20th March 2018 What the EU’s money laundering directive means for schemes

From the blog: New money laundering regulations came into force in June 2017, implementing the EU’s Fourth Money Laundering Directive and replacing the Money Laundering Regulations 2007.

The regulations introduced new duties on pension scheme trustees to maintain accurate and up-to-date written records of all the ‘beneficial owners’ of the trust.

Trustees may have to disclose this information when entering into a transaction or business relationship with third parties required to undertake anti-money laundering checks, or if requested by a law enforcement authority such as the Serious Fraud Office.

The rules also introduced an obligation on ‘taxable relevant trusts’. These are, broadly, schemes that invest directly in real property or in shares and thereby incur liability to certain taxes including income tax, capital gains tax and stamp duty land tax. Such trusts must register with HM Revenue & Customs and supply information for inclusion in its new trust register.

The precise scope of the duties placed on trustees remained unclear until HMRC published guidance (in the form of FAQs) in November 2017, which updated earlier guidance.

While the FAQs could be clearer, the good news is they seem to confirm that for schemes with more than 10 beneficiaries, trustees need only maintain individual records of members, and not potential beneficiaries, for example a member’s spouse, until such time as they stand to benefit from the trust.

In addition, trustees are required only to identify the class of beneficiaries when providing beneficial ownership information to HMRC (mirroring the obligation when transacting with third parties), rather than providing details of individual beneficiaries.

In view of the potential penalties attached to non-compliance – a fine and up to two years’ imprisonment – trustees should familiarise themselves with the new record-keeping requirements.

They should also ensure member information is up-to-date and complete so far as is possible, and seek guidance from their investment advisers in order to identify whether their scheme would be treated as a ‘taxable relevant trust’. If this is the case, then they will be subject to HMRC registration and reporting requirements, either now or in the future.

While the new requirements appear proportionate given the legitimate aims of disrupting money laundering and terrorist financing, trustees may be dismayed to learn that the regulations are unlikely to be the final word.

The Fifth Money Laundering Directive is already in train. It promises to break new ground by creating, for the first time in UK law, a requirement on HMRC to release information on the beneficial ownership of trusts into the public domain where a “legitimate interest” test is met.

Again, quite how 5MLD will apply to occupational pension schemes is unknown, but there is currently no exemption for such schemes. This appears almost certain to be transposed into UK law as part of any post-Brexit transitional arrangement agreed by government.

This article was published in Pensions Expert

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