On 18 June 2013, the UK Government published a policy paper setting out the steps it proposes to take to implement the Financial Action Task Force’s revised standards on combating money laundering.
These proposals are likely to lead to changes to the Companies Act 2006 (CA 2006) that will result in more vigorous disclosure requirements regarding companies’ ultimate beneficial ownership. The focus of the changes will be on improving corporate governance and tackling a wide range of illicit activity that is perceived to be carried on through companies with anonymous beneficial ownership structures.
The UK Government is seeking to impose a positive obligation on companies to obtain and hold adequate, accurate and current information on their beneficial ownership.
This obligation would be implemented by amending the Companies Act 2006 to require that the information on ownership and control is accurate and readily available to the authorities through a central registry that would be maintained by Companies House. The Government has said it will consult on whether or not information in the registry should be publicly accessible.
The proposals also apply to trusts. The trustees of express trusts will be obliged to obtain and hold adequate, accurate and current information on beneficial ownership. They will also need to put in place mechanisms to ensure that the relevant competent authorities have access to this information.
In addition, the Department for Business, Innovation and Skills intends to carry out a review of corporate transparency, including bearer securities and nominee directors. The review will start with the publication of a pre-consultation paper before September 2013.
Ordinarily, a company must issue a share certificate for shares issued to its members within two months of the allotment (Section 769(1), CA 2006) or the date of transfer (Section 776(1), CA 2006). This obligation does not, however, apply where the company instead issues to the allottee a share warrant before the expiry of the two month period. This statutory exception applies only if a company’s articles expressly authorise a share warrant to be issued in respect of any fully paid-up allotted or transferred share.
Although the name of the holder of a share warrant does not appear in the issuing company’s register of members, he or she is absolutely entitled to the shares stated in the warrant. The bearer of a warrant is therefore a shareholder in the issuing company, but not a member, within the meaning given in Section 112(2) of the CA 2006. It is, however, common for the holder of a share warrant to have the same rights and privileges as a registered member, such as voting rights and a right to future dividends on the warrant.
Importantly, unlike the transfer of certificated shares, the transfer of shares subject to a share warrant takes effect by delivery and, as a result, the ownership and control of a company that has issued share warrants can change anonymously.
The new obligations could lead to the end of UK companies issuing bearer share warrants as a means of concealing the identities of their shareholders.
In light of the UK Government’s express intention to increase transparency of company ownership, the United Kingdom may consider following other European jurisdictions, such as Belgium, that have introduced laws prohibiting the future issue of bearer securities. Alternatively, the Government may consider limiting the issue of bearer securities to only public companies.
For more information on how the proposed changes may affect you, please contact your regular McDermott Will & Emery lawyer or Tara Walsh and Hugh Nineham.