Update on Bermuda private trust companies

Amendments to Bermuda's AML and ATF laws

Bermuda's proceeds of crime laws require companies that fall within the definition of 'anti-money laundering/anti-terrorist financing (AML/ATF) regulated financial institutions' to:

• register with the Bermuda Monetary Authority (BMA) as a non-licensed AML/ATF regulated financial institution; and
• establish and maintain an AML/ATF programme, which must include, for example:
  • policies and procedures covering a business' risk assessment;
  • a client risk rating system;
  • customer due diligence; and
  • the appointment of compliance and reporting officers.

In 2018 the definition of 'AML/ATF regulated financial institutions' was amended to include companies (ie, private trust companies) that are exempt from the requirement to be licensed to carry on trust business in or from Bermuda because they satisfy the private trust business exemption in the Trusts (Regulation of Trust Business) Order 2002. To secure the private trust business exemption a company must:

• provide in its memorandum of association or (in the case of an overseas company) permit that it is authorised to act as trustee of the trusts identified therein and such other trusts that have been approved by Bermuda's minister of finance; and
• certify to the BMA that it has attended to the above and thereby qualifies for the exemption and provide the BMA with the particulars of the nature and scope of its trust business.

Notably, the 'AML/ATF regulated financial institution' definition provides that private trust companies which "utilise the services" of a Bermuda licensed corporate service provider or a Bermuda licensed trust business are not within the scope of the definition.

Private trust companies record keeping

Bermuda's Trustee Act 1975 now requires private trust companies to keep accurate and adequate accounts and records (including underlying documentation) of the trustee's trusteeship which are appropriate to the trust and the trust property with respect to asset liabilities, additions to trust and distributions, purchases and sales, and income and expenses, for a minimum of five years from when they are prepared.

Private trust companies must "keep the information current, accurate and updated on a timely basis".

The amendments provide that a trustee who knowingly and wilfully contravenes the above requirements is liable to a Ber$20,000 penalty. Private trust companies must now:

• keep a current, accurate and adequate record of the names and addresses of the Bermuda regulated agents and service providers that provide services to the trust of which it is a trustee; and
• when acting as trustee, disclose its status as a trustee to regulated agents and service providers whenever it conducts business with them in that capacity.

Private trust companies that are subject to these requirements are liable on summary conviction to a fine of Ber$75 per day for every day of non-compliance.

Requirement to file bye-law information

The amendments to Bermuda's Companies Act 1981 (made in 2016) require companies that are registered thereunder to file a list of their directors with the registrar of companies. The list is available for public inspection. The list of directors must contain a complete and current record of its directors and include the full name and address of individual directors or the company name and registered office address in the case of corporate directors.

The 2018 amendments to the Companies Act require companies established thereunder that have a share capital to file the following information (for which they must make a provision for in their bye-laws) with the registrar:

• the transfer of shares and the registration of estate representatives of deceased shareholders;
• the company secretary's duties; and
• the number of members that must constitute a quorum at general meetings.

The information that is filed under this requirement is not publicly available.

Failure to comply may result in the registrar exercising its enforcement powers which include issuing fines and ultimately, in more extreme cases, striking the company from Bermuda's company register.

Private trust companies and beneficial ownership registers

The Companies and Limited Liability Company (Beneficial Ownership) Amendment Act 2017 (Beneficial Ownership Act) will, from 28 February 2019, require Bermuda companies to keep a register of beneficial owners (register) and file 'minimum required information' with the BMA.

Bermuda law does not impose obligations to keep registers of trusts or trust beneficiaries. However, subject to the scope of the Beneficial Ownership Act and the availability of exemptions, information in respect of trusts may need to be recorded on the register in circumstances where a trustee of a trust owns shares in a Bermuda company. A private trust company may also be required to comply with the Beneficial Ownership Act in respect of its beneficial owners.

The information recorded on a Bermuda company's register is not available for public inspection.

Summary of obligations

A Bermuda company (including a Bermuda private trust company) which is not exempt must:

• take reasonable steps to identify and verify the identity of its beneficial owners and relevant legal entities;
• maintain a register of the minimum required information of registerable persons;
• file the minimum required information on the registerable persons with the BMA; and
• maintain the register at its registered office or at such other address in Bermuda notified in writing to the registrar.

Exemptions

The following types of Bermuda company and their subsidiaries are among the entities which are exempt from the obligations under the Beneficial Ownership Act (exempt entities):

• permit companies – overseas companies with a permit to carry on business in or from within Bermuda; and
• 'financial institutions' as defined in the Bermuda Monetary Authority Act 1969.

Under the Beneficial Ownership Act a company is considered a 'subsidiary' of one or more exempt entities if:

• exempt entities (separately or collectively) hold over 75% of the shares or voting rights in the company;
• exempt entities that are members of said company and (separately or collectively) have the right to appoint or remove a majority of the company's board of directors; or
• it is a subsidiary of one or more exempt entities, each of which is itself a subsidiary of one or more exempt entities.

Key terms

The Beneficial Ownership Act sets out the following key terms:

• 'Registerable persons' are the beneficial owners or relevant legal entities.
• 'Beneficial owners' of a company are individuals who:
  • own or control more than 25% of the shares, voting rights or interests in a company through direct or indirect ownership thereof;
  • (if no individual in the above category exists or can be identified) control the company by other means; or
  • (if no individual in the above category exists or can be identified) hold a senior manager position in the company.
• The phrase "controlling a company by other means" includes the:
  • right to appoint or remove a majority of a company's board of directors; and
  • exercise of control over a company by any means other than by ownership of any interest.
• A 'relevant legal entity' is any legal entity (ie, a legal person under applicable law) wherever formed or registered or any legal arrangement (eg, a trust, partnership or other similar arrangement) which would be a beneficial owner of the company if it were an individual.

The minimum required information to be included on a company's register includes:

• the name of each registerable person;
• where the registerable persons is an individual, the individual's:
  • residential address and address for service;
  • nationality; and
  • date of birth;
• where the registerable person is a relevant legal entity:
  • the registered office address and principal office address;
  • the date and place of registration;
  • the form of legal entity (or legal arrangement); and
  • the name of each exchange on which it is listed (if any);
• the effective date on which each person was entered, or (if applicable) ceased being entered, on the register as a registerable person;
• a statement of the nature and extent of the interest held by each registerable person; and
• in respect of a class of beneficial owners of such a size that it is not reasonably practicable to identify each beneficial owner, details sufficient to identify and describe the class of persons who are beneficial owners.

Unless the company is reasonably satisfied that its register is accurate, it must issue written notices seeking confirmation, as applicable, to and in respect of:

• persons who it has reason to believe should be included in, or removed from, its register; and
• registerable persons whose minimum required information has changed.

Filing of minimum required information

Unless exempt, relevant companies must file the minimum required information with the BMA:

• on its registration, continuation or conversion, as the case may be, in Bermuda; or
• where a company engages a corporate service provider (with an unlimited licence), no later than 14 days after the company's registration, continuation or conversion in Bermuda.

Companies must file a notice of changes to the minimum required information with the BMA within 14 days after the company is notified (or otherwise becomes aware) of the change.

Offences

Any persons who:

• contravene the act without reasonable excuse will be liable on summary conviction to fines not exceeding Ber$5,000; and
• knowingly provide false information to the registrar or the BMA will be liable on summary conviction to fines not exceeding Ber$50,000.

In certain circumstances, directors and other officers of the company may also be liable to the fines along with the company. It is a defence to an offence if the person can show that they took reasonable steps to identify the companies' beneficial owners.

Private trust companies as trustees of charitable trusts

The amendments to Bermuda's Charities Act 2014 made in 2018 are as follows:

• The conditions that Bermuda's privately funded charities must satisfy to be exempt from the requirement to register as a Bermuda charity and comply with the reporting and other requirements of a registered charity were modified.
• Notification requirements for privately funded charities that consider themselves exempt from the registration requirement were introduced.
• A separate part of its register of charities specifically for registered privately funded charities, which is not available for inspection by the public, was created.

The amendments require Bermuda's privately funded charitable trusts to have at least one trustee that is a Bermuda licenced trustee in order to be exempt from registration.

Economic substance requirements

As with many other major offshore jurisdictions, late in 2018 Bermuda introduced economic substance requirements to comply with the European Council's requirements. In summary:

• Bermuda companies, limited liability companies and partnerships with separate legal personality that carry on relevant activity must comply with economic substance requirements.
• 'Relevant activity' means carrying on one or more of the following as a business:
  • banking;
  • insurance;
  • fund management;
  • financing;
  • leasing;
  • acting as a headquarters;
  • shipping and distribution centre;
  • holding intellectual property; and
  • acting as a holding entity.
• The economic substance requirement includes demonstrating that the entity is managed and directed from Bermuda, employs adequate employees and incurs adequate expenses in respect of its core income generating activities.
• Entities within scope must file an annual declaration with the registrar providing the required information and confirming that they have satisfied the economic substance requirements with respect to each relevant activity.
• Pure equity holding entities are subject to minimum economic substance requirements.
• Trusts are not identified as entities that may be subject to the requirements and acting as trustee is not included as a relevant activity; however, underlying companies of trusts and the private trust companies themselves must comply if they carry on relevant activity.
• Government guidance notes are anticipated to be available during March 2019.
• Existing entities have until the end of June 2019 to comply with the economic substance requirements.

Comment

If they have not already, directors and administrators of private trust companies should urgently determine whether they are AML/ATF regulated financial institutions and ensure that they comply with the new record-keeping requirements and the pending beneficial ownership regime. Private trust companies that are trustees of charities must consider their circumstances and whether they need to attend to the notification, registration and associated requirements with respect to the charity. Bermuda private trust companies must consider the application of the economic substance requirements in respect of Bermuda's underlying companies in particular.

Bermuda private trust companies remain flexible vehicles that can be used in a range of private and commercial structures. The legislative amendments affecting private trust companies are consistent with trends of reforms in other offshore jurisdictions and ensure that Bermuda maintains its international reputation.

An original version of this article was first published by The International Law Office, January 2019.

© Carey Olsen 2019.

Carey Olsen Bermuda Limited is a company limited by shares incorporated in Bermuda and approved and recognised under the Bermuda Bar (Professional Companies) Rules 2009. The use of the title “Partner” is merely to denote seniority. Services are provided on the basis of our current terms of business, which can be viewed at: www.careyolsen.com/terms-business.