MONEY LAUNDERING COMPLIANCE DUTIES FOR PENSION SCHEMES Trustees of occupational pension schemes are now subject to additional record-keeping and reporting duties under regulations designed to combat money laundering and terrorist financing. These obligations may seem like an exercise in red tape, but failure to comply carries criminal sanctions (with a potential maximum sentence of two years in prison), so trustees must take action to meet the new requirements. The most immediate duties relate to record-keeping and to the provision of information when entering into a transaction or business relationship with parties (such as banks and some advisers) that are required to carry out money laundering checks. In addition, schemes will have to comply with reporting requirements (potentially annually) to HMRC via the Trusts Registration Service, depending on their liability to specific taxes in the previous tax year. This guide details the new record-keeping and reporting duties, which may require changes to current scheme practices. 1. ACTION POINTS Confirm your deadline for registration via the Trusts Registration Service (TRS) for most schemes that triggered a liability to relevant taxes (see 5.1 below) in tax year 2016/17, this will be 31 January 2018 (see 5.2 below for exceptions). Ensure registration is completed in time. Review current trustee records. HMRC s view is that a separate, additional database should not be necessary but schemes are unlikely to hold all the data required by these regulations as part of standard scheme administration. Ensure that records include all relevant beneficial owners including those who qualify under the control category (see 3.1 below). Consider what steps should be taken to rectify any gaps in the required information, bearing in mind that if challenged, you should be able to demonstrate that you took all reasonable steps and exercised all due diligence to provide the information specified in the regulations. Ensure that the record is in a format which can be disclosed promptly to a law enforcement authority on request (that is, within any reasonable period specified by the authority). Be aware of the duty to disclose that you are acting as a trustee where you enter into a transaction or business relationship with a relevant person and of the (more limited) disclosure requirement that may apply on request (see 4 below). Establish a process to confirm, following the end of each tax year from 2016/17 onwards, whether the trust is a taxable relevant trust (i.e. whether it has triggered a liability to any of the relevant taxes) in that tax year. Register on TRS by the following 31 January if this applies for the first time; post-registration, provide updated information (or confirmation of no changes) to HMRC if required, again by 31 January of the following year. Update procedures manual/risk register to reflect new requirements. 2. BACKGROUND Money laundering compliance rules have previously had limited practical implications for trustees of occupational pension schemes. Professional trustees may fall within the definition of a trust or company service provider (TCSP), but HMRC guidance provides that a TCSP does not have to register where it acts only in relation to occupational pension schemes (more general purpose trustee service providers would have to register). However, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 impose significant new duties on all occupational pension scheme trustees, with possible criminal sanctions for non-compliance.
3. DUTY TO MAINTAIN RECORDS Trustees are required to maintain accurate and up-to-date written records of all the beneficial owners of the trust. 3.1 Who is a beneficial owner? Beneficial owners has a specific definition, including: the settlor (in HMRC s view, this means the founding sponsor of the scheme, plus current participating employers); the trustees; the beneficiaries (active and deferred members, pensioners and pension credit members) plus any category of potential beneficiaries whose interest has not yet been determined; and any individual who has control over the trust (see box). Who has control over the trust? Control here means a power, exercisable alone, jointly, or with another person s consent, under the scheme rules or by law to take certain actions. These actions include dealing with trust property, varying or terminating the trust, adding or removing beneficiaries, appointing or removing trustees, or directing, withholding consent to or vetoing the exercise of any of these powers. The directors of a corporate trustee are likely to be in scope under this heading, and possibly the scheme actuary (for example, if the actuary s consent is required for scheme amendments). Note that an individual will not have control solely as a result of the delegation to him/her of a power to make decisions about investments under section 34 of the Pensions Act 1995 for example, to a fund manager. 