Annexes to COM(2020)560 - Assessing whether MS have duly identified and made subject to the obligations of Directive 2015/849 all trusts and similar legal arrangements governed under their laws

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dossier COM(2020)560 - Assessing whether MS have duly identified and made subject to the obligations of Directive 2015/849 all trusts and similar ...
document COM(2020)560 EN
date September 16, 2020
agreement with the transferor.


Fiducies are a quite common legal arrangement in Europe, especially in French-speaking and Latin countries. The specific features of a fiducie can vary and adapt based on the different Member States and the respective national legal systems. Three Member States notified arrangements of this type that are regulated directly by national law. This is the case of the French fiducies (article 2013 of the French Civil Code), Luxembourg’s contrats fiduciaires (Law of 27 July 2003) and Romania’s fiducia (Articles 773-791 of the Romanian Civil Code).


In other cases, a similar arrangement is based on the general principle of the autonomy of the contracting parties, and is delimited by court judgements and doctrine. This is the case, for instance, of the fiduciary mandate (mandato fiduciario), notified by Italy. Although there are no national provisions regulating this type of contract, it customarily takes the form of a scheme that corresponds to that of a fiducie, with the same effects as regards the separation and transfer of assets to a fiduciary for the benefit of one or more beneficiaries.


Like the Italian mandato fiduciario, the Spanish fiducia is also based on the autonomy of the contracting parties set out in Article 1255 of the Spanish Civil Code. Under this arrangement, the fiduciary holds a title to the assets, which does not transfer him the ownership but permits him to act as an owner regarding third parties, and to administer the property with full powers. 21 This arrangement has not been notified by Spain as it considers that this type of contract cannot be considered similar to a trust, in that the fiduciary’s ownership is only formal and there is no transmission of property stricto sensu. However, this arrangement grants an effective, albeit limited, title to the property to the fiduciary, comparable to that of other trust-like arrangements analysed in this report. The lower degree of protection of the beneficiary’s rights compared to a trust is also comparable to that of other trust-like arrangements analysed here. Moreover, the absence of a public form of notice of the existence of the fiduciary title will make the fiduciary appear as the sole owner of the assets in front of bona fide third parties.


All these similarities suggest that the Spanish fiducia presents a similar function to that of a trust, which would have justified its notification under Article 31(10) of the AMLD. It is important to note that this is not an isolated case. Another example where the literature considers that, unless prohibited by law, arrangements based on the Latin fiducia are similar to trusts is the Netherlands, which did not notify this arrangement either. 22  


The category at hand could be further extended to include other legal arrangements recognised under national law, which present similar features despite some differences, for instance, in the nature of the bond established between the parties. With regard to this group, the bizalmi vagyonkezelő notified by Hungary (Act V of 2013 on the Civil Code and Act XV of 2014 on trustees and the rules governing their activities) is a relevant example. 23 Under this arrangement, the trustee has the duty to manage the property transferred into his ownership by the settlor in his own name, for the benefit of the beneficiary, for which the settlor is obliged to pay a fee.


Another example is the vincolo di destinazione, notified by Italy (Article 2645-ter of the Italian Civil Code), which consists of a scheme where the owner of immovable property or assets registered in public registers establishes a bond over such property. By virtue of this bond, the assets can be managed and used only for serving a specific purpose identified by the owner.

c.b.bTreuhand


Treuhand are among the legal arrangements explicitly identified as being similar to trusts in both FATF standards and the AMLD. The Treuhand is a legal arrangement without legal personality derived from the principle of the autonomy of the contracting parties, typical of the German and Austrian legal systems. According to this scheme, a person (Treugeber) transfers certain assets or ownership rights to another person (Treuhänder), who is authorised to manage such assets in accordance with the contract between the two parties. Such a contractual relationship can fulfil different functions. Most commonly, as also recognised by the OECD 24 , it serves the purpose of an escrow agreement. This suggests that these types of Treuhand should not be considered similar to trusts.


