Beneficial Ownership (FR0009)

STAKES Knowing clients and beneficiaries of financial activities is one of the pillars of the fight against money laundering, corruption and tax evasion. It enables to detect atypical operations that may be related to criminal transactions. The beneficial owners of legal entities, as defined in Article L561-2-2 of the French monetary and financial code are "the individuals who, directly or indirectly, control the client, or the individual for whom a transaction is executed or an activity is carried out". Transparency on beneficial owners can improve the overall transparency of shell companies and trusts and fight against money laundering, corruption and tax evasion.

CONTEXT & AIM On February 5th 2013, the European Commission presented a draft directive on preventing the use of the financial system for money laundering and terror financing, known as the “4th anti-money laundering directive”. It was officially published on June 5th 2015. In the context of negotiating this directive, an agreement was reached on December 16th 2014 on the question of beneficial owners. It specifies the creation of a central register per Member State, with a gradual access (i.e. with no restrictions for competent authorities and financial surveillance bodies, in the context of their competencies relating to the fight against money laundering and terrorist financing for the obliged entities, and with the condition of a legitimate interest for third-parties such as NGOs and journalists). According to the agreement of December 16th 2014, the text opens the possibility for a Member State, in its national regulation, to make the access to this central register fully open (recital #15 of the Directive, article 30 §3 which quotes a “public register” as an example). Published on June 5th 2015, this Directive will have to be transposed within two years from its publication, with a choice of procedures for accessing the register for Member States. In order to improve this transparency, it is proposed to make the identification of beneficial owners of companies and other legal entities registered in France mandatory, to centralize this information in a register and to make this information widely open.

ROADMAP
• Use a centralized registry, composed of various data, including data from the French central public registry for companies called Registre du Commerce et des Sociétés (RCS), in order to keep and provide a widely open access to adequate, accurate and timely information on beneficial owners of companies and other legal entities, consistently with the new 4th Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing provisions

✪7. Identify beneficial owners of legal entities registered in France

Commitment Text:

Identify the beneficial owners of legal entities registered in France.

ROADMAP

Use a centralized registry, composed of various data, including data from the French central public registry for companies called Registre du Commerce et des Sociétés (RCS), in order to keep and provide a widely open access to adequate, accurate and timely information on beneficial owners of companies and other legal entities, consistently with the new 4th Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing provisions

Editorial Note:This is a partial version of the commitment text. For the full commitment text please see France's national action plan: https://bit.ly/2MTYhsR.

Responsible Institutions: Ministry of Justice; Ministry of Finance and Public Accounts; Ministry of the Economy, Industry and the Digital Sector

Supporting Institution(s): N/A

Start Date: Not Specified 

End Date: Not Specified

Commitment Aim

This commitment aimed to create, publish, and open a centralised beneficial ownership register for both companies and trusts.^{[Note68: Art. L. 561-2-2 of the Monetary and Financial Code defines a beneficial owner as “the natural person who directly or indirectly controls the client or the natural person on whose behalf a transaction or activity is being conducted.”  The creation of a registry including company beneficial ownership stemmed from a series of national and international commitments on money laundering, tax evasion, and corruption, such as the EU's fourth Anti-Money Laundering Directive (AMLD) adopted in October 2014. This commitment addressed information not been previously available in a central repository in France, much less made publicly available.}

A number of aspects of this commitment, as well as relevant international agreements, remain unclear, such as the EU's potential restriction on people with a ‘legitimate interest.' Similarly, the commitment states that access will be “widely open,” which is still not satisfactory for some civil society stakeholders who underline the importance of this register being fully publicly accessible. Nonetheless, since this information has not been available previously in a central repository in France, let alone available for external publication, if fully implemented the data released by the two registers will significantly contribute to improving transparency of beneficial ownership by companies registered in France.

Status

Midterm: Limited

Completion of this commitment was considered limited by the midterm. In July 2016, a public register of trusts was created with data on 16,000 trusts. The register was suspended by the Constitutional Court in October 2016, following a judicial complaint on the grounds of privacy violation. After a failed attempt to create a public register of beneficial ownership for trusts, none of the registers were available at the time of writing the midterm report (December 2016).

