ADGM Regulations of Corporate Beneficial Ownership and Control
People do not have to look any harder than turning on a news channel to see that corruption and crime are always in the news as central points for most news stories. However, what is less known by the public reading the stories but is the focal point to investigators is that the most monotonous details of a case are often the ones that matter the most. One such mundane detail is the role of beneficial ownership and its ability to aid in the commission of corruption and crime. Thus the proper regulation of such beneficial ownership is essential.
The Abu Dhabi Global Market (ADGM) is a financial free zone in the capital, it has its own civil and commercial laws and offers market participants a legal system and regulatory regime. The establishment of ADGM was under Abu Dhabi Law Number 4 of 2013. Amongst the many regulatory frameworks provided for by ADGM, the beneficial ownership and control regulations of 2018 are of particular importance for this article. The regulation purports to make provision for beneficial ownership and control systems for legal entities registered in the Abu Dhabi Global Market.
A beneficial owner is an entity or person that reaps the benefits of the possession and ownership (such as receipt of income) of a piece of property even though the title is under another entity's name (called a ‘nominee' or ‘registered owner'). There is a desire for regulation of such ownership as many criminals will use the opacity of corporate vehicles to hide their identity, to conceal the actual purpose of the account.
The Regulation defines an ADGM Person as:
- “a company incorporated under the Companies Regulations;
- An L.L.P incorporated under the L.L.P Regulations;
- A foundation formed under the Foundations Regulations; or
- A trustee of a trust governed by the law of Abu Dhabi Global Market.”
The Regulation provides the definitions for a beneficial owner in respect of a Company, LLP or partnership. In relation to an LLP or company, a beneficial owner will be a person who owns or controls (in each case whether directly or indirectly), included through bearer share holdings more than 25% of the shares of voting rights in the company or LLP. Also, it can be any person who controls the company or LLP; or any person who exercises control over the management of the company or LLP.
Regarding a partnership, a beneficial owner will be any person who ultimately is entitled to or controls more than 25% share of the capital or profits of the partnership or more than 25% of the voting rights in the partnership.
The meaning of a beneficial owner in the case of trusts as provided by the Regulation is that "an ADGM Person who is a trustee, means each of the following but only in respect of the trust governed by the law of the Abu Dhabi Global Market for which the ADGM Person is a trustee:
- The settlor of the trust;
- Any other trustee aside from the ADGM Person;
- Each beneficiary of the trust;
- Where there is no determination of the persons (or some of the persons) benefitting from the trust, the class of persons in whose primary interest, in the opinion of the Registrar, the trust have been established or operates; and
- Any additional person who has control over the trust.
Information duties of ADGM persons
The Regulations under Article 1 regulate the information duties that are upon ADGM persons concerning their beneficial owners. The ADGM Person must know the real, accurate and complete identity of the beneficial owner. This information is required by Article 2 to be kept in the record of beneficial owners. The required information to be kept in the record is as follows:
- In respect of a natural person:
- Country of residence;
- Full name, including any former names;
- Date of birth;
- The date on which a person becomes a beneficial owner;
- Occupation; and
- The grounds on which that person is considered to be a beneficial owner; and
- In respect of an ADGM Person who is not a natural person:
- Registered address;
- Registered name;
- Registration number (or equivalent);
- Country of registration; and
- The date that that person became a beneficial owner.
If the required person has reason to believe that there has been a change to the relevant information, the ADGM Person must request in writing details of the relevant change from each person whose required particulars are recorded in its record of beneficial owners. A relevant change concerning a person occurs if:
- "the person is no longer a beneficial owner concerning an ADGM Person; or
- Any other change occurs, as a result of which the required particulars states for the person on the record or beneficial owners are incorrect or incomplete."
An ADGM Person must take all reasonable procedures to make sure the security and confidentiality of data disclosed to him under the Regulations, and must not disclose such information other than in compliance with a duty imposed, or in exercise of a power conferred, under the Regulations or any additional regulation applicable in the Abu Dhabi Global Market.