However, due to its flexibility, the Treuhand can also be structured in such a way as to play a function similar to a trust. This can be the case, for example, of a Treuhand used to transfer and manage company shares 25 . The OECD 26 confirmed the AML/CFT relevance of this type of Treuhand and noted that it should be subject to transparency obligations as regards beneficial ownership.


The Treuhand was not notified by any Member State. Member States pointed to the lack of comparability between the Treuhand and a trust, especially given that the Treuhänder cannot keep the assets separate from its own patrimony and that the arrangements is most commonly used as an escrow relationship.


Literature indicates that the Treuhand presents features similar to trusts, even notwithstanding some structural differences intrinsic to the civil law origin of the Treuhand. The common use of Treuhand as escrow relationships is also acknowledged. Yet, as noted above, this does not appear the only function that a Treuhand can exercice, as it could also serve as for example a private wealth management mechanism. 27 The information above, alongside the fact that both Austria and Germany introduced the obligation for Treuhand holding company assets to disclose their beneficial ownership, suggests that Treuhände should be considered legal arrangements similar to trusts.


c.b.cFideicomiso


The fideicomiso is among the legal arrangements explicitly identified as being similar to trusts in both FATF standards and the AMLD. This arrangement is most common in Latin America, where it is equivalent to the inter vivos common law trust. Given its geographic specificity, this arrangement is not relevant for the EU.

Other legal arrangements in the EU share the same origin of the fideicomiso in the Latin fideicommissum (e.g. the fideicommis, fedecommesso, familienfideikommis). In most cases, these arrangements have either been abolished or only allow legal guardians to look after the assets of a minor or developmentally disabled person. Literature 28 recognises that these arrangements, where a testator identifies a guardian who will manage certain assets for the benefit of a beneficiary, present structural similarities with common law trusts. They should therefore fall under the scope of Article 31. However, none of these arrangements has been notified by Member States.


On the other hand, in the case of fideicommissary substitution or arrangements such as the residual fideicommissum, the asset recipient is the sole proprietor, and the assets (or the remainder) are passed on to a beneficiary only upon his/her death. In these cases, the person managing the assets can benefit from their property in full, without the limitations that usually characterise a fiduciary agreement. Thus, such an arrangement fails to replicate either the structure or the function of the trust of separating title to, or management of, certain assets from their beneficial ownership. The (possible) residual title to the assets of a further beneficiary has no impact on the arrangement, as it takes effect only upon the first beneficiary’s death. Thus, as noted by several Member States, it appears that these arrangements should not be considered similar to trusts.


c.b.dSvěřenský fond


The svěřenský fond was notified by the Czech Republic (Section 1448 et seq. of the Czech Civil Code). It is a sui-generis legal arrangement that finds no similarities in other EU Member States. Under this legal arrangement, neither the settlor nor the trustee hold a title to the assets. These assets become property without owner, to be managed by the trustee for the benefit of the beneficiaries. Notwithstanding its specificities, this arrangement fulfils the same function of the common law trust of separating legal and beneficial ownership. 29  


c.b.eFunds


EU rules on investment funds are not prescriptive as regards the legal structure that such funds might take. As a result, investment funds might take the form of investment companies, trusts or similar legal arrangements. Investment funds share functional similarities with trusts in that, through these arrangements, the investors relinquish their right of decision over them to a specialised professional. 30 One Member State notified funds that fall under this typology, namely the Netherlands, which reported the fonds voor gemene rekening (Article 2 of the Corporate Tax Act of 1969), a specific type of close-ended fund.


Other Member States have opted for specific approaches for investment funds. For example, Luxembourg requires the fonds communs de placement and the sociétés d’investissement à capital variable to disclose their beneficial ownership under Article 30 of the AMLD. The information available shows that there is no common approach to funds (including pension funds), and that questions remain on how to deal with those funds that take a contractual form.


c.b.fFoundations


Foundations are regarded as the civil law equivalent to a common law trust, as they may be used for similar purposes 31 . The AMLD reflects this equivalence and imposes on foundations the same beneficial ownership requirements as on trusts and similar legal arrangements. However, foundations have legal personality and, as such, they cannot fall under the category of similar legal arrangements to trusts. Only one notification of foundations with legal personality was made, which has since been withdrawn.


