OFAC revokes so-called U-turn authorization for Cuba-related financial transactions
OFAC published a final rule that modifies the Cuban Assets Control Regulations to revoke the so-called "U-turn" authorization.
The new “persons with significant control” regime (PSC regime) comes into effect in the UK on April 6, 2016 - this will require most UK-incorporated companies to maintain a register of people with “significant control” over the company from that date. From June 30, 2016 information on the company’s PSC register will need to be supplied to Companies House either with the company’s confirmation statement (which will replace the annual return) or, in the case of a new company, on incorporation, so that it can be made publicly available.
The PSC regime for companies is largely set out in a new Part 21A to the Companies Act 2006 (CA 2006) and is being implemented through amendments to the CA 2006 made by the Small Business, Enterprise and Employment Act 2015 (SBEE Act) and through the Register of People with Significant Control Regulations 2016 (2016 Regulations) which set out certain aspects of the regime in more detail.1
A number of provisions in the SBEE Act, including the PSC regime, reflect the UK Government’s commitment to implement the transparency and beneficial ownership recommendations made by the Financial Action Task Force (FATF) in 2012. The FATF recommended that countries should take measures to prevent the use of companies and other legal entities for money laundering or the financing of terrorist activities and, at the G8 Summit in June 2013, the UK committed to introduce new rules requiring UK companies to obtain and hold information on who owns and controls them and to implement a central registry of company beneficial ownership information. These commitments were also reflected in the High Level Principles on Beneficial Ownership Transparency adopted by the G20 in Australia in November 2014.
Not all UK-incorporated companies will need to maintain a PSC register. Companies to which Chapter 5 of the Financial Conduct Authority’s Disclosure and Transparency Rules (DTR5) applies will not be subject to the new requirements as DTR5 (which deals with disclosure of voting rights) already requires disclosure of major shareholdings to the market, including interests that are held indirectly. This will exempt, for example, UK-incorporated companies with shares listed on the Main Market of the London Stock Exchange or AIM. UK-incorporated companies with voting shares admitted to trading on another EEA regulated market or on specified markets in Switzerland, the USA, Japan and Israel will also be exempt since they already have to disclose detailed ownership information under the EU Transparency Directive or similar transparency rules. However, all other UK-incorporated companies (including UK-incorporated subsidiaries of UK Main Market and AIM companies) will be required to maintain a PSC register.
UK-incorporated limited liability partnerships (LLPs) and UK-registered Societas Europaea will, in addition, be required to maintain a PSC register from April 6, 2016 and so the various aspects of the PSC regime will apply to them, subject to appropriate modifications. 2
A person with “significant control” over a company is an individual who meets one or more of the conditions set out in Part 1 of Schedule 1A to the CA 2006. These are that:
In determining whether any or several of these conditions are met in relation to a particular company, Parts 2 and 3 of Schedule 1A CA 2006 and non-statutory guidance published by the Department for Business, Innovation and Skills (BIS) (the BIS Non-Statutory Guidance), assist with interpretation. The BIS Non-Statutory Guidance considers issues such as nominee arrangements, joint interests and arrangements and indirect ownership.
Draft statutory guidance for companies was published by BIS in January 2016 to explain the term “significant influence or control” as used in the fourth and fifth conditions referred to above (the BIS Statutory Guidance).3 The BIS Statutory Guidance notes that “significant influence” and “control” are alternatives. If a person can direct a company’s, trust’s or firm’s activities, this will be indicative of control. If a person can ensure that the company, trust or firm generally adopts the activities which that person desires, this will be indicative of significant influence. However, the “control” or “significant influence” do not have to be exercised by a person with a view to gaining economic benefits from the policies or activities of the company, trust or firm.
Although the BIS Statutory Guidance does not provide an exhaustive statement of what amounts to “significant influence or control”, it provides a number of examples of what might constitute a right to exercise significant influence or control over a company or the activities of a trust or firm which itself meets a specified condition in relation to the company, as well as a number of examples of situations which would be indicative of a person actually exercising significant influence or control.
