Overview and Legal Obligations
The Sanctions Monitoring Board (SMB) recently issued a guidance note on the determination of ownership and control from a sanctions implementation perspective. This guidance is crucial for regulated entities in Malta, given the stringent legal obligations imposed by the National Interest (Enabling Powers) Act, Chapter 365 of the Laws of Malta.
According to Article 3(5) of this Act, the regulations apply to all persons in Malta, residents of Malta, Maltese citizens wherever they may be, and any Malta-registered vessels, aircraft, or other means of transport. Compliance with applicable sanctions is mandatory for all subject and non-subject persons as defined under the Prevention of Money Laundering and Funding of Terrorism Regulations (PMLFTR).
Failure to adhere to these regulations can result in severe penalties under Article 6 of the National Interest (Enabling Powers) Act. Specifically, Article 17(6) requires entities engaged in relevant activities or financial businesses to screen client databases against sanctions, implement internal policies and controls, and report any targeted property or attempted transactions that contravene sanctions.
Once an individual or entity is listed under UN and EU sanctions, there is a legal obligation to freeze their assets and refrain from making funds or economic resources available to them. This applies to any entity or body owned or controlled by a designated individual.
Determination of Ownership and/or Control
Ownership
Ownership is defined in Council Regulation 2580/2001 as holding 50% or more of the proprietary rights or having a majority interest in a legal entity. When assessing ownership, it is critical not to simply aggregate different holdings unless there is a joint agreement or control over the rights by designated individuals or entities.
Sanctions implementation is a national competence, and interpretations may vary. For example, EU Council Regulation 269/2014 states that aggregated ownership should be considered if multiple listed persons collectively hold a significant interest in an entity.
Control
Control is assessed based on several criteria outlined in the EU Best Practices, including the ability to appoint or remove a majority of the administrative body, controlling a majority of voting rights, or exercising dominant influence over an entity.
If any of these criteria are met, the entity is considered controlled by a designated person, and financial restrictions, including asset freezes, apply.
Minority and Joint Interests
Minority interests alone do not satisfy ownership criteria. However, control must be evaluated separately. Designated persons holding joint interests are treated as owning those interests jointly, which necessitates the freezing of the associated assets.
Trusts and Foundations
For trusts, the PMLFTR defines beneficial owners to include settlors, trustees, beneficiaries, protectors, and any individuals exercising ultimate control. Similar criteria apply to foundations and other legal arrangements akin to trusts.
If any of these roles are held by sanctioned individuals or entities, the assets must be frozen and reported to the SMB.
Useful Material and Best Practices
The guidance references several Commission Opinions that provide further clarification on ownership and control under