3.2 What information has to be recorded? (a) Information about individuals For each individual beneficial owner, the trustees record should include his or her: full name; national insurance (NI) number or unique taxpayer reference (UTR), if any see below; date of birth; and role in relation to the trust. If the individual does not have an NI number or UTR, the record should include his or her usual residential address, and if that address is outside the UK, his or her passport or identification card number, with the country of issue and the expiry date (or equivalent identification). These requirements are likely to prove tricky, for example where dependant pensioners are resident overseas, since the information is unlikely to be held on current records. Trustees are required to take all reasonable steps and exercise all due diligence to obtain the information we are seeking further clarification from HMRC as to whether there is any leeway for proportionality in relation to data that is not part of standard scheme administration. (b) Other information In relation to any legal entity that is a beneficial owner (see above), the trustees record should include the entity s: corporate or firm name and registered or principal office; UTR, if any and, if applicable, company registration details; the legal form of the entity and the law by which it is governed; and the nature of the entity s role in relation to the trust. Finally, the record must include a contact address for the trustees and the full name of any advisers who are being paid to provide legal, financial or tax advice to the trustees in relation to the trust. 3.3 What form should the record take? There is no specific requirement to maintain the record as a separate file; HMRC has indicated that it does not envisage schemes needing to set up additional layers of record-keeping management systems. However, you will need to ensure that your current systems include fields for any additional data required under the regulations, and that you can provide all the relevant records on request from a law enforcement authority, within any reasonable period specified by the authority. Allen & Overy LLP 2017
4. DUTY TO DISCLOSE BENEFICIAL OWNERSHIP Where a trustee enters into a relevant transaction or business relationship on behalf of the trust with a relevant person such as a financial institution, auditor, tax adviser or lawyer, or a TCSP (where relevant see 2 above) in other words, an entity that is required to carry out due diligence checks in relation to money laundering further obligations apply. The trustee must inform the relevant person that he or she is acting as a trustee and, on request, provide information about the beneficial owners of the trust though in this case, it is sufficient to describe the class of persons who are beneficiaries or potential beneficiaries under the trust. If this information is requested and given, there is a duty to update the relevant person on any subsequent change within 14 days of the trustees becoming aware of the change. Detailed beneficial ownership information must be provided on request and within a reasonable period to specified law enforcement authorities (including the Financial Conduct Authority, the police, the Serious Fraud Office and HMRC). A separate, parallel requirement applies to corporate bodies that enter into a relevant transaction or business relationship with a relevant person; on request, the corporate entity must provide information about the entity, including its directors, and its legal and beneficial owners, together with a copy of its articles of association. Corporate trustees will be subject to both requirements. Again, the information can be requested by specified law enforcement authorities and must be provided within a reasonable period. 5. PROVISION OF INFORMATION TO HMRC Finally, there is a requirement to supply information about the trust and its beneficiaries to HMRC following any tax year in which there is a relevant UK tax consequence in relation to the assets or income of the trust. 5.1 What are the relevant taxes for reporting purposes? The registration and reporting requirements are triggered where a scheme is a taxable relevant trust in any tax year from 2016/17 onwards that is, where it triggers a specific type of tax charge in that tax year. The relevant taxes for this purpose, when payable in relation to assets or income of the trust, are: Income tax, capital gains tax and inheritance tax these will not normally apply to trustees of registered occupational pension schemes, unless they have income from trading or investment in property investment LLPs. HMRC has confirmed that income tax items such as payment of a member s annual allowance charge under scheme pays, or liability for special lump sum death benefit charges/unauthorised payments charges etc do not count for this purpose, since these relate to payments out of the trust rather than the assets and income of the trust. Stamp duty land tax, land and buildings transaction tax and stamp duty reserve tax the reference to stamp duties will catch any scheme that invests directly in shares or property (but not a scheme that invests via unit-linked funds or via a collective investment scheme (CIS); in the case of a CIS, the responsibility falls on the manager or operator of the CIS). Trustees will need to put a process in place to ensure that they are aware, following the end of each tax year starting with 2016/17, of whether a duty to register (or, having previously registered, a duty to report) has been triggered for example, whether they have incurred a liability to stamp duty land tax or stamp duty reserve tax in that tax year. If so, they must comply with the registration/reporting duty by the following 31 January. 5.2 Registering and reporting information to HMRC HMRC has developed the Trusts Registration Service (TRS) as a single online route for trusts to comply with their registration and reporting obligations. For most schemes that triggered a relevant UK tax liability in 2016/17, the deadline to register with the TRS and provide the first reporting information will be 31 January 2018. However, in some cases there is a shorter effective deadline of 5 December 2017. This may apply where: a scheme needs to claim a repayment of tax deducted from investment income for the first time for 2016/17;
