The Proceeds of Crime (Miscellaneous) Act 2018 (PoCMA) and the Companies and Limited Liability Company (Beneficial Ownership) Act 2017 both became operative in March 2018. The Proceeds of Crime (Miscellaneous) (No. 4) Act 2018 (PoCMA(4)became operative on 10 August 2018. Together the Acts introduced amendments to the Trustee Act 1975 (Trustee Act), the Companies Act 1981 (Companies Act) and to Bermuda’s anti-money laundering (AML) and anti-terrorist financing (ATF) legal framework. Whilst the Acts are now operative, in each case PTCs (along with other companies that are within the scope of the amendments) may be subject to transitional provisions set out in the Acts before penalties for non-compliance are imposed. Importantly there are safeguards in the Acts to ensure that beneficial ownership information is not available to the public.
The Bermuda Government introduced the legislative amendments with the view of ensuring that its laws and infrastructure operate in accordance with ever-evolving international standards to effectively prevent and detect AML and ATF and maintain the integrity of the international financial system. Many other financial centres have or are in the process of implementing comparable provisions. Each jurisdiction’s legislation in this area is likely to have its own nuances.
Following the enactments family and corporate offices and licensed trust and corporate service providers that operate or administer PTCs may ask themselves the following questions:
(1) Are the PTCs we operate or administer impacted by the amendments?
(2) What exemptions to the new requirements are available?
(3) Are any of the requirements subject to transitional provisions?
(4) What do we need to do to comply with the new requirements?
(5) What are the consequences of non-compliance?
In summary, subject to the PTC falling within the scope of the provisions or any applicable exemptions, the recent legislative amendments have the effect of requiring PTCs to:
(A) register with, and be regulated by, the Bermuda Monetary Authority (BMA) for the purposes of Bermuda’s AML/ATF regime if the PTC satisfies the updated definition of a “AML/ATF Regulated Financial Institution” under Bermuda’s AML/ATF laws;
(B) collect and keep up to date prescribed information in connection with the trusts of which the PTC is a trustee and to disclose its status as trustee to “relevant agents and service providers”;
(C) file certain information contained within its bye-laws with the Registrar of Companies (Registrar); and
(D) maintain a private register of “beneficial owners” of the PTC (but not of the trusts the PTC administers) and file the “minimum required information” with the BMA.
Some of the legislative amendments potentially impact on a wide range of entities, not just PTCs. However, the objective of this article is to outline the issues most applicable to PTCs. For the purpose of this article the PTCs considered are companies that act as trustees and are:
(1) established under the laws of Bermuda, irrespective of whether or not they discharge their duties as trustee in Bermuda; and
(2) not required to be licensed to carry on “trust business” under Bermuda’s Trusts (Regulation of Trust Business) Act 2001 (TRTBA) because they satisfy the “private trust business” exemption under paragraph 3 of the Trusts (Regulation of Trust Business) Exemption Order 2002.
(A) Changes to AML/ATF laws that impact on PTCs
Under Bermuda’s Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing Regulations 2008 (PoCA Regulations), PTCs that meet the updated definition of “AML/ATF Regulated Financial Institution” are required to:
(1) register with the BMA as a “non-licensed” AML/ATF Regulated Financial Institution; and
(2) have an AML/ATF programme in place that includes policies and procedures covering such components as, but not limited to, a business risk assessment, client risk rating system, customer due diligence, appointment of a compliance officer and a reporting officer.
The amendments to Bermuda’s AML/ATF laws introduced by the Proceeds of Crime (Miscellaneous) Act 2018 effective 21 March 2018, extended the definition of “AML/ATF Regulated Financial Institution” to include PTCs that are exempted from the obligation to obtain a license under the TRTBA because they satisfy the “private trust business” exemption. Most companies that operate as PTCs from Bermuda are able to do so because they have secured the “private trust business” exemption.
Notably, PTCs that “utilise the services” of a Bermuda licensed corporate service provider (CSP) or a Bermuda licensed trust business are expressly carved out of the updated definition of “AML/ATF Regulated Financial Institution”. Consequently, many PTCs may be unaffected by these particular legislative amendments.
Perhaps surprisingly or unintentionally, these particular amendments did not include transitional provisions. For this reason, those PTCs that fall within the updated definition of “AML/ATF Regulated Financial Institution” should mobilise with the view of putting in place an AML/ATF compliance programme in accordance with the PoCA Regulations as soon as possible. The BMA has recently updated its registration application forms for non-licensed AML/ATF Regulated Financial Institutions in order to reflect the range of persons who may apply for registration under the expanded definition. The deadline for submitting the application to register as a non-licensed AML/ATF Registered Institution is 7 December 2018.
