British solicitor Neil McGregor writes about the new ownership disclosure requirements in the UK which could serve as a model for Romania in fighting money laundering, which is often associated with other crimes such as tax evasion and corruption.

The leak of the “Panama Papers” has brought the use of “offshore” companies into the spotlight. The UK is certainly “offshore” in the geographical sense when seen from Romania and the rest of continental Europe, but since 6 April 2016 it is easier to check who really controls a company in the UK.

The UK is creating a publicly-accessible central registry of information about who controls British companies. It has been stated that one of the purposes of this new legislation is to help prevent money-laundering.

The new register is to contain details of persons who exercise significant control over most UK companies, who are referred to as PSCs.

“Significant control” means any of the following:

• directly or indirectly holding more than 25% of the shares of the UK company;
• directly or indirectly holding more than 25% of the voting rights in the UK company;
• directly or indirectly holding the right to appoint or remove a majority of directors of the UK company;
• otherwise having the right to exercise, or actually exercising, significant influence or control over the UK company; and
• having the right to exercise, or actually exercising, significant influence or control over the activities of a trust or firm which is not a legal entity, but would itself satisfy any of the first four conditions above if it were an individual.

Directors of most UK companies are required to take “reasonable steps” to identify who the PSCs are in their company. Failure to do so is a criminal offence.

There are detailed rules about how to identify who PSCs are and also there are prescribed (and precise) forms of wording to be used in completing the PSC register.  Nominee or beneficial owners of shares who are PSCs will need to register that fact with the relevant UK company and this will also be registered at Companies House.

The PSC register cannot be empty – again there is a prescribed form of words to be used if a UK company has no PSCs.

Although UK companies must take active steps to find out and record whether they have any PSCs and what the details of those PSCs are, PSCs themselves must report that they have significant control to the relevant UK companies and respond to requests for information from UK companies which are checking who their PSCs are.

Third parties who have information on who are PSCs must also provide relevant information to UK companies which are needed for their PSC registers.

Information about PSCs must be confirmed by the relevant UK company before it is entered in to the PSC register. The legislation contains details of what is regarded as sufficient “confirmation” for this purpose.

In each case there are time limits and criminal penalties for failing to comply.  Shares in a relevant UK company can be legally restricted on account of the failure to comply with the requirement to identify the relevant PSC.  Restrictions can apply to any share or right held directly or indirectly in the UK company, with the effect that:

• the interest cannot be sold or transferred and any agreement to sell or transfer the interest is void;
• no rights associated with the interest can be sold or transferred and any agreement to sell any such rights is void;
• no rights may be exercised in respect of the interest;
• no shares may be issued in right of the interest or in pursuance of an offer made to the interest-holder; and
• no payment may be made by the company in respect of the interest, whether in respect of capital or otherwise unless the UK company is in liquidation.

This means that restricted shares are essentially frozen. A UK court may also order the sale of the restricted shares, with the sale price being held by the court until the relevant PSC is identified.

Money-laundering is a serious problem and it is not news that that the authorities in the UK and in Romania are taking steps to prevent it. The UK now has tough new legislation to identify who really controls its companies.

This can be an example for Romania, even if Romanian law has not traditionally recognised a difference between legal and beneficial ownership of shares. If shares in a Romanian company are directly or indirectly owned by a UK company, it should now be possible to see who has ultimate control of the UK company and, therefore, an indirect interest in the Romanian company. It may also be possible to search for which Romanian persons and entities control UK companies. Romanians who do control UK companies need to ensure that their interests are declared to and recorded by the relevant companies and by the UK authorities.

by Neil McGregor, guest writer

Neil McGregor is a British corporate solicitor (lawyer) working in Romania and is Vice-Chairman of the British-Romanian Chamber of Commerce. He can be contacted on neil.mcgregor@mcgregorlegal.eu.