Germany notified the nichtrechtsfähige Stiftungen, a type of foundation without legal personality, provided that the purpose of such foundations is to serve the interests of the founder, and “other legal structures which correspond to such foundations in their structure and function”. In the OECD’s analysis, the nichtrechtsfähige Stiftungen, regardless of their purpose, may be treated as a Treuhand. This justifies the notification of this arrangement, although the information available is not sufficient to justify its restriction to cases where the foundation serves the interests of the founder only. The notification of “other legal structures which correspond to such foundations in their structure and function” seems too vague to achieve the objective of the AMLD, 32 which is to ensure legal certainty and a level playing field by clearly setting out which legal arrangements established across the Union should be considered similar to trusts.


3.3Other legal arrangements


Literature identifies also legal arrangements that can be considered similar to trusts by virtue of their structure, such as the guardianship, the curatorship and the administratorship of deceased estates. However, these arrangements have not been notified by Member States.


On the other hand, as acknowledged by the FATF, a number of other arrangements can be used to conceal the relationship between the beneficial owner and the assets, 33 but cannot be considered similar to trusts as regards their structure and function. Examples of such arrangements are:


-Life insurance contracts can be regarded as fulfilling a similar function to that of a trust. 34 However, specific provisions concerning these products already exist in the AMLD as well as in the Solvency II Directive, 35 and these contracts should therefore be treated separately.

-Escrow agreements are drawn up to determine the details of a transfer of assets procedure. The escrow agent acts as a guarantor for both parties in the transaction and is not, himself, party to it.

-Nominees acts on instructions regarding certain assets, on behalf of a beneficial owner. The transfer of assets requires a trust, a similar legal arrangement or civil contract to govern the nominee relationship.

-For other arrangements such as silent partnerships, the information available is not conclusive as to whether these should be considered similar to trusts or not.


IV.Submission of legal arrangements to the obligations of the AMLD


Article 31 of the AMLD provides that trustees or persons holding an equivalent position in a similar legal arrangement shall be made subject to a set of obligations concerning the holding and the submission of beneficial ownership information. Regarding the enforcement of such obligations, an overview of the Member States’ notifications offers a fragmented picture, which reflects the complexity of identifying and classifying the legal arrangements at hand.


The summary below is based on information collected from Member States prior to the deadline for transposition of the 5th Anti-Money Laundering Directive 36 , or shortly after it. These contributions did not always include applicable legal provisions and cannot fully reflect whether Member States have correctly transposed the provisions of Article 31 of the AMLD. Any failure to transpose them correctly by Member States will be dealt with using the appropriate procedures.


Member States which notified that trusts or similar legal arrangements are governed under their law have generally adopted legislation that obliges these arrangements to obtain and hold adequate information on beneficial ownership. In a few Member States, such legislation has not yet entered into force. Such obligations generally fall on the trustee, and, in some cases, it is specified that the information shall include the identity of the participants in the trust in line with Article 31 of the Directive. Most of the above Member States apply the same obligations also to other legal arrangements similar to trusts. In some cases, these arrangements are spelled out (e.g. fiducies).


As regards Member States that indicated they do not have any trusts or similar legal arrangement governed under their legal systems, most of them have passed legislation that requires foreign trusts and similar legal arrangements to obtain and report appropriate information on beneficial ownership. In general, the broadness and ambiguity of notifications suggests difficulties in addressing the different types of relevant legal arrangements. In some cases, information regarding the obligations imposed on foreign trusts is unclear, imprecise (e.g. reference to legal persons instead) or missing.