(B) New PTC record keeping obligations
Section 13A requires PTCs (along with Bermuda licensed trustees and certain other trustees exempted from the trustee licensing requirement), to keep accurate and, following amendments made by PoCMA(4) effective on 10 August 2018, “adequate” accounts and records (including underlying documentation) of the trustee’s trusteeship appropriate to the trust and the trust property with respect to:
c) additions to trust and distributions, purchases and sales; and
d) income and expenses,
for a minimum period of 5 years from the date on which they are prepared and, following the amendments made by PoCMA(4), the trustee is required during that period to “keep the information current, accurate and updated on a timely basis”.
Until recently, there was no prescribed penalty in respect of the obligation under section 13A of the Trustee Act. The amendments made by PoCMA(4) introduce section 13A(3) into the Trustee Act to provide that a trustee who knowingly and wilfully contravenes the above requirements shall be subject to a penalty of BD$20,000.
Additionally, PTCs and other trustees exempted from requiring a “trust business” license as a result of an “exemption order” issued by the Minister under section 10(2) of the TRTBA (Order) are now required to:
(1) from time to time, keep a [n] accurate [and adequate] record of the names and addresses of the Bermuda “regulated agents and service providers” who provide services to the trust of which it is trustee [, such information to be kept current, accurate and updated on a timely basis]; and
(2) when acting as trustee of a trust, disclose its status as trustee to “regulated agents and service providers” whenever it conducts business with them in that capacity.
The above amendments substantially came into effect when PoCMA became operative on 21 March 2018. The language contained in the brackets above are further refinements introduced by PoCMA(4) which, as indicated previously, became operative on 10 August 2018.
“Regulated agents and service providers” include:
(1) AML/ATF Regulated Financial Institutions e.g. “financial institutions” as defined in the Bermuda Monetary Authority Act 1969 i.e. generally, service providers that require a license to carry on their business in or from Bermuda;
(2) “independent professionals” i.e. professional legal advisers or accountants regulated in Bermuda carrying on business as a partnership, company or sole practitioner who by way of business provide legal or accountancy services to other persons in respect of certain financial or property transactions;
(3) “agent” as defined by section 2 of the Real Estate Brokers’ Licensing Act 2017; and
(4) “broker” as defined by section 2 of the Real Estate Brokers’ Licensing Act 2017.
Following amendments to section 13B of the Trustee Act which became operative on 21 March 2018, PTCs that are exempted from requiring a “trust business” license as a result of the Order are, along with certain other persons, now required to retain identification information on the following persons in respect of the trusts for which they act as trustee or administer:
(5) any other natural person exercising ultimate effective control over the trust; or
(6) where the individuals (or some of the individuals) benefitting from the trust have not been determined, the class of persons in whose main interest the trust is set up, or operates.
Further amendments to section 13B of the Trustee Act made by PoCMA(4) specify that the “identification information” is required to be “adequate”.
PTCs and others that are subject to the requirement to retain the identification information and fail to comply are liable on summary conviction to a fine of BD$75 per day for every day of non-compliance.
“Identification information” is not defined in the Trustee Act. At minimum “adequate identification information” may consist of obtaining and verifying the name and address of the relevant person. However, given the AML/ATF context in which the amendments were made, a more conservative and, it is suggested, more defensible approach would involve the PTC or its administrators obtaining the same information that licensed trustees are required to obtain under the PoCA Regulations. If such an approach were adopted, it would involve at minimum obtaining information such as:
(1) certified current passport;
(2) utility bill or government issued correspondence issued within the last 3 months addressed to the person at the person’s residential address; or
(3) in the case of an entity (which does not qualify for “simplified due diligence”) certified copies of the company’s certificate of incorporation or equivalent, constitutional documents, registers of directors and officers and register of members, and identification on the beneficial owners and controllers of the entity,
and keep the information current, accurate and updated on a timely basis. Under the PoCA Regulations, a person may qualify for “simplified due diligence” and is thereby not required to apply full customer due diligence measures if it, for example, is an AML/ATF Regulated Financial Institution or is subject to equivalent regulation and supervision in a jurisdiction recognised by the Minister for that purpose or has securities that are listed on an appointed stock exchange.
