationship. These trustees are also obliged to obtain and hold information concerning the identity of the settlor, the trustees, the protector (if any), the beneficiaries and any other natural person exercising effective control over the trust.

However, in addition, the above information must be capable of being accessed by competent authorities (a phrase not defined in the legislation) and obliged entities. The criteria for accessing this information and whether that information will be made available outside the immediate Member State is not clear.

All this may have been tolerable, but the Economic Affairs and Justice and Home Affairs Committees of the European Parliament have proposed various amendments to the draft Directive to take matters much further. Their amendments provide that there should be public registers in EU Member States containing all of the above information that the trustees are obliged to obtain, including the date of birth and nationality of all individuals identified, subject to data protection rules. Non provision of the information will be met with ‘dissuasive penalties’ decided by Member States. The proposed amendments also seem to give Member States discretion to publish the trust deed and letter of wishes. The changes will apply to existing as well as future trusts.

It is proposed that members of the public wishing to inspect the register should have to register online, identify themselves and perhaps pay a fee before access is made available.

Like all EU Directives, this legislation will require individual Member States to draw up domestic legislation to give effect to the provisions of the Directive. This must be done within two years of the Directive being adopted but it has not reached that stage yet. The EU Parliament voted on the latest version of the draft and the amendments in plenary session last Tuesday (11th) and, at the time of writing this piece, we await the outcome of that vote.   Once the new EU Parliament has been constituted in May of this year, negotiations over the Directive will continue between the EU Commission, the Council of the EU (a council of national ministers from each EU Member State) and the EU Parliament. The new Directive may come into force at the end of this year.

This is certainly one to watch in 2014.

Helena Luckhurst Author
Helena Luckhurst
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