As regards reported sanctions and other dissuasive measures for failure to obtain and hold adequate information on beneficial ownership, the information shared by Member States shows a fragmented picture. Generally, Member States requiring trusts and similar legal arrangements to obtain beneficial ownership information lay down pecuniary sanctions of an administrative nature (e.g. lump sums, fines calculated per day). The amounts vary considerably (from a few thousand euro to up to one million or more) and can be set or incremented based on different parameters. A minority of Member States also reported sanctions at criminal level, including imprisonment, although it appears unclear whether the information provided actually refers to registration requirements for businesses in general rather than to the submission of beneficial ownership information. Similar considerations apply for measures such as prohibition to operate or removal from the company register. In a few cases, failure to comply with national rules on transparency and registration obligations will lead to the nullity of such arrangements.


Member States that introduced rules obliging trusts and similar legal arrangements to obtain and hold information on beneficial ownership also required them to disclose such information to obliged entities. However, Member States’ approaches appear fragmented in this regard. Several Member States reported national legislation that reflects the provisions of Article 31 of the AMLD. In some cases, Member States only indicated that trusts obliged to submit beneficial ownership information are those entering into business activity in the State at hand, without pointing out the aspect of the residence of the trustee, which, thus, remains unclear. Finally, in other cases Member States provided general or inaccurate information that does not address the specific situation of trusts or similar arrangements.


The majority of Member States did not provide sufficient information to form a clear picture on the obligation for trusts resident in another Member State to submit proof of registration when doing business in their territory. In several cases, input on this point was either too general (e.g. it referred to the interconnection of national central beneficial ownership registers, due by March 2021), unclear, missing, or indicating that the relevant legislation has not yet entered into force.


V.Conclusions


There is no conclusive analysis in the international AML/CFT community of what constitutes a similar legal arrangement to a trust. This report provides a first attempt at EU level to analyse legal arrangements that could be considered similar to the common law trust under Member States’ law and custom, based on the input by the Member States and analyses produced by the academic world.


The analysis reveals that a wide range of arrangements show similarities with the common law trust in line with the conditions of Article 31 of the AMLD. Legal arrangements such as Treuhand or Fiducie, on the one hand, can be considered similar to trusts by virtue of their function, whereas other arrangements such as guardianship, curatorship and administratorship of deceased estates can be considered similar by virtue of their structure.


Member States’ notifications under Article 31(10) of the AMLD did not include all the above arrangements, reflecting the lack of a common approach to what features define similarity with the common law trust. These notifications can therefore only provide a first attempt at identifying what similar arrangements to trusts are governed under Member States’ law.


At the same time, such absence of a common approach to the identification of arrangements similar to trusts does not ensure legal certainty and a level playing field, and might leave loopholes that allow little known arrangements to be used in money laundering schemes, as has been the case with legal entities. 37 To tackle this problem, the Commission will consider the possibility of setting up an informal working group with academics, practitioners, Financial Intelligence Units and competent authorities in order to identify common objective and consistent criteria for the identification of the relevant legal arrangements governed under their law. Such an exercise could result in the issuance of a technical document.


In addition, a preliminary analysis of the obligations imposed on such legal arrangements by Member States shows that the aim of establishing a consistent monitoring and registration framework might not have been achieved yet.


At the same time, the review reveals that in the area of funds, transparency of beneficial ownership information might vary from one Member State to another based on their legal form. This creates an uneven level of transparency, which might merit being addressed with common specific rules for funds, similarly to what the AMLD already provides for foundations.

(1)

 Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (Text with EEA relevance), OJ L 141, 5.6.2015, p. 73–117, as amended by Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018, OJ L156, 19.6.2018, p. 43-74.

(2)

Similar provisions regarding transparency of beneficial ownership of legal entities can be found in Article 30 AMLD.

(3)

OJ 2019/C 360/05, p. 28-29.

(4)

OJ 2020/C 136/05, p. 5–6.

(5)

Austria, Belgium, Bulgaria, Croatia, Denmark, Estonia, Finland, Greece, Latvia, Lithuania, Poland, Portugal, Spain, Slovakia, Slovenia and Sweden.

