1. COMPLIANCE CONFERENCE March 23 rd and 24 th, 2015 – Turks and Caicos Islands ________________________________________________________________ Transparency and Beneficial Ownership - A view from the private sector Conrad Griffiths QC Griffiths & Partners, Turks and Caicos Islands

2. - To review issues surrounding “Transparency and Beneficial Ownership” in “legal persons” and “legal arrangements” from the private sector point of view. - To understand what is meant by these expressions in practice. - To see how these requirements impact everyday practice of service providers in TCI and their clients. - To be aware of the views of the private sector. Objectives of this presentation _______________________________________________________________________________________

3. Definitions ________________________________________________________________________ ‘Transparency’ – meaning open to scrutiny, ‘allowing light to come in’. ‘Beneficial ownership’ – see the FATF definition: “Beneficial owner refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.” ‘Legal persons’ - “Legal ownership means the natural or legal person who, according to the respective jurisdiction’s legal process, own the legal person.” ‘Legal arrangements’ – “the natural person(s), at the end of the chain, who ultimately own or control the legal arrangement.’

4. FATF Recommendation 24 ________________________________________________________________________ FATF Recommendation 24 (Transparency and Beneficial Ownership of Legal persons) “In the context of legal persons, the beneficial owner is either the person who ultimately owns the legal entity or the person who can take relevant decisions within the legal entity.” Beneficial ownership of a legal entity is identified through three main criteria: 1. natural person who may control the legal person through ownership interests; 2. natural person who controls the legal entity through other means; 3. natural person exercising control of the entity by holding relevant positions within the legal entity (residual criterion).

5. FATF Recommendation 25 ____________________________________________________________________ FATF Recommendation 25 (Transparency and Beneficial Ownership of Legal Arrangements). “In the context of legal arrangements, the beneficial owner is the natural person who ultimately owns or controls the legal arrangement and who exercises control over it.” Recommendation 25 defines legal arrangements as “trusts or other similar legal arrangements” FATF recommends the information on beneficial ownership should be recorded and available for consultation. Three mechanisms ensure that the information is collected and available: 1. company registries obtain this information and keep it up-to-date; 2. companies should obtain and hold information on beneficial ownership; 3. existing information contained in sources already existing (e.g. company registries).

6. Impact of FATF Recommendations 24 and 25 ______________________________________________________________________ Either (i) create a database of company registries, (ii) require companies to hold their own information, or (iii) rely on currently available information. FATF recommendations have no direct effect in national (TCI) laws. Hence domestic legislation must be enacted to give effect to such recommendations if the standard is not already met. The regulated company-formation agent regime is already in use. Many Caribbean jurisdictions already meet the revised FATF standards. Some standards may be tightened – e.g. time for production beneficial ownership information may be reduced to 24 hours in some jurisdictions.

7. Companies, trusts and other legal entities ____________________________________________________________________ Companies are entirely creatures of statute. Their formation, ownership and continuation is regulated by statute. On the other hand a trust is a fiduciary relationship in which one party, a settlor, gives another party, the trustee, the right to hold title to property or assets for the benefit of a third party, the beneficiary. Trusts can be created orally or in writing. They may arise simply by operation of law and may come into existence in any manner. Other legal entities and arrangements include, associations, Foundations, stiftungs (or Foundations), anstalts (Establishments), partnerships, certain insurance products etc.

8. The private sector _______________________________________________________________________________________ Relevant service providers (company formation-agents and professional trustees) must be licensed by the Financial Services Commission. ‘Know your customer’ requirements must be met. Full current identification documentation on the beneficial owner(s) must be maintained. If advising on regulated business, KYC must be obtained, the transaction in question must be understood, and how it is funded and from what sources. Service providers subject to inspections by regulators and must file regular reports confirming compliance with the regulations. Service providers are liable to prosecution or to financial penalties for failure to implement and maintain proper systems. Required to make reports of suspicions transactions.

9. Impact on the private sector _________________________________________________________________________________________________ The compliance burden (i.e. meeting the requirements of transparency as to ownership and source of funds) is reflected in increased internal costs and external license fees. Additional time burdens in the private sector before clients can be accepted. Changing practices to comply with legislative changes – e.g. bearer shares were first immobilized and are now abolished in TCI (since 1 st January, 2014). They are of historical relevance only. ‘De-risking’ by declining to offer service to types of business or clients perceived as ‘high risk’. Company service providers moving away from so called ‘nominee directors’ and other services.

10. Information is already held by service providers – why is more than this needed? _________________________________________________________________________________________________ Many jurisdictions exceed FATF guidelines on thresholds for minimum requirements (e.g. 25% minimum recommended by FATF, whereas most IFC’s apply 10%). The financial costs of increased compliance are disproportionate for smaller jurisdictions and for smaller service providers. Initiatives come from richer countries and supranational organizations. They do not foot the bill. The perceived driver for increased transparency (from the private sector view) is primarily to increase tax revenues for larger countries. This is based on the perception that assets are hidden abroad in IFC’s. Automatic exchange of information already exists with larger countries and technological advances now mean it can be applied more effectively. There are no perceived tax revenue benefits to TCI from public registers as (i) TCI imposes duties and consumption taxes rather than taxes on income and capital gains and (ii) relevant information is already accessible to regulators.

11. Macro issues versus local issues _________________________________________________________________________________________________ Beneficial ownership information should already be ‘adequate, accurate, timely and capable of being accessed in a timely fashion by competent authorities’. All Caribbean IFC have signed IGA’s with the USA to implement FATCA. IFC’s have signed numerous TIEAs BOTC’s signed IGA’s with UK committing to deliver information to HRMC (UK FATCA). No G20 countries currently have public registries. BOTC’s and Crown dependencies have rejected UK’s attempts to force public registries (Joint Ministerial Council meeting in late 2014). Private sector view: public registers are unnecessary and harmful to financial service businesses (especially if not implemented first in major countries and in all IFC’s).

12. Changing views and perceptions _________________________________________________________________________________________________ ‘ Tax evasion’ was always unlawful. ‘Tax avoidance’ was not always regarded as unlawful but is now regarded as (morally) wrong at the very least and the line is blurred. ‘Tax mitigation’ is the new expression for legitimate (morally permissible?) tax planning. What is the difference between ‘secrecy’ and ‘privacy’. There are legitimate reasons why clients want to maintain their privacy. The UK now says it will introduce a strict liability offence of offshore tax evasion.

13. Griffiths & Partners Contact Info Griffiths & Partners Tel: (649) 941-8250 | Fax: (649) 941-8251 PO Box 143 | 82 Cherokee Road | Providenciales | Turks and Caicos Islands www.griffithsandpartners.com