Infogreffe, the entity responsible for the company register (“Registre du commerce et des sociétés”), has released datasets in open data format. Stakeholders have noted that important information such as the name of the company director and the number of companies registered in France is missing. There are also issues with the quality of the data. Transparency International France has signalled that key data are not defined. Data was only available in PDF or image format and was not standardised.

End of Term: Substantial

In the second year, the government took steps to resolve the privacy concerns identified in the October 2016 Constitutional Court decision and identify beneficial owners of legal entities registered in France. Revised implementation decrees enacted during the second year set timelines and requirements for the creation of two registers to list the beneficial owners of legal persons and trusts respectively.^{[Note69: Etalab team, personal communication with IRM researcher, 23 Oct. 2017.]} The deadline for complying with the new requirements is outside of the review period and since neither register will be open for public access, it is not possible to assess the level of compliance. Decree n° 2017-1094, however, lists the people and entities with access to the information contained in the registers.^{[Note70: The list includes, but is not limited to, judges, customs officials, officials from the Public finance general directorate, law enforcement officials]} The IRM researcher, therefore, finds this commitment to be substantially completed.

Following the Constitutional Court's decision of October 2016, declaring the second paragraph of Article 1649 AB unconstitutional, the article was replaced by Article 10 of Decree no. 2016-1635 dated 1 December 2016, which transposes and implements provisions from the EU fourth anti-money laundering directive (EU Directive 2015/849, 20 May 2015) into French domestic law. The decree creates a register of beneficial owners for credit institutions, electronic currency institutions, and banking intermediaries. The full list of entities can be found in of Decree no. 2016-1635, Article 2. The decree requires French and foreign companies and corporate groups to identify and register their ultimate beneficial owners by 1 August 2017 for new companies and 1 April 2018 for existing companies.

The decree also resolves the privacy issue identified by the Constitutional Court decision by specifying that registers of beneficial owners will not be open to the public, but will be accessible to the persons and entities listed in Decree n° 2017-1094 dated 12 June 2017 when acting in accordance with their authorised powers. Citizens justifying a legitimate interest in the information can request access to the register through a judicial ordinance.^{[Note71: Infogreffe, Registre des bénéficiaires effectifs (Infogreffe, 25 Jul 2017), https://www.infogreffe.com/registre-des-beneficiaires-effectifs (accessed on 28 September 2017).]} During an interview, the Etalab team indicated that case law would clarify what is meant by “justifying legitimate interest.”

Two texts currently cover the issue of beneficial ownership: Law n° 2016-1691, referred to as “loi Sapin II,” adopted 9 December 2016 and decree n° 2016-1635 adopted 1 December 2016. There are thus two laws that provide guidance on beneficial ownership and can create confusion. Etalab clarified that decree n° 2016-1635 and its related decree, n° 2017-1094 dated 12 June 2017, were the standard which would be implemented.

Did It Open Government?

Access to Information: Marginal

Information on beneficial owners was not previously available in a central repository in France. This commitment thus represents a significant improvement in identifying beneficial owners. The commitment states that the register should provide “widely open access.” The initial statement is ambiguous and it is thus difficult to assess the selected system against the initial goal of the national action plan. However, it is clear that the envisioned beneficial ownership register would be widely open to the public. Despite the valid privacy concerns raised by the Constitutional Court, the lack of public access to centralised information makes it difficult to consider that these activities significantly opened government practice in this policy area. As such, this commitment marginally opened government regarding access to information.

Ordinance no. 2016-1635 and Law n° 2016-1691 require companies and trusts to communicate information about their beneficial owners to the Commercial Court. This is progress in France's struggle against money-laundering and tax evasion. The EU Directive 2015/849/UE encourages member states to provide wide access to information contained in the register but the legal framework in France only provides access to a select group of entities. Citizens with a legitimate interest in the information are required to make a request to access this information through a judicial ordinance. The ambiguity of the term “legitimate interest” makes it hard to understand who is allowed to make an access request.

Carried Forward?

This commitment was not carried over to the next action plan.