(6)

While this is also the case for Portugal, a specific provision under Portuguese law recognises foreign trusts and allows them to perform business activities exclusively in the Madeira Free Trade Zone. (Decree-Law 352-A/88, amended by Decree-Law 264/90).

(7)

Cyprus, Ireland, Malta.

(8)

Italy, Luxembourg and the Netherlands notified that they have ratified the Hague Convention. N.B. Cyprus, Malta and the U.K. have also ratified the 1985 Hague Convention.

(9)

https://www.hcch.net/en/instruments/conventions/status-table/?cid=59.

(10)

Czechia, France, Hungary, Italy, Luxembourg, Romania and the Netherlands.

(11)

Germany and Italy.

(12)

Sandor, I. (2015) “The legal institution of the trust in the economy and law of Eastern European countries”, European Scientific Journal April 2015 SPECIAL edition 1857 – 7881, p. 139-149

(13)

Sepp, K. (2017). “Legal Arrangements Similar to Trusts in Estonia under the EU’s Anti-money-laundering Directive”, Juridica International, 26 (56-65).

(14)

FAFT and Egmont Group (July 2018), Concealment of Beneficial Ownership

(15)

Trustee Law (CAP 193)

(16)

Trusts and Trustees Act (Chapter 331 of the Laws of Malta)

(17)

International Trusts Law (Law No 69(I)/92 as amended by Law No 20(I)/2012, and Law No 98(I)/2013)

(18)

Sandor, I. (2016) “Different Types of Trust from an Ownership Aspect”, European Review of Private Law, 6-2016, p. 1189–1216

(19)

Wautelet, P. (2005) “Le nouveau droit international privé belge”, Euredia: Revue de Droit Bancaire et Financier, p. 111-134.

(20)

Schmidt, K. (2016) “Trust as a Legislative Challenge: Bipolar Relation vs Quasi-Corporate Status? – Basic Trust Models in Legal Practice, Theory, and Legislation”, European Review of Private Law 6, p. 995–1010.

(21)

Martin, S. (2007) “Trusts in American law and some of their substitutes in Spanish law: Part II”, Trusts & Trustees, Vol. 13, No. 7, p. 242-251.

(22)

van Veen, W. J.M. and Duin, H. M.C. (2016) “Dutch Trusts and Trust-Like Arrangements”, European Review of Private Law, 6-2016, p. 973–994

(23)

See Sandor (2016)

(24)

OECD – Global Forum for Transparency and Exchange of Information for Tax Purposes – Peer Review Report on Exchange of Information on Request – Austria 2018

(25)

In these cases, both Austria and Germany inserted provisions under their national laws to provide for the disclosure of the parties to the Treuhand. For example, the Austrian beneficial ownership register for legal entities provides information on the Treugeber and the Treuhänder when Treuhand own more than 25% of a legal entity.

(26)

OECD – Global Forum for Transparency and Exchange of Information for Tax Purposes – Peer Review Report on Exchange of Information on Request – Austria and Germany 2018

(27)

See Schmidt (2016).

(28)

Honoré T. (2008) “On Fitting Trusts into Civil Law Jurisdictions”, University of Oxford Legal Research Paper Series, Paper No 27/2008

(29)

See Sandor (2016)

(30)

Kulms, R. (2016) “Trusts as Vehicles for Investment”, European Review of Private Law, 6-2016 (1091–1118)

(31)

FATF (October 2006), The misuse of corporate vehicles, including trust and company service providers

(32)

Recital 29 of Directive (EU) 2018/843

(33)

FAFT and Egmont Group (July 2018), Concealment of Beneficial Ownership

(34)

Ibid

(35)

Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (Text with EEA relevance), OJ L 335, 17.12.2009, p. 1–155.

(36)

 Directive (EU) 2018/843 (see footnote 1).

(37)

  https://www.globalwitness.org/en/blog/three-ways-uks-register-real-owners-companies-already-proving-its-worth/