Isabella Bertani participates in the IR Global Guide – Getting to know the UBO & selecting the right advisor
Foreward by Andrew Chilvers
When the 5th Anti-Money Laundering Directive was introduced into law by the UK and EU in January 2020, for many professionals it was a much needed addition to legislation that would significantly help business transparency and combat money laundering. In essence, it was good for business and for public and professional confidence.
All jurisdictions signing up to the 5th Directive will build and maintain UBO registries that will be publicly available at any time. UBO registries will also be set up for bank accounts and trusts, although these latter two will not be publicly available but be accessed by the relevant authority such as financial intelligence units and legal advisors looking into money laundering. Investigative journalists who can show a legitimate interest in the case can also have access, which is vital if another Panama Papers (see below) is to be uncovered. Across the UK and EU national UBO registers will be set to connect through a central European platform by April 2021.
Please provide a brief overview of the UBO Register in your jurisdiction and its history?
Although most corporations and their shareholders are law abiding and contribute to the economy in a positive manner, events of recent years have given rise to concerns around the need for greater transparency of who owns and controls private corporations in Canada and how knowledge of this information would improve law enforcement efforts to counter the illegal use of corporate vehicles. In 2016, for example, the release of the Panama Papers highlighted the extent corporations and other legal entities can be used to avoid income taxes, facilitate money laundering, or cover up other illegal activities.
Corporations in Canada may be incorporated federally, under the Canada Business Corporations Act (CBCA), or provincially under similar provincial legislation in a respective province. In 2018, the Government of Canada amended the CBCA to include the requirement that privately held companies that were incorporated under the federal legislation, create, and maintain a register that included information related to their “individuals of significant control” (ISCs).
“Individuals of significant control” are defined as:
An individual with significant control, or ISC, is someone who owns or controls a corporation. This individual:
• owns, controls, or directs a significant number of shares
• has significant influence over the corporation without owning any shares; or
• has a combination of any of these factors.
An individual can also be an ISC if they own or control a significant number of shares with one or more individuals.”1
In 2019, to enhance further transparency, the CBCA was further amended to allow the availability of the beneficial ownership information to certain authorities and require that these corporations also make their registers of ISCs available to certain investigative bodies on request (subject to certain conditions).
The ISC register must be kept on hand as opposed to reported to the government and be maintained in the form of a logbook, data base or spreadsheet. Significant penalties exist if the register is not created, kept up to date and made available upon request including significant fines and/ or imprisonment.
The provinces of British Columbia and Manitoba have followed the federal government’s lead by passing similar legislation in their respective provinces to improve the availability of beneficial ownership within their jurisdictions. The province of Saskatchewan also recently introduced a beneficial ownership bill, and the remaining provinces and territories are also in the process of reviewing implementation of similar measures within their own legislation. In addition, Nova Scotia and Prince Edward Island have also followed with similar legislation in the past year.
The Government of Canada currently has not expanded the disclosure of ICSs or beneficial ownership under a public registry but is currently reviewing this as explained further below.
How can your firm ensure your clients are fully compliant with the new / existing requirements?
As advisors to our clients, we must have a firm knowledge of who our clients are. With rising concerns around money laundering and other corruption, knowing your client is key including documentation regarding ownership when accepting a new client engagement and then updating it regularly with each new engagement.
Advisors can assist their clients through educating them in their understanding of the disclosure requirements of the ISCs and by building awareness of evolving legislation and upcoming developments. In addition, we are fully able to assist our clients in determining who the ISCs of an organization are and develop a process to ensure that their registry will be kept up to date, where it will be stored and who will be responsible for maintaining it. Canadian corporations have regularly reported beneficial ownership information under various reporting obligations for financial and income tax purposes. These include:
i. Anti-money laundering and anti-terrorist financial reporting requirements
Since 2014, financial institutions, securities dealers, life insurance and money services businesses under the Proceeds of Crime (Money laundering) and Terrorist Act (PCMLTFA) are required to collect beneficial ownership information from their corporate clients and take reasonable measures to confirm the accuracy of this information and ensure it is updated through regular monitoring.
ii. Tax Reporting Requirements
The Canada Revenue Agency (CRA) collects ownership information on legal entities under their general tax filing requirements. These include reporting whether a corporation is associated to another corporation in a corporate group. In addition, corporations are required to disclose in their income tax filings all shareholders who own 10% or more of the issued shares in the corporation. However, these legal shareholders may not necessarily be beneficial owners.
Banks and other financial institutions must also report to the CRA with regards to certain accounts they maintain for non-residents of Canada in accordance with the Common Reporting Standard (CRS) and the U.S. Foreign Account Tax Compliance Act (FATCA). In addition, they must also provide information on the non-resident controlling persons of certain corporations that derive at least 50% of their gross income from investing or trading in financial institutions.
What changes can we expect to see emerging, are any new proposals expected?
Countries around the world continue to increase their public disclosures around beneficial ownership. The US, Canada’s largest trading partner, recently enacted the Corporate Transparency Act which requires all US businesses to file “beneficial ownership” information with the Financial Crimes Enforcement Network (FinCEN)2 . The Government of Canada continues to look at strengthening and building the current legislation regarding disclosure requirements of beneficial ownership of Corporations. A joint meeting of federal, provincial, and territorial government representatives on anti-money laundering in June of 2019 led to next steps to seek consultations from stakeholders to look at ways on how to make beneficial ownership information more transparent. This need for input was to ensure there was an alignment between stakeholder needs for individual privacy and competitiveness in business against the need for more transparency through a public register to facilitate fighting financial crimes. Stakeholders were asked to submit their comments regarding creating a public registry by April 30, 2020 of last year and further discussion as a result of those submissions are expected.
Conclusion:
Many believe that those who want to circumvent a public system for the purposes of covering up illegal activities will continue to find ways to do so. However, this further strengthens the need to ensure trust and accountability in Canada’s economy and business environment through increased transparency.
Sources:
Strengthening Corporate Beneficial Ownership Transparency in Canada – Strengthening Corporate Beneficial Ownership Transparency in Canada, Government of Canada
CPAs can help companies adapt to new beneficial ownership rules, experts say (cpacanada.ca), CPA Canada
What are the Panama Papers? A guide to history’s biggest data leak | News | The Guardian
The Corporate Transparency Act: What You Need to Know (natlawreview.com)