Situations which would be indicative of a person actually exercising significant influence or control over a company (and so should therefore be listed on its PSC register) include the following:
In relation to the right to exercise significant influence or control in the context of a company, the BIS Statutory Guidance points out that this may arise in a number of ways, including from the provisions of the company’s constitution, the rights attached to a person’s shares or securities, from a shareholders’ agreement or from some other form of agreement. Examples given of situations where it is likely somebody would be considered to have the right to exercise significant influence or control over a company and so should be listed on its PSC register include the following:
The BIS Statutory Guidance notes that if a person holds absolute veto rights in relation to certain fundamental matters in order to protect a minority interest in the company, such as veto rights relating to a change to the company’s constitution, dilution of shares or rights (including establishing a share option or other share based incentive scheme), making additional borrowing from lenders outside previously agreed lending thresholds, fundamental changes to the nature of the company’s business or winding up the company, these veto rights are unlikely, on their own, to constitute significant influence or control over the company.
The BIS Statutory Guidance also provides a non-exhaustive list of examples of where an individual could be considered to be exercising significant influence or control over a trust, relevant to the fifth condition in Part 1 of Schedule 1A CA 2006.
The BIS Statutory Guidance specifies certain roles and relationships which a person may have with a company that would not, on their own, result in that person being considered to be exercising significant influence or control over the company. These are referred to in the BIS Statutory Guidance as “excepted roles”. However, the BIS Statutory Guidance points out that such a person could still be a person with significant influence over the company if that role or relationship differs in material respects or contains significantly different features from how the role or relationship is generally understood or exercised, or is one of several opportunities which that person has to exercise significant influence or control.
The excepted roles in the context of companies include the following:
Where the owner or controller of a UK-incorporated company is a legal entity (such as a company or LLP) rather than an individual, that legal entity will need to be put on the company’s PSC register if it is a registrable relevant legal entity (RRLE) in relation to the company. Whether such an entity is an RRLE will depend on two factors:
For example, where a UK-incorporated company, A, is wholly owned by another UK-incorporated company, B, it is not necessary for A to trace ownership up the corporate chain beyond B. This is because information about the ownership of B (as the first RLE) will be evident either from B’s own PSC register or from the notifications it makes to the market pursuant to DTR5 or the applicable equivalent disclosure regime. A’s PSC register would therefore simply refer to B.
However, if A is wholly owned by an overseas company or entity which is outside the PSC regime (as it is not subject to DTR5 or an equivalent disclosure regime) or by a UK legal entity which is outside the PSC regime (as it is not a UK-incorporated company, LLP or SE) that legal entity (C) will not be an RLE. In those circumstances, A will need to determine whether any individuals or RLEs hold a majority stake in C (i.e. to “look through” it). Individuals or RLEs will be considered to hold a majority stake for these purposes if they:
If any individuals or RLEs have a majority stake in C, A must enter such individuals or RLEs in its PSC register. If another legal entity has a majority stake in C but is not an RLE, then the ownership and control of that legal entity must be “looked through” in the same way until an individual or RLE with a majority stake can be located. If no person or RLE meets these criteria, this fact must be entered on the PSC register. The BIS Non-Statutory Guidance includes example scenarios to assist in determining how to identify PSCs in different situations.
Companies have a duty to take reasonable steps to identify their PSCs and RRLEs. Failure to do so constitutes a criminal offence which can be committed both by the company and any officer who is in default. The maximum penalty is a prison term of up to two years and/or a fine. PSCs and RRLEs also have a duty to notify the company of their status within one month of the relevant person or legal entity becoming a PSC or RRLE and failure to do so constitutes a criminal offence.