a scheme has (exceptionally) triggered a liability to income tax or capital gains tax for the first time in 2016/17; or a scheme is required by HMRC to fill in a selfassessment tax return for the first time (even if there is no tax to pay). If your scheme did not trigger a relevant UK tax liability in 2016/17 and does not fall within any of the above categories, no registration requirement applies unless and until a relevant UK tax charge is triggered in a subsequent tax year. Where this applies, registration will be required by the following 31 January. Once a scheme is registered on TRS, trustees must update their registered information or declare that there have been no changes to their registered information, as appropriate, by 31 January following any tax year in which a relevant UK tax charge is triggered. Changes will also be possible on a voluntary basis. For corporate trustee bodies, the trustee company will need to be registered on TRS (trustee directors will fall within the scope of the beneficial owner definition as described in 3.1 above). Non-corporate trustee bodies can nominate one trustee to act as the lead trustee for TRS purposes this trustee will then be the main contact point for HMRC. Note that at the point of registration, TRS only accepts details for five individual trustees, so written details of any additional trustees should be sent to Trusts, HMRC, BX9 1EL. Trustees can also appoint an agent to complete registration on their behalf. 5.3 What information has to be provided? HMRC has issued guidance stating that, to mitigate administrative burdens on schemes, reporting of beneficiary information may be made on a class basis, rather than an individual basis, where the class exceeds ten beneficiaries. In other words, for any class of more than ten beneficiaries, trustees will not have to report the full detailed information kept in their records (though HMRC has the right to this information on request). The information to be kept on HMRC s register (via the TRS) is as follows: Information about the trust (full name, date of establishment, country of residence for tax purposes, and the place where the trust is administered, plus a contact address for the trustees). A statement of accounts for the trust, describing the trust assets and identifying the address of any property held directly by the trust, and stating the value of each category of trust assets as at the date of registration. The details and value of trust assets are collected on first registration only and will not need to be updated. The full name of any advisers who are being paid to provide legal, financial or tax advice to the trustees in relation to the trust but note that HMRC s guidance suggests that the TRS does not currently require this to be reported in practice, only recorded by the trustees. Detailed information about individual beneficial owners as set out in 3.2(a) above or, where the class includes more than ten beneficiaries, a description of the class of persons who are beneficiaries or potential beneficiaries under the trust. Information about the settlor and other legal entities that are beneficial owners, as set out in 3.2(b) above. Although changes to this information have to be notified by 31 January following any tax year in which a relevant tax charge is triggered (see 5.2 above), this excludes changes to the asset value information. In relation to any other information listed above, trustees must notify HMRC of changes, or confirm that there has been no change in each case, via the TRS. HMRC s guidance suggests that it expects trustees who are required to update trust information via the TRS in relation to a previous tax year to provide updates on other post-tax year changes (for example, a change of trustees) on a voluntary basis. Allen & Overy LLP 2017
6. COMPLIANCE AND ENFORCEMENT These obligations may seem like an exercise in red tape, but since failure to comply carries criminal sanctions (with a potential maximum sentence of two years in prison), trustees must take the duties seriously. HMRC is also developing a civil penalty framework and will publish this in due course. To some extent there is an overlap with the Pensions Regulator s emphasis on good record-keeping (which includes a new duty to report on data standards in the scheme return), and with data protection requirements. However, the money laundering regulations go further, and require trustees to keep information that is not currently part of standard scheme administration. As mentioned above, it will be a defence to any action for non-compliance with the requirements for trustees to show that they took all reasonable steps and exercised all due diligence to avoid committing the offence but until there is more clarity around HMRC s expectations and industry guidance, trustees may need to take a proactive approach to closing gaps in their data. 7. OUTSTANDING ISSUES Some questions remain to be clarified, including what constitutes all reasonable steps and all due diligence for example, is it necessary to request identity card data from current pensioners who are resident overseas, or would it satisfy the requirement to take all reasonable steps if trustees gathered this information only when a future benefit goes into payment? HMRC s guidance also suggests that it considers individuals nominated under an expression of wish form to be beneficial owners, although in our view this is outside the scope of the regulations and would present additional practical difficulties. We are seeking clarification from HMRC. 8. OUR TEAM Maria Stimpson Tel +44 20 3088 3665 maria.stimpson@ Däna Burstow Tel +44 20 3088 3644 dana.burstow@ Neil Bowden Tel +44 20 3088 3431 neil.bowden@ Jane Higgins Tel +44 20 3088 3161 jane.higgins@ Andrew Cork Counsel London Tel +44 20 3088 4623 andrew.cork@ Jessica Kerslake Counsel London Tel +44 20 3088 4710 jessica.kerslake@
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