Register of beneficial owners of legal persons:
As per the Regulation, there must be a Register kept that holds all the relevant information about the beneficial owners. It goes further to state that such information must be kept by the Registrar and may be in electronic form.
This data will be kept confidential and secure in the Register, and the Registrar is under an obligation not to reveal to any additional persons the Register or any portion of it, or documents or knowledge obtained by him or disclosed to him, other than disclosures permitted as per the Regulation. The Registrar may disclose information when such disclosure will be in pursuance of section 967 of the Companies Regulations.
The Registrar may reject applications where there has not been compliance with the provisions of the Regulations or any other enactment. He may also reject any submission on such terms and conditions as he thinks fit if it appears to him that there is non-compliance with provisions of these Regulations or any other enactment in respect of that submission or other matter.
Offenses, fines, and enforcement:
The Regulation provides the offenses, fine and their enforcement for contravening provisions of the Regulation.
False or misleading information – a contravention here will be where persons intentionally or negligently provide the registrar with a document or information or make any such statement to the registrar that is deceptive, misleading or incorrect in a material manner. Such a person will be liable to a prescribed fine.
Fines – the board of the ADGM may make any rules concerning the procedures relating to the imposition and recovery of fines. However, the Registrar can send a written notice (a "monetary penalty notice") to the person and impose a monetary fine for a contravention. A monetary penalty notice is a written notice requiring the person to pay the Registrar a find of an amount determined by the Registrar as the Registrar may consider appropriate. The fine may not exceed a level 7 fine (as provided for under the Commercial Licensing Regulations 2015 (Fines) Rules 2015), or such other amount as the Registration Authority may prescribe from time to time.
Fees payable to the Registrar:
The Board as per the Regulation can require payment to the Registrar of any fees in connection with the Registrar's administration of the Regulation. The amount of the fees will be determined depending on the different levels of fees for each ADGM Person. When submitting information or documentation to the Registrar, he/she has been provided with the power to reject such submittal until the making of the payment.
In wider UAE
In cases of ownership of a company, the beneficiary is the actual owner of the company, which receives income and other benefits due to his ownership in the company. An individual may be deemed beneficiary if he is directly or indirectly engaged in the company's business in the UAE and is, in fact, the owner of the company. In practice, the beneficiary enjoys the status of the owner of the company, whereas formally ownership may belong to other persons.
Ways in which a beneficial owner can be detrimental to others:
When persons get divorced, one spouse may wish to conceal his/her ownership of community property by titling: bank accounts, property, vehicles, in the name of an intermediary (i.e., a nominee). The divorcing spouse discretely and without being known controls these assets while the nominee seems to own them. This person acts as a protective layer which hides the divorcing spouse's beneficial ownership of the assets.
A beneficial owner of a shell company can engage in the crime of money laundering and due to the anonymity of a shell company such owner will not be required to disclose the fact that they own the company. In many countries, the legislature requires the name of an agent, the number of shares that make up the company or an address. Therefore, by just omitting the name of the real owner, companies can be formed with no record of who indeed controls and benefits from that company.
In the case of 159/2009 on 29/03/2010, the court had to determine whether a legal owner or beneficial owner of a business would be liable for a claim filed against the company. The claimant had requested the issuance of a court order having them jointly pay the claimant the amount of AED 234,631.31. The first respondent was the person to whom the business license belonged, the second respondent controlled to business in his capacity as the authorized signatory of the business.
The Court of First Instance rejected to claim against the first respondent and order the second respondent to pay the amount claimed to the claimant. This judgment was appealed, and the court of appeal annulled the court of first instance's decision concerning its decision to reject the claim against the first respondent and decided that they two respondents shall jointly and severally pay an amount to the claimant. In an appeal in cassation, the court decided to uphold the judgment of the appeal court.