Australian Minister for Revenue and Financial Services Kelly O’Dwyer (pictured) is preparing to help anti-money laundering authorities know more about the beneficial ownership of companies. A central registry on the British model is one option.

The country lacks a consistent set of tests for beneficial ownership. O'Dwyer favours the Financial Action Task Force's definition, which states: "'Beneficial owner' refers to the natural person 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. References to 'ultimately owns or controls' and 'ultimate effective control' refer to situations in which ownership/control is exercised through a chain of ownership or by means of control other than direct control."

There is no general definition of ‘beneficial owner’ anywhere in the Corporations Act 2001, although information about beneficial ownership is often tied to the concept of a ‘relevant interest’ which is used to define various rights and obligations under the Act relating to takeovers and the disclosure of interests by people with influence over a company’s affairs. Under the current AML laws, of course, Australian money laundering reporting officers must verify information about beneficial ownership, when more than 25% of a corporate customer is owned by an individual, and pass it on to AUSTRAC (Australia's financial intelligence unit), the police and regulators on request.

Certain disclosure obligations apply to beneficial owners of shares in listed companies under Chapter 6C Corporations Act. A person must notify a listed company if the person has, or ceases to have, a ‘substantial holding’ in the company and any change in their substantial holding of more than 1%. This means they or their associates have a relevant interest in 5% or more of the total number of votes attached to voting shares in the body. Whoever has a substantial holding must also give the relevant information to each relevant financial market operator, such as the Australian Stock Exchange or ASX. This information also goes to the Australian Securities and Investments Commission, which allows the public to see it for a fee.

In Australia, shares may be held beneficially (when the legal owner of the shares derives the benefits of ownership - such as dividend payments - directly) and non-beneficially (by a trustee, nominee or in someone else's account). There is no legal obligation for all companies to collect and report shares held in the latter manner (or the identities of the beneficial owners) to ASIC.

Then there is the Common Reporting Standard or 'GATCA' ('Global FATCA') which will, when Australia adopts it, require financial institutions to collect information about beneficial ownership including the name, address, jurisdiction(s) of residence, tax identification number (for jurisdictions that allow tax identification numbers to be collected) and date and place of birth of each foreign resident controlling person (i.e. each beneficial owner). Australia is a 'late adopter,' having pledged to undertake its first exchanges with other countries next year.

A central register?

O'Dwyer's department is clearly enamoured of the British registry of beneficial owners, making no mention of the fact that it does not work very well at present because firms are filling in the sections that should mention real people's names with the names of shareholding companies instead - a flat contravention of the rules about which HM Government is doing nothing. She posits an Australian register along the same lines, but does not rule out the "lower compliance costs" of merely obliging each company and each beneficial owner to obtain the requisite information and provide it to the company.

Details of beneficial owners to be collected

By law in Australia, every register of company members must record each member’s name and address and the date on which the entry was made. A person responding to a tracing notice must disclose: the full details of their own interest in the shares and the circumstances giving rise to that interest. They must also disclose the name and address of every other person with a relevant interest in those shares and the nature of their interest, as well as the name and address of any person who has given them certain types of instruction about the shares. Regarding company directors, the information provided to ASIC is as follows: present given and family name, residential address, all former given and family names and the date and place of birth. Some of the information is provided to the Australian Business Register (ABR) and includes both public and non-public data.

The two recommendations

Recommendation 24 of the FATF's 40 Recommendations (as revamped in 2012) concerns the 'transparency' and beneficial ownership of legal persons. The FATF believes that countries should try to prevent the misuse of legal persons for money laundering or terrorist financing by ensuring that there is adequate, accurate and timely information on their beneficial ownership and control that lawmen can access quickly. It is especially worried about countries that have legal entities that are able to issue bearer shares or bearer share warrants, or which allow nominee shareholders or nominee directors. Australia is one of these.

At the moment in Australia, a shareholder may hold shares for the benefit of another person (including a legal person/company) either as trustee or nominee or otherwise on behalf of another person. The shareholder of such shares must tell the company that he is holding those shares ‘non-beneficially’ and the company must say this in the share register. Failure to comply is an offence. For listed companies, tracing provisions also exist. According to Australian tracing rules, an entity and a corporation are said to be 'grouped' for tax and regulatory purposes if the entity has a direct, indirect or aggregate interest of more than 50% in that corporation. O'Dwyer is thinking of giving ASIC the legal right to make orders to impose restrictions on shares that are the subject of its tracing notices until those firms have complied, although a failure to comply already carries a penalty of A$4,500 (US$3,477) and a six-month prison sentence.

Nominee shareholding arrangements are used in Australia for a variety of purposes, including:

• the facilitation of investment by foreign HNW and other persons in Australian companies;
• the facilitation of investment by Australian HNWs in foreign companies; and
• the administration and management of shareholdings, such as participation in corporate actions.

Bearer shares (whose owners are always the people who possess them physically) are not permitted under Australian law but bearer share warrants may still be issued (though the Government does not think that they are used very much). In its 'mutual evaluation' report of Australia in 2015, the FATF disapproved of this and also did not like the fact that nominee shareholders are not automatically required to tell the State the names of the shares' beneficial owners. The Australian Government is preparing to close these loopholes.