Provisions in the CA 2006, together with the 2016 Regulations, set out the process to be followed in order to obtain the information about PSCs and RRLEs that should be recorded in the company’s PSC register. If the company has been notified that an individual is a PSC or that a legal entity is an RRLE and the company has all necessary information about that PSC or RRLE (and, in the case of an individual PSC, the individual has provided that information or it has been provided with the individual’s knowledge), the company can enter that information in its PSC register. If that is not the case, the company should send a notice to anyone it knows (or has reasonable cause to believe) is a PSC or RRLE, asking them to confirm whether or not they are a PSC or RRLE (as appropriate), to confirm or correct any particulars included in the notice and to supply any that are missing. Examples of such notices are included in Annex 3 to the BIS Non-Statutory Guidance.
The company can also serve notice on anyone it knows, or has reasonable cause to believe, can identify a PSC or RRLE or knows the identity of someone else likely to have that knowledge. This covers advisers known to act for the individual or RRLE, as well as other contacts such as family members, business partners and known associates. Notices of this nature served by the company should state that the notice must be complied with within one month of the date of the notice. The consequences of non-compliance are considered further below.
To assist with the process of identifying individual PSCs and RRLEs, the BIS Non-Statutory Guidance suggests steps a company should typically take to identify them (for example, reviewing its shareholder register, articles of association and statement of capital) although they are not definitive or exhaustive steps and further actions might be necessary, depending on the circumstances.
A company’s PSC register cannot be empty as it must always include information about its PSCs or RRLEs (even if that is to state that the company knows, or reasonably believes, it has no PSCs or RRLEs), or an update on the company’s status. Where a company is taking reasonable steps to identify its PSCs or RRLEs but has not yet identified them, that fact should be entered on the PSC register. Regulations 10 to 17 of the 2016 Regulations and Annex 2 of the BIS Non-Statutory Guidance set out the precise wording to be included, depending on the circumstances. This official wording also needs to be used when the company files information on the central public register at Companies House and must be included with the required relevant information about individual PSCs and RRLEs in the company’s own PSC register.
The information to be entered on the company’s PSC register in relation to an individual PSC comprises: their name; date of birth; nationality; country; state or part of the UK where the PSC usually lives; service address; usual residential address; the date the individual became a PSC (which, for existing companies compiling their PSC register for the first time in April 2016, will be April 6, 2016); the specific condition or conditions for being a PSC that the individual meets with a quantification of their interest where relevant (see further below); and any restrictions on disclosing the PSC’s information that are in place.
In relation to an RRLE, the information to be entered comprises: the name and registered address or principal office of the legal entity; its legal form and governing law; the register it appears in (with details of the state) and registration number; the date it became an RRLE in relation to the company (which, for existing companies compiling their PSC register for the first time in April 2016, will be April 6, 2016); and the specific condition or conditions for being a PSC that the RRLE meets with a quantification of its interest.
In showing which of the five conditions in Part 1 of Schedule 1A a PSC or RRLE satisfies, where one or more of those conditions relate to share ownership or voting rights (relevant to the first, second and the fifth conditions), it must be made clear in the PSC register whether the PSC or RRLE holds more than 25% but not more than 50%, more than 50% but less than 75%, or 75% or more of the shares or voting rights in the company. However, where one of the first three conditions is met (through a shareholding, voting rights or rights to appoint or remove a majority of the board), the company will not also have to record in its PSC register if and how the person or RRLE meets the fourth condition relating to significant influence or control over the company.
Both companies and PSCs (whether individuals or RRLEs) have a duty to keep the company’s PSC register up-to-date. As a result, if the company becomes aware that circumstances have changed and information on the PSC register is incorrect, the company must (unless, in the case of an individual PSC, information about the change has already been provided to the company by the individual or with his or her knowledge) serve notice as soon as reasonably practicable after it learns of the change or first has reasonable cause to believe the change has occurred, requiring the individual or RRLE to provide certain information about the change. If no response to that notice is received within one month, a note to that effect must be entered in the PSC register.
Similarly, if the company becomes aware that an individual or legal entity has ceased to be a PSC ( for example, as they have disposed of their shares in the company), the date they stopped being a PSC must be recorded in the PSC register as soon as reasonably practicable and it will need to be updated with information about the new individual PSC or RRLE (if applicable).