Perhaps surprisingly or unintentionally, PoCMA and PoCMA(4) did not provide transitional provisions in respect of these new record keeping requirements for PTCs. Additionally, the Bermuda Government has not yet issued guidance in respect of the implementation of the new obligations. In these circumstances, it is possible that the Bermuda Government might allow what it deems a reasonable transitional period before it investigates non-compliance. Notwithstanding that possibility, PTCs should start mobilising with the view of complying with the new record-keeping requirements as soon as possible. PTCs that utilise the services of CSPs should be well placed to arrange compliance.
(C) Requirement to file certain information contained in bye-laws
Legislative amendments which became operative on 1 April 2016 inserted section 92B into the Companies Act, requiring companies registered thereunder to file with the Registrar a list of their directors. The list is available for public inspection. A company’s register of directors must reflect a complete and current record of its directors and include the full name and address of individual directors or the company name and registered office address in the case of corporate directors. Similar provisions apply under Bermuda’s Limited Liability Act 2016 (LLC Act) in respect of managers of Bermuda limited liability companies (LLCs).
PoCMA amended section 13 of the Companies Act to require, from 21 March 2018, companies established thereunder that have a share capital to file with the Registrar the following information that the company is required to provide for in its bye-laws:
(1) the transfer of shares and the registration of estate representatives of deceased shareholders;
(2) the duties of the secretary of the company; and
(3) the number of members required to constitute a quorum at any general meeting of the company.
Notably, the legislative amendments expressly provide that the information from the bye-laws filed with the Registrar shall not be available to the public.
Under transitional provisions, the Minister may by order provide that those companies that are subject to these new filing requirements have until 20 September 2018 to comply.
An “exempted company” (i.e. essentially a company owned predominantly by non-Bermudians carrying on business outside of Bermuda) that contravenes a provision of the Companies Act runs the risk of being investigated by the Registrar who may, if the breach is committed wilfully or knowingly by the company, petition the Court to wind up the company. If the Court is satisfied that the company, or any of its officers, agents or employees have done anything in contravention of the Companies Act the Court may:
(1) make an order for the winding up of the company; or
(2) impose a fine of BD$2,000 on the company; or
(3) impose a fine of BD$2,000 on any director or other officer, agent or employee who has knowingly or wilfully authorised or permitted the contravention.
(D) PTCs and Private Beneficial Ownership Registers
Amendments to Bermuda’s Companies Act made by the Companies and Limited Liability Company (Beneficial Ownership) Amendment Act 2017 effective on 23 March 2018 (BOA Act), require Bermuda companies (including LLCs) to keep registers of beneficial owners (Registers) and file “minimum required information” with the BMA. Similar amendments were made to laws impacting on Bermuda limited partnerships.
Bermuda law does not impose obligations to keep registers of trusts or trust beneficiaries. However, subject to the scope of the BOA Act and availability of exemptions, the BOA Act may require information in respect of trusts to be recorded on the Register in circumstances where, for example, a trustee of a trust owns shares in a Bermuda company (or interests in the case of a Bermuda LLC) that is not exempted from the obligations under the BOA Act.
Notably, the BOA Act provides that the information recorded on a Bermuda company’s beneficial ownership register is available for inspection by the Registrar, but not the public.
The obligations in a nutshell
A Bermuda company (such as a PTC) that is not exempt from the BOA Act is required to:
(1) take reasonable steps to identify and verify the identity of “beneficial owners” and “relevant legal entities” in respect of the company;
(2) maintain a register of “minimum required information” in respect of “registerable persons” (Register);
(3) file the minimum required information with respect to such registerable persons with the BMA;
(4) where a CSP is engaged by the company, comply with such requirements as the CSP may specify in order for it to meet its obligations to obtain, vet and file the minimum required information; and
(5) maintain the Register at its registered office or at such other address in Bermuda notified in writing to the Registrar.
Transitional provisions apply enabling Bermuda companies that were already in existence on 23 March 2018 to comply with the BOA Act. Recently the Companies and Limited Liability Company (Beneficial Ownership) (Transitional Period Extension) Order 2018 (BR106/2018), Gazetted on 25 September 2018, extending the date by which Bermuda companies and LLCs are required to provide the minimum required information under section 22(3) of the BOA Act from the 24th September 2018 to the 15th December 2018.
