The fifth directive is aimed at combating corruption and money laundering and came into effect in the EU earlier this month as a response to the Panama Papers investigation, which revealed the widespread practice of money laundering through trusts and offshore holding structures.
The EU legislation immediately came under fire for being insufficient and lacking centralized coordination.
UK authorities, however, hope that the directive will put safeguards in place that are reassuring to international investment — an essential component to the UK’s economy that created 76,000 jobs last year.
“These proposals will ensure we have the appropriate safeguards to protect our national security whilst ensuring our economy remains unashamedly pro-business and open to high levels of foreign investment in the future,” Business Secretary of BEIS Greg Clark said.
The UK will officially leave the EU next March with a transition period until the end of December 2020. Its adoption of the legislation is a step toward creating an international standard for financial secrecy.
The directive includes measures such as creating public registers of company owners, access to the names of the beneficiaries of trusts, a cross-border database of company and trust owners, and automatic access to the names of bank account holders for national financial intelligence units.
In the UK, businesses and investors will also be encouraged to notify the government ahead of large transactions that could, for some reason, cause a national security risk, according to the BEIS statement.
Though the statement says that most transactions don’t often raise a national security flag, the new legislation allows the government to “call in” any that do for further assessment. The government must then give confirmation to proceed with the transaction, provide approval, or can block the deal.
Crucially, for this “call in” method to work, it must be economy-wide, requiring coordination between many countries. Whatever happens with Brexit, the UK is likely to want to maintain access to European markets and continue cooperation on anti-money laundering efforts.
While the UK’s adoption of the directive may help to merge them with the EU, it does not apply to UK affiliated offshore financial centers, such as the British Virgin Islands and Bermuda, as well as Jersey, Guernsey, and the Isle of Man, which are often referred to as “crown dependencies.”
However, a coalition led by Labour Parliament member Margaret Hodge has already forced the government to implement legislation that would create public registers of company ownership on those offshore tax havens, The Guardian reported.
“The crown dependencies, recognising the importance for their business models of maintaining full access to EU markets, are likely to align with the standard,” Alex Cobham, the chief executive of the campaign group Tax Justice Network, said to The Guardian.