To help ensure that individuals and legal entities who should be on a company’s PSC register are identified, companies may serve warning notices on anyone with a relevant interest in the company that has not responded to a notice from the company. A person with a relevant interest is a person who holds any shares or voting rights in the company or has the right to appoint or remove any board member. The warning notice informs that person that the company is proposing to issue them with a restrictions notice in relation to their interest. Examples of warning and restrictions notices are contained in Annex 3 of the BIS Non-Statutory Guidance.
If within one month of a warning notice being sent, the initial notice requesting information is not complied with and no valid reason for the non-compliance is provided, the company can then decide whether to serve a restrictions notice. A restrictions notice effectively disenfranchises the person’s or RRLE’s interest in the company until the requisite information is provided and the company lifts the restrictions - it prevents the holder of the interest from selling or transferring the interest or any rights in respect of the interest (or agreeing to do so) and from exercising any rights associated with the interest. In addition, while the restrictions are in place no shares can be issued in respect of the interest (or pursuant to an offer made to the holder of the interest) and no payment can be made in respect of the interest unless the company is liquidated. As a result the BIS Non-Statutory Guidance points out that, before imposing restrictions, companies need to consider the relevant interest and decide whether it can be restricted, consider if the restrictions would have an unfair effect on third parties and consider the impact on joint holders, nominees and other similar arrangements, if relevant.
Companies are not required by Part 21A CA 2006 or the 2016 Regulations to send out a restrictions notice but, in order to comply with its duty to take reasonable steps to investigate its PSCs and RRLEs, a company must consider whether service of such a notice is appropriate and be able to justify any decision not to do so. The BIS Non-Statutory Guidance also points out that even if a restrictions notice has been served, companies should continue to take reasonable steps to identify all their PSCs and RRLEs.
While the company can apply to court to sell an interest subject to a restrictions notice (for example, where the restrictions do not appear to be encouraging the provision of PSC information and the restrictions are affecting the operation of the company), a restrictions notice must be withdrawn by the company within 14 days in the following circumstances:
On lifting the restrictions the company should inform the relevant individual or legal entity by notice and note on the PSC register that the restrictions have been lifted. The relevant shares or rights may then be voted, exercised, sold or transferred, or made subject to an agreement for their sale or transfer. In addition, the BIS Non-Statutory Guidance points out that shares can be issued and dividends or other sums due from the date that the restrictions are lifted can be paid.
While from April 6, 2016 companies need to keep their own PSC register accessible at their registered office or at another location notified to Companies House, from June 30, 2016 private companies will be able to elect to maintain their own PSC register at Companies House only.
For those companies maintaining their own PSC register, the information on that PSC register will appear on the central public register at Companies House as a result of the confirmation statement which will replace the obligation to file an annual return from June 30, 2016. Save where a successful protection application has been made (as referred to below), the only information that will not be available on the central public register will be the usual residential address of an individual PSC (unless this has been provided as a service address) and the day of that PSC’s date of birth. Existing companies will need to enter their PSC information when they complete their first confirmation statement and at least annually check the PSC information held centrally at Companies House and update it in the next confirmation statement if there have been changes. Companies incorporated after June 30, 2016 will need to complete a statement of initial control as part of the incorporation process and then update it via future confirmation statements unless the company, if it is a private company, elects to maintain its PSC register at Companies House.
For a private company electing to hold its PSC register at Companies House, save where a successful protection application (as referred to below) has been made, the full date of birth of an individual PSC will be recorded on the central public register, and the information on that PSC register must be kept up-to-date. Changes must also be noted as they occur and the company cannot wait for the annual confirmation statement to notify changes as companies maintaining their own PSC register at their registered office or alternative location can do. Failure to note changes as they occur is a criminal offence.
