On 23 March 2018 Bermuda brought into operation legislation requiring all Bermuda companies, except those that are exempted, to obtain information regarding their beneficial owners and to maintain beneficial ownership registers at their registered offices (or at such other place in Bermuda convenient for inspection by the Registrar of Companies). Additionally, information regarding their beneficial owners must be filed with the Bermuda Monetary Authority ("BMA").
The new legislation is intended to enable Bermuda to meet the standards for transparency with regards to registered entities set by the Financial Action Task Force and the Organisation for Economic Co-operation and Development ("OECD").
Existing companies to which the legislation applies have a transitional period of six months from 23 March to update or verify information relating to their beneficial owners. Accordingly, it is vital that all Bermuda companies should now take steps to determine their status under the legislation and, unless exempted, to proactively identify and provide notices to their beneficial owners.
The principal purpose of the legislation is to make beneficial ownership information normally held by corporate service providers readily accessible to law enforcement agencies in response to proper and lawful requests. The beneficial ownership register is not publicly accessible and may only be accessed by or on behalf of the Registrar of Companies.
Legislation has also been brought into operation requiring all Bermuda limited liability companies and all exempted general partnerships and exempted limited partnerships to comply with similar requirements. Similar exemptions are also available to these entities. However, this alert only specifically refers to the requirements relating to companies.
Who must comply and who is exempted?
The legislation applies to all companies registered in Bermuda except those that are exempted from application of the legislation. The following companies, entities or vehicles, and any subsidiary of such companies, are exempted:
- A Bermuda company whose shares are listed on the Bermuda Stock Exchange or an overseas stock exchange designated by the Minister of Finance;
- A closed-ended investment vehicle managed or administered by a person licensed under the Investment Business Act, 2003 or the Investment Funds Act, 2006 or registered, authorised or licensed by a foreign regulator recognised by the Bermuda Monetary Authority;
- An overseas company;
- An open-ended investment fund, investment provider, fund administrator, trust company and corporate service provider;
- Any other type of company or entity that is exempted by the Minister by order made by him.
What action is to be taken?
Unless exempted for one of the reasons listed above, each company to which the legislation applies has an obligation to establish and maintain a beneficial ownership register. In connection with this obligation, each such company is required to take reasonable steps to identify any individual who is a beneficial owner of the company and all relevant legal entities in relation to the company.
For the purposes of identifying individuals who are beneficial owners or relevant legal entities (each, a "registrable person"), reasonable steps include the issue of a written notice to any person that the company knows or has reasonable cause to believe is a registrable person.
- The notice must require the person to whom it is addressed, within 30 days of receipt, to state whether or not he or she should be included in the beneficial ownership register of the company and, if so, to confirm or correct any information that is included in the notice and supply any required information that is missing.
- A company is entitled to rely, without further enquiry, on the response of a person to whom such a notice has been sent in good faith, unless it has reason to believe that the response is misleading or false.
- If no beneficial owners are identified or confirmed, the company must keep a record of the actions taken to identify the beneficial owners.
Who is a beneficial owner?
An individual is a beneficial owner of a company if he owns or controls more than 25% of the shares, voting rights or interests in the company through direct or indirect ownership.
If no individual exists or can be identified who satisfies those requirements, an individual is a beneficial owner if he has control over the company by other means. If no individual exists or can be identified who satisfies any of the above requirements, an individual is a beneficial owner if he holds the position of senior manager of the company, including the position of chief executive, managing or executive director or president, or other person holding such senior position in the company by whatever title they are known.
What is a relevant legal entity?
A relevant legal entity in relation to a company is an entity that is incorporated, formed or registered in any jurisdiction, and any legal arrangement (which includes a trust, partnership or other similar arrangement), which would be a beneficial owner of the company if it was an individual.
BMA Guidance Notes
The Bermuda Monetary Authority has stated that it will shortly be issuing Guidance Notes on certain aspects of the new legislation and the related permissions policy under the Exchange Control Regulations. We will issue a further alert with details as to that guidance when those notes become available.
Offences and penalties
Significant penalties apply for non-compliance with the beneficial ownership legislation. Where a company is guilty of an offence, and it is proved that the offence was committed with consent or connivance of an officer of the company, the officer as well as the company is guilty of the same offence and liable to the same penalty as the company. Both criminal and civil penalties are applicable and potential fines to be imposed range from BM$5,000 for failing to comply with the requirements of the legislation up to BM$50,000 for knowingly providing false information. Sanctions, where the company's bye-laws allow, may also include restrictions on voting rights and other interests.
It is a defence for the company and/or officer to show that they took reasonable steps to identify beneficial owners for the purposes of the legislation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.