The following Bermuda companies and their “subsidiaries” are exempted (Exempted Entities) from the obligations under the BOA Act:
(1) a company listed on the Bermuda Stock Exchange or an appointed stock exchange;
(2) closed ended investment vehicles managed or administered by a fund administrator or investment manager licensed in Bermuda or by a foreign regulator recognised by the BMA;
(3) “permit companies” (i.e. foreign companies with a permit to carry on business in or from within Bermuda);
(4) “financial institutions” as defined in the Bermuda Monetary Authority Act 1969; and
(5) any other type of company or entity that is exempted by Bermuda’s Minister of Finance by order made by him.
For the purposes of the BOA Act a “subsidiary” is:
(1) a company where any Exempted Entities, separately or collectively, hold in excess of 75% of the interests or voting rights in that company;
(2) a company where any Exempted Entities are members of such company and, separately or collectively, have the right to appoint or remove a majority of the company’s board of directors or other governing body; or
(3) a company that is a subsidiary of one or more companies, entities or vehicles, each of which is itself a subsidiary of one or more Exempted Entities.
A number of PTCs and their underlying entities may be Exempted Entities as a result of being a “subsidiary” of an Exempted Entity.
Under the BOA Act:
- a “registerable person” means a “beneficial owner” or a “relevant legal entity”;
- a “beneficial owner” of a company is each individual who:
- owns or controls more than 25% of the shares, voting rights or interests in a company through direct or indirect ownership thereof; or (where no such individual(s) exist or can be identified)
- controls the company by other means; or (if no such individual or individuals exist or can be identified)
- holds the position of “senior manager” of the company.
- “controlling a company by other means” includes the:
- right to appoint or remove a majority of the board of directors of a company; and
- exercise of control over a company by any means other than by ownership of any interest.
- a “senior manager” means the chief executive, managing or executive director or president of a company or other person holding such senior position in the company by whatever title known.
- a “relevant legal entity” is:
- any “legal entity” (i.e. a legal person under applicable law) wherever formed or registered; or
- any “legal arrangement” (e.g. a trust, partnership or other similar arrangement),
which would be a beneficial owner of the company if it were an individual.
The “minimum required information” to be included on a company’s Register is:
- the full name (including any secondary names) of each registerable person;
- where the registerable person is an individual, the individual’s:
- residential address and address for service;
- date of birth;
- where the registerable person is a relevant legal entity:
- the registered office address and principal office address;
- date and place of registration;
- form of legal entity (or legal arrangement);
- the name of each exchange on which it is listed (if any);
- effective date on which each person was entered, or (if applicable) ceased being entered, on the Register as a registerable person;
- statement of the nature and extent of interest held by each registerable person; and
- in respect of a class of beneficial owners of such size that it is not reasonably practicable to identify each beneficial owner, details sufficient to identify and describe the class of persons who are beneficial owners.
Except in circumstances where the company is reasonably satisfied that its Register is accurate, each company is required to issue written notices seeking confirmation to persons who the company has reason to believe should be included in, or removed from, its Register or if minimum required information in the Register in relation to the registerable person has changed.
Filing of minimum required information with the BMA
Subject to the assumptions and transitional provisions mentioned above, each company is required to file the minimum required information with the BMA:
(1) upon its registration, continuation or conversion, as the case may be, in Bermuda; or
(2) where a company engages a CSP (with an unlimited CSP licence), as soon as practicable and no later than 14 days after the company’s registration, continuation or conversion in Bermuda.
Companies are required to file a notice of changes to the minimum required information with the BMA within 14 days after the company is notified, or otherwise becomes aware, of the change.
Offences and defences
If the company:
(1) fails to comply with the BOA Act without reasonable excuse, it may be fined up to $5,000 on summary conviction; or
(2) knowingly provides false information to the Registrar or the BMA it may be fined up to $50,000.
If the company’s failure to comply with the BOA Act was committed with the consent or connivance of its director or other officer, such director or other officer shall also be deemed to have committed the offence.
A person shall not be required to provide or produce information or answer questions under the BOA Act if the person would be entitled to refuse to do so on grounds of legal professional privilege in proceedings in the Court.
The legislative amendments impacting on companies, including those targeted specifically at PTCs, follow trends in reforms being made in other offshore jurisdictions in order to keep up with international demands in respect of AML, ATF and transparency. Bermuda PTCs remain flexible vehicles that can be used in a wide range of private and commercial structures.
This briefing does not identify or explore all recent or pending changes of the law that may impact PTCs, the trusts of which they may be a trustee of or their respective underlying entities, nor can it anticipate what may be included in guidance or regulations yet to be finalised and issued by the Bermuda Government.
For more specific advice on private trust companies in Bermuda, we invite you to contact any member of our Corporate Team.