Internet consultation on identification of bearer shares holders
A draft bill on identifying bearer shares holders has been offered for internet consultation. This regulation aims to combat tax evasion, money laundering and terrorist financing.
19 april 2017
Public limited liability companies may issue both registered shares and bearer shares. Current legislation allows bearer shares holders to remain anonymous. This is because these shares are not registered in someone’s name and they are freely marketable through a private instrument. Hence, the legislature fears that bearer shares could be used for money laundering, bribery, financing terrorist activities, and avoiding taxation. This is why a draft bill was offered for internet consultation recently, with which the legislature aims to enable identification of all bearer shares holders. The bill comes on the back of recommendations by both the Global Forum on Transparency and Exchange of Information for Tax Purposes and the Financial Action Task Force. These parties have repeatedly insisted on identification of bearer shares holders, or the abolition of such shares altogether.
The draft bill regulates the identification of all bearer shares holders. Once the bill has come into force, it will solely be possible to trade in bearer shares through a securities account held at an intermediary. Such intermediaries may be banks or investment institutions. What’s more, the current bearer shares holders must hand over their documents to an intermediary or have them converted into registered shares. Since the securities account is registered in a name, transferring bearer shares anonymously will no longer be possible. In combatting tax evasion, money laundering, terrorist financing, or other forms of financial and economic crime, investigative authorities will be granted the power to request the intermediaries to provide data on the securities accounts holders.
Recently, the Netherlands likewise started the legislative process (on the initiative of the House of Representatives) to set up a central shareholders' register. In addition to this a draft bill has been offered for internet consultation on the implementation of a central register with information on Ultimate Beneficial Owners (UBO register). Considering the current legislation though, which allows registration in such registers to be avoided through the issue of bearer shares, these developments could encourage the use of bearer shares. On top of this, the fourth European Anti-Money Laundering Directive makes it mandatory for Member States to take measures to prevent the abuse of bearer shares and depositary receipts for shares. Finally, the explanatory memorandum stipulates that these measures are necessary due to the stepped-up priority for tackling terrorism.
Follow -up steps
Both the identification of bearer shares holders and the implementation of the central shareholders' register and the UBO register signal a trend with which ever more information is gathered, to the detriment of citizens’ privacy. Up to May 11, 2017 it is possible to respond to the internet consultation on the Identification of Bearer Shares Holders Act. The draft bill does not include a date of coming into force.