Standardising ownership data on foreign companies and trusts buying real estate in the European Union
Foreign companies from high-risk jurisdictions and all foreign trusts which have purchased real estate in the European Union since 2014 will soon be required to submit detailed beneficial ownership information.
Details relating to any companies or trusts involved in the ownership networks behind the purchasing entity need to be disclosed “to make sure hiding behind multiple layers of ownership of companies won’t work anymore”.
Any changes in the beneficial ownership of the reporting foreign companies or trusts will have to be declared within 28 calendar days or “effective, proportionate and dissuasive” penalties should be issued to force compliance.
These details and more are set out in key articles of the 2024 EU Anti-Money Laundering Regulation which comes into force in July 2027 and apply to “legal entities created outside the [European] Union and trustees of express trusts or persons holding an equivalent position in a similar legal arrangement that are administered outside the Union or that reside or are established outside the Union”. This beneficial ownership information has to be submitted to central registers by 10 January 2028.
Foreign entities deemed risky will be required to submit their beneficial ownership information to the central register of the member state where the real estate they have purchased since 2014 — or wish to buy now — is located.
Addressing risks in the real estate sector
Real estate is singled out as one of several high-risk sectors which the EU AML regulation is looking to target to introduce more transparency. Recital 132 of the regulation explains the rationale:
The risks posed by foreign legal entities and foreign legal arrangements which are misused to channel proceeds of funds into the Union’s financial system need to be mitigated. Therefore, legal entities created outside the Union and express trusts or similar legal arrangements administered outside the Union or whose trustees or persons holding an equivalent position reside or are established outside the Union should be required to disclose their beneficial owners … [when] acquiring real estate in the Union
However a “proportionate” risk-based approach to registering these details should be taken, according to recital 133 of the regulation. Beneficial ownership information only needs to be collected on legal entities belonging to high-risk sectors or categories — but all foreign trusts have to provide beneficial ownership information.
This is due to “the private nature of legal arrangements, and the obstacles in accessing beneficial ownership information in the case of foreign legal arrangements, [which] justify the application of a registration requirement irrespective of the level of risk associated with the obliged entity providing services to the legal arrangement”.
Elsewhere in the regulation, a requirement is set out to tell banks and other obliged entities to apply enhanced due diligence to any customer holding more than €50m in “financial, investable or real estate assets”.
The EU’s approach goes above and beyond that used for the UK’s Register of Overseas Entities by requiring information on the ultimate beneficial owners and explanations of the networks linked to companies or trusts.
The UK allows overseas companies to disclose their direct — rather than ultimate — beneficial owners which has lead to the declaration of lots of other companies and trusts in places like the British Virgin Islands and Jersey as beneficial owners rather than the real owners:
(Anyone wanting to analyse the UK’s Register of Overseas Entities data themselves to examine it further can download it in a standardised format via the Open Ownership data portal).
Challenges ahead
The EU requirements will pose a real challenge for corporate registrars and tax authorities across the European Union alongside those contained in other legislation forming the EU AML package.
They will be tasked with collecting and maintaining adequate, accurate and up-to-date beneficial ownership information not only on all the legal entities and legal arrangements registrable in their jurisdiction, but also on risky foreign legal entities and all foreign trusts from any jurisdiction worldwide looking to purchase real estate in their country.
This data will need to be combinable across the European bloc if authorities are to be able to track and trace individuals owning more than €50m in assets.
And where foreign companies or trusts own property in more than one European Union member state, registrars will also need the ability to accept “a certificate of proof of registration of the beneficial ownership information” from any other member state where the entity has already registered.
This is tricky with 27 EU member states having 27 different approaches to collecting, verifying and sharing beneficial ownership information.
The need for a common standard
Any scenario such as this — where high-quality, often complex data needs to be collected from a global range of jurisdictions, combined from a number of sources to be analysed by or exchanged with a wide range of users — benefits from using more standardised approaches.
The European Union is doing work to harmonise beneficial ownership formats in line with the EU AML package but it hasn’t recommended a data standard for member states to use.
This is exactly where the Beneficial Ownership Data Standard (BODS) can help.
BODS is the world’s leading open standard providing a structured data format for exchanging information on how legal entities and legal arrangements are owned or controlled:
Authorities looking to structure and exchange information on the ownership or control of legal entities and legal arrangements can read the full BODS documentation in English, French, Spanish or Russian.
Detailed guidance is available for free on how to format and exchange high-quality data on some of the trickiest topics in beneficial ownership transparency from trusts and nominee relationships to capturing full ownership networks and tracking all of the ways that this information changes over time.
Developed with support from the UK and Norwegian governments, use of BODS is growing worldwide and will help registrars wanting to ensure the interoperability of their beneficial ownership data.
There is also a range of free open-source tools available to any BODS users including a data review tool for checking quality/compliance, a visualisation library for automatically creating beneficial ownership diagrams and an RDF vocabulary to support linked data formats.
Very few jurisdictions currently provide data on the beneficial ownership of real estate in openly licensed, machine-readable formats, according to the Opacity in Real Estate Ownership Index produced by Transparency International and the Anti-Corruption Data Collective.
The more data there is in BODS format, the easier it will be for jurisdictions worldwide to exchange and understand it.
For jurisdictions like Armenia, Bermuda or Botswana whose corporate registers already structure their data in line with BODS, companies or trusts could even download and share their ownership network data in BODS format when they are looking to purchase EU real estate (if European registrars were to accept this approach).
Private companies with complex corporate structures seeking to store their own data in BODS format could subscribe to Structuriser, a commercial product from the eWealth Global Group based in Jersey. Other private sector companies could also build their own products using BODS.
Achieving the goals of the EU AML package in terms of tackling risks in the property sector by standardising ownership data on those foreign companies and trusts buying real estate in the European Union will take a lot of work, co-operation and co-ordination between authorities.
Doing this would be made a lot easier if the data being exchanged was in a common shared format like the one offered by BODS.
For four years, I was the product owner of the Beneficial Ownership Data Standard, the world’s leading open standard for beneficial ownership information and continue to advocate to improve beneficial ownership data quality and standardisation. To learn more or if you need technical guidance or consultancy support, contact me via beneficialownership.co.uk.