As with other company registers such as the register of members, companies maintaining their own PSC register must make it available for inspection at no charge. Copies of it can be requested for a charge of £12 per request (regardless of how many parts of the PSC register have to be copied). Anyone applying to inspect or have a copy of the PSC register must provide their name and address and specify their purpose in seeking the information. The company must respond to the request within five working days by either complying with it or, if the company believes the request is not being made for a proper purpose, it can apply to the court for a determination as to whether or not the company should comply. When access to a company’s own PSC register is granted, the only information on it that must be protected is that of an individual PSC’s usual residential address, unless this has also been provided as the individual’s service address.
In providing for greater transparency via the PSC regime, the Government recognises that while some information can be useful to law enforcement agencies and certain public authorities in carrying out investigations, it can pose an unacceptable level of risk to individuals in terms of the potential for identity theft and fraud if made publicly available. As a result, a protection regime has been developed which is based on the existing regime for protecting directors’ residential addresses.
As mentioned above, an individual PSC’s usual residential address will not appear on the PSC register that the company makes available to the public or on the central public register at Companies House unless it has been provided as a service address (although there will be no indication it is a service address). This information will only be accessible to specified public authorities and credit reference agencies which satisfy certain conditions. However, if a person feels that they or somebody they live with would be at serious risk of violence or intimidation due to the activities of the company, or they already have residential address protection in connection with another company, they (or the company concerned with the person’s consent) can apply to Companies House to prevent their residential address from being disclosed to credit reference agencies as company directors are currently able to do.
A second type of protection is also available to individual PSCs who feel that if their wider PSC information is on the central public register, they or somebody they live with would be at serious risk of violence or intimidation due to the activities of the company. Alternatively, they may feel at risk as a result of a particular characteristic or attributes specific to themselves taken together with the company. Such PSCs (or the company concerned with the person’s consent) can apply to Companies House to stop all of their PSC information from appearing on the public register. In assessing the situation, the Registrar of Companies will be able to seek advice on the nature or extent of the risk of violence or intimidation from any authority as he thinks fit. If a successful application is made, the PSC’s information in the company’s own PSC register must be replaced with a note that a protection application has been made in respect of the PSC.
Protection will start as soon as an application is registered at Companies House and applications can be made before an individual becomes a PSC or before a company is incorporated so information about that PSC may never appear on the central public register. If an application for protection is not successful there is a right of appeal during which time the protection will continue.
As well as the BIS Statutory and Non-Statutory Guidance, BIS has published a summary guide to the PSC regime which provides a brief introduction and sets out how the requirements apply to some simple company structures. BIS also intends to publish non-statutory guidance aimed at individuals and legal entities who have significant influence or control over UK-incorporated companies to help such individuals and legal entities comply with the new requirements. In due course it is anticipated that Companies House will also provide separate guidance on the protection regime and on the incorporation and filing process in relation to PSC information to be kept on the central public register.
Given the April 6, 2016 implementation date, companies should already be in the process of taking reasonable steps to identify their individual PSCs and RRLEs so as to have a PSC register in place by that date. Failure to do so will constitute a criminal offence.
The 2016 Regulations, which have been laid before Parliament for approval, were published on January 25, 2016 and most provisions are due to come into effect on April 6, 2016.
The Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 specify how Part 21A CA 2006 and the 2016 Regulations are modified so as to apply to LLPs. These LLP Regulations are before Parliament for approval.
The draft BIS Statutory Guidance for companies was published on January 27, 2016 by BIS in final form and has been put before both Houses of Parliament for approval. Draft statutory guidance for LLPs has been published but cannot be laid in Parliament until the LLP Regulations have come into force so BIS notes on its website that the LLP statutory guidance will be laid in Parliament on April 6, 2016 and come into force after sitting in Parliament for 40 days.
OFAC published a final rule that modifies the Cuban Assets Control Regulations to revoke the so-called "U-turn" authorization.
On 5 September 2019, Professor John McMillan AO’s Final Report (Report) on the operation of the Narcotic Drugs Act 1967 (ND Act) was tabled in Parliament. Section 26A of the ND Act required the Minster to cause a review of the operation of the ND Act to be undertaken.