1 December 2022
In Brief
On 7 November 2022, Treasury released a consultation paper seeking comments on the design of a public register of beneficial ownership in Australia. Whilst the Government announced its intention to establish this register as part of its pre-election commitment to introduce a package of measures to enhance multinational tax integrity and increase tax transparency in Australia, this proposal is not solely focused on tax transparency. Its aim is to also support stronger regulatory and law enforcement responses to tax and financial crime, assist foreign investment applications, and facilitate the enforcement of sanctions.
In Detail
The Government has proposed that it will adopt a phased approach to the introduction of a public register of beneficial ownership in Australia. Initially, the proposed changes will only require entities regulated under the Corporations Act 2001 (Corporations Act), including unlisted companies, to maintain a register (some parts of which will be available to the public) of certain natural persons, companies, registered managed investment schemes (MISs), Corporate Collective Investment Vehicles (CCIVs) and trusts which satisfy certain criteria to be registered as a beneficial owner.
This will be followed, in future phases, by additional entities and legal vehicles being subject to these requirements, and the centralisation of this information in a single public register. The Government intends to consult on the approach to the future phases at a later stage.
It is worth noting that this is not the first time that there has been consultation on a proposed beneficial ownership register for companies which was last put forward in 2017.
What is the issue these proposed changes are seeking to address?
The existing disclosure regime in the Corporations Act captures some beneficial ownership information for listed entities. However, Australia does not have a framework for the systematic collection, verification and release of beneficial ownership information, including for unlisted companies, unlisted CCIVs and unlisted registered MISs.
Whilst there are legitimate reasons for distinguishing the beneficial and legal owners of an asset, according to the consultation paper, the absence of a dedicated beneficial ownership disclosure regime for unlisted entities limits public visibility of the underlying ownership of entities, and the persons who influence, control, or benefit from entities’ business activities.
The Government is concerned that a lack of transparency gives rise to opportunities to:
- conceal ownership of assets through overseas companies or trusts to evade tax liabilities, debts or sanctions laws
- launder money and disguise the true ownership of assets acquired with illegally obtained wealth, and
- conceal related party transactions and other dealings which are not at arm’s length.
Seeking to improve the availability of information regarding the beneficial ownership of assets is largely in line with international best practice. For example:
- The Financial Action Task Force (FATF) recommends in its International Standards on Combatting Money Laundering and the Financing of Terrorism & Proliferation: The FATF Recommendations that countries ensure there is adequate, accurate, and up-to-date information on the beneficial ownership and control of legal persons that can be obtained or accessed rapidly and efficiently by competent authorities, through either a register of beneficial ownership or an alternative mechanism. Australia is currently assessed as ‘partially compliant’ with this recommendation.
- The OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes currently rates Australia overall as ‘largely compliant’ with the international standard on transparency and exchange of information. However, Australia is only ranked ‘partially compliant’ with element A.1 of the standard, that countries should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities.
It is noteworthy, however, that both the FATF and Global Forum on Transparency and Exchange of Information for Tax Purposes recommend that beneficial ownership information be readily available to competent authorities. The current proposals by the Government seek to go further than this by enabling public access to beneficial ownership information. The current consultation paper does not, however, articulate who the intended users of this information - beyond Government and regulatory entities - would be.
What are the proposed changes?
The consultation paper seeks comments on a range of issues associated with the implementation of the first phase of changes to establish a public register of beneficial ownership in Australia. Broadly, the first phase will require certain “regulated entities” to maintain a beneficial ownership register that will be available to the public.
Initially, a regulated entity will be an entity that is regulated under the Corporations Act and is currently required to maintain a register of legal ownership. This includes:
- proprietary companies
- unlisted public companies
- unlisted registered MISs, and
- unlisted CCIVs.
Entities listed on Australian financial markets will be expected to continue to identify their beneficial ownership through the existing substantial holding notice and tracing notice regimes, and will therefore not be required to maintain a beneficial ownership register. However, the Government is considering opportunities to expand and harmonise these regimes as part of this consultation process.
In recognition of the fact that in some cases, it may not be possible for regulated entities to identify all beneficial owners, the Government is also proposing to introduce obligations on ultimate beneficial owners to identify themselves as beneficial owners and provide relevant beneficial ownership information to regulated entities (discussed further below).
Under the Government’s proposals, regulated entities will be expected to take reasonable steps to identify and verify their beneficial owners, and to develop and maintain an accurate, up-to-date, publicly accessible beneficial ownership register. The Government is proposing to adopt an approach similar to that used in the United Kingdom with regards to the thresholds for registration on a beneficial ownership register. Under this approach, a regulated entity would include on its beneficial register entities or individuals who either:
- hold, directly or indirectly, 20 per cent of the shares or units in the regulated entity
- hold, directly or indirectly, 20 per cent of the voting rights in the regulated entity
- hold the right, directly or indirectly, to:
- appoint or remove a majority of the board of directors of the regulated entity (where the regulated entity is an unlisted proprietary or unlisted public company)
- appoint or remove the regulated entity’s responsible entity (where the regulated entity is a MIS)
- appoint or remove the regulated entity’s corporate director (where the regulated entity is a CCIV)
- have the right to exercise, or actually exercise, significant influence or control over the regulated entity.
With regards to tracing through entities to identify underlying beneficial ownership, the consultation paper highlights that:
- A regulated entity would not be required to trace through other regulated or listed entities to identify beneficial owners in its beneficial ownership chain. As such, the consultation paper notes that during the first phase, identifying the ultimate beneficial owners of a particular regulated entity may require examining the registers of multiple regulated entities and public filings of listed entities.
- Regulated entities will need to trace through trusts to identify beneficial owners. The Government proposes to require a regulated entity to identify each trust which satisfies a threshold test as outlined above, unless the relevant trust is a registered unlisted MIS and therefore a regulated entity itself, or a listed MIS and therefore does not require further beneficial ownership disclosure. In these circumstances, the regulated entity would be obliged to take reasonable steps to identify all of the trust’s beneficiaries, and to record these on its beneficial ownership register.
- There may be some exemptions to the requirement to trace through trusts to beneficiaries. For example, a regulated entity will not have to disclose trust beneficiaries if the trust is a registrable superannuation entity. However, this exemption will not extend to self-managed superannuation funds and small APRA funds.
The consultation paper does not canvass whether regulated entities would be required to trace through foreign entities to the extent they are not regulated under the Corporations Act, and if so, what reasonable steps would be required to identify underlying foreign owners.
The Government intends that the public will have access to the beneficial ownership register of a regulated entity, either by allowing the public to request a copy of the register from a regulated entity, or requiring regulated entities to publish their registers online. The consultation outlines the information that will be collected on the register, and which parts will be publicly available.
The consultation paper cavasses a range of issues relating to the maintenance of the register by regulated entities, including accuracy and verification of information on the register, and keeping the register up-to-date whilst minimising the compliance burden on regulated entities.
The amount of information that may be collected and stored by regulated entities under this proposal, combined with the prospect of the public being able to access at least some of the data in the register (including, as currently proposed, the full name, month and year of birth, address for communication / service and nationality of natural persons who are beneficial owners) raises a number of questions regarding the privacy and security of sensitive personal information that will be collected. The consultation paper discusses some aspects of this issue, for example, proposing to exempt from public disclosure of a beneficial owner's residential address, and allowing a beneficial owner to seek a regulatory exemption from public disclosure of other information. It does not, however, address the added security risks associated with sensitive information (including, potentially, proof-of-identity information) being collected and stored by regulated entities.
To complement the new measures, the Government is also proposing to establish an enforcement mechanism which will broadly allow regulated entities to issue a notice to a person it suspects to be a beneficial owner, requesting them to provide beneficial ownership information to the entity. If the person does not respond to such requests, the regulated entity will have the power to prevent the person from dealing in their interest by serving a notice of restrictions. Penalties will apply to regulated entities, their officers, and beneficial owners for non-compliance with this proposed new regime, and these will align with other serious civil and criminal penalties in the Corporations Act for failures to disclose legal ownership information. The Government is also proposing to strengthen the existing enforcement regime applying to listed entities in respect of the substantial holding notice and tracing notice regimes.
The consultation paper makes no mention of a proposed timeframe for the implementation of phase one of this proposal, nor any indicative timeframe for the future phases.
Comments on the consultation paper can be made until 16 December 2022.
Takeaway
The release of this consultation paper is the first step on a long journey towards establishing a centralised register of beneficial ownership in Australia. Regulated entities now have an initial indication of what their future obligations under this regime may look like, although many questions - particularly relating to the practical steps to collect and maintain beneficial ownership information, and the privacy issues and security attached to that information - remain unanswered. The consultation paper provides an opportunity for interested stakeholders to engage with the Treasury as it continues to develop the framework for this new regime, and raise any concerns.
Given that there is as yet no time frame attached to these proposals, we recommend that all potentially affected entities maintain a watching brief on these proposals as they continue to develop.
Sarah Saville
Chris Vanderkley
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