Our government leaders, united in Europe, have come up with something to combat the masking of corruption. It is called UBO register. The Netherlands is also going to introduce it in the near future. This has consequences, including for cultural foundations and associations. Because every organisation has to determine who is a UBO (Ultimate Beneficial Owner). That causes some complications.
In the cultural sector, it is certainly not the talk of the day and seems like a futuristic zeppelin. But in the arts, too, UBOs and pseudo-UBOs are rife. And on top of that, 'Politically Prominent Persons' (PEP) also have to identify themselves. The status of 'BN-er' has no implications as yet. Anyway: read what the implications might be here.
Privacy
You were allowed to think that Troika Laundromat was a temporary visiting Polish dance company, and Oldebrecht a family history in a hundred volumes. But no, these are recent corruption and fraud cases that have made panicked banks now also start asking cultural foundations and associations difficult questions about who their UBO is.
Incidentally, you do have to ask someone's permission before registering them as a UBO or PEP for the register or with other institutions. Standard forms you can probably get plenty from trust offices. Or who knows, maybe they will soon be on a (pseudo)UBO privacy course with you.
Profit
As early as six months from now, the UBO register must be in order. Organisations that do not have it in order can be fined amounts ranging from €250 to €50,000. There are virtually no high profit margins in the cultural sector, it would still be a shame.
Indeed, in the cultural sector, - beyond the often very lucrative trade in fine art - often find no profit margins at all and ultimately beneficiaries. In the Netherlands, we even still have many clubs operating as collectives.
There is still a lot of ambiguity about what exactly constitutes a UBO, and how exactly to apply the rules. It has to do with roughly two things: ownership interest and control. In the public sector, this can lead to crazy situations. Even a minister, or in theory even members of the public buying a ticket, and even the famous Henk and Ingrid couple, can be 'Ultimate Beneficial Owner'. What about crowdfunding? If we follow corporate criteria, a shareholder owning more than 25 per cent of the shares is a UBO. In the cultural sector, however, control is much more difficult to determine. After all, here the autonomy of the artist is sacrosanct?
Abuse
In the bill for the new rules, it makes no difference whether a foundation or association is small or large, has commercial activities or not, or receives donations or not: everyone has to comply. That means: surrendering privacy. Of course it is important to fight money laundering, but privacy issues are a lot more sensitive. Think of 'BN-ers' and their home and residence addresses. For instance, a public register meant to combat fraud could actually lead to forms of abuse and fraud.
Because everyone will soon be allowed to poke around in this rich register, at least across Europe. But you can take it further: what about your bread fund, or 'mutual' insurance. Who is the UBO in your pension or savings mortgage scheme? The required transparency about the financial situation violates fundamental and human rights. In any case, we still have to wait and see whether all this meets the requirements of the General Data Protection Regulation (AVG).
Fallback option
From the response to chamber questions shows that there is no distinction between a 'real' UBO (someone with financial interest or 'control') and the 'fallback option' UBO: the statutory director of a legal entity that does not have a 'real' UBO. We call this one the 'pseudo UBO'. In the not-for-profit sector, which is usually what the culture is about, this 'fallback option' applies. Day-to-day managers may then also have to be registered. The option that there are no ultimate stakeholders is apparently ruled out.
So who can be UBO:
- Board members;
- Persons authorised to represent an association;
- Persons in charge of the day-to-day management of the association or foundation;
- Foundation founders;
- Natural persons or, where such persons have not yet been designated, the category of natural persons in whose main interest the non-profit association or foundation was founded or operates;
- Any other natural person who exercises ultimate control over the association or foundation through other means.
Holidays
The information on the UBO and pseudo-UBO included in the register must be adequate, accurate and up-to-date. Any change in this information must be notified within one month. You will only have plans to go on holiday by boat for six weeks. The accuracy of this information should be confirmed annually. This imposes quite an administrative burden on small organisations in the cultural sector.
Let's see where this could lead in the education sector.
A foundation operates 10 schools in South Holland. The foundation has a board of three. As this is a 'classic' not-for-profit, this means that these three directors are all 'ubo' of the foundation. One of these three directors is the daughter of a member of parliament. She is therefore a 'politically exposed person', a PEP. This makes the entire foundation high risk in terms of money laundering for the bank, accountant, administration firm, legal service providers and other Wwft taxpayers.
Incidentally, PEP status also has implications for the MP's daughter. The bank and other financial service providers will mark her as high risk and keep an extra close eye on signals of corruption, money laundering and terrorist financing. The interpretation of 'close associate' has the effect that the two fellow board members have also become 'PEPs' themselves. As a result, they too must be designated as high risk by their own bank et al.
Backwards
Why fraud control is not done through verification of financial transactions, instead of this whole exercise, is unclear. The obligation to record addresses and places of residence shifts responsibility from governments to organisations and private individuals. It should prevent money laundering and terrorist financing and limit the use of cash. In the cultural sector, at best you can only hope that suddenly bags of once-backed money emerge through this new arrangement.
The Chamber of Commerce is master builder of this special register. What the expectations are in the Netherlands will be announced soon. The two-star app 'CopyID' of the central government beams your passport if required. It will be a public register in which the name, month and year of birth, nationality, country of residence and nature and extent of shareholding of the relevant UBO can be searched. Some of the data of the UBO will not be public and will be available only to investigative authorities (day of birth, place and country of birth, address, BSN and tax number, nature, number, date and place of issuance of identification document and documentation substantiating the UBO's status). How this meshes with Europe's disclosure requirements is currently unknown. There is also some talk about open data and the Trade Register.
For the near future, it might be useful to give the pseudo-UBO a separate non-commercial status, possibly evidenced by a very abbreviated auditor's report. Regulations and obligations may not stop at just a register and may lead to risk management measures. In England, for example, there is a distinction between a 'foundation' to which a 'trade company' may be affiliated and a 'charity'. Many directors of smaller cultural foundations do this on a voluntary basis; surely it would be unfortunate if privacy considerations get in the way of this.
Disproportionate
Corporate lawyer Ellen Timmer writes In her blog: "Incidentally, it does not alter the fact that designating statutory directors as 'beneficial owners' of a legal entity is, in my view, disproportionate, especially where not-for-profit legal entities are concerned. There is no reasonable interest in bombarding statutory directors of hospitals, educational institutions and other not-for-profit organisations as ubo. It is to be hoped that people from the not-for-profit will call the Dutch and European legislators to order." For those who want to know exactly how it is.
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