Canada’s new Bill C-86 Budget Implementation Act, 2018 No.2 rules come into full force this coming June. The updated rules require certain financial and other transactional organizations to be subject to mandatory Ultimate Beneficial Ownership (UBO) disclosure requirements, which means they need to update their entity management workflows.

Disclosure requirements are part of a global trend towards corporate transparency, but specific requirements vary between jurisdictions. Due to these new regulations, we thought it would be interesting to compare the Canadian UBO disclosure requirements with those of the European Union and the United States.

What are the thresholds for Ultimate Beneficial Ownership?

Ultimate Beneficial Ownership identification requirements are based on the ownership and/or control of an entity.

Canada
C-86
June 2019
European Union
MLD4
August 2018
United States
FinCEN CDD
May 2018

Registered and beneficial holders of a “significant number of shares,” being:

  • 25% of the corporation’s voting shares; or
  • 25% of the corporation’s shares measured by market value.

Owner of more than 25% of the shares, voting rights, or otherwise controls the entity through other means.

Senior managing officials may be covered where the 25% threshold cannot be established.

Ownership Test: each individual who owns 25% of the equity interests; and

Control Test: a single individual with significant responsibility to control an entity.

 

What are the Ultimate Beneficial Ownership identification requirements in corporate records?

Where the thresholds have been met, covered organizations must identify and verify certain information relating to the UBOs. The information that must be gathered will vary by jurisdiction, and these will become required fields within Athennian’s entity management software.

Canada
C-86
June 2019
European Union
MLD4
August 2018
United States
FinCEN CDD
May 2018

Register of UBOs including:

  • Names, dates of birth, and latest known address
  • Jurisdiction of tax residence
  • Dates on which they became UBO or ceased to be UBO
  • Description of their rights and interests
  • A description of most recent efforts to update UBO register
  • Any other prescribed information

Country-specific register including a minimum of:

  • Names and dates of birth
  • Nationality of UBO
  • Country of residence of UBO
  • Nature and size of interest
  • Some individual EU countries have additional minimum requirements

Collect and verify:

  • Name and date of birth
  • Address
  • Identification number (e.g. taxpayer ID)
  • Evidence of nationality or residence (e.g. copy of passport)

 

Who can access the Ultimate Beneficial Ownership information?

Those with permissions to access the Ultimate Beneficial Ownership information vary between the three different jurisdictions.

Canada
C-86
June 2019
European Union
MLD4
August 2018
United States
FinCEN CDD
May 2018

The UBO register will not be publicly accessible, but can be compelled by the corporate registrar.

Existing minimum access requirements:

  • Investigative services
  • Certain professional groups (e.g. lawyers and banks)
  • Other groups that can demonstrate a legitimate interest
  • On a country-specific basis, some UBO registers are already publicly accessible
  • Except for limited exemptions, all EU UBO registers must be publicly accessible by 2020

Law enforcement and US financial system regulators.

 

What are the Ultimate Beneficial Ownership compliance penalties?

The penalties for non-compliance with Ultimate Beneficial Ownership requirements also vary between these three jurisdictions.

Canada
C-86
June 2019
European Union
MLD4
August 2018
United States
FinCEN CDD
May 2018

Directors and officers who knowingly fail to comply with the UBO registry commit an offence and are potentially liable for fines up to $200,000 or imprisonment up to 6 months.

Individual EU countries are required to impose sanctions for MLD4 non-compliance.

  • For individuals and firms, fines of twice the derived benefit of the breach or a minimum of €1 million.
  • For financial institutions and associated individuals, at least €5 million or 10% of total annual turnover of the institution, while individuals may receive a maximum fine of at least €5 million.

Various penalties for non-compliance ranging from cease and desist orders to monetary fines. Financial penalties for customer due diligence failures may be combined with other anti-money laundering offences, with tier one penalties carrying a maximum fine of $9,623 per day.


The new Ultimate Beneficial Ownership rules

The update to Bill C-86 passed on December 13, 2018, aims to modernize laws relating to taxation and consumer protection. This overhaul updates the identification and treatment of Ultimate Beneficial Ownership, the rules relating to the disclosure of persons or entities who are the true owner of Canadian securities.

These updates specifically address federally registered private corporations under the Canada Business Corporations Act. While publicly traded companies are exempt, provincially registered companies may still be required to collect UBO information in order to comply with anti-money laundering rules imposed on financial services firms.

Updating entity management workflows

UBO regulations are part of a move towards greater transparency for corporate entities and will assist in global efforts to combat money laundering. For law firms, entity management organizations, and financial services firms, the increased regulatory disclosure requirements for UBOs mean that entity-management workflows must be updated to meet the recordkeeping requirements in each jurisdiction.

With Athennian’s cloud-based entity-management software, your organization will be ready to adapt. Find out how Athennian meets Ultimate Beneficial Ownership regulations and can help you and your company prepare for the changes.
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Not Legal Advice. Paper Interactive, Inc. is not a law firm and does not provide legal advice. Any content contained on this website is for general information purposes only and does not constitute legal or professional advice of any kind. For advice regarding how Bill C-86 may apply to your situation, please contact a qualified lawyer in your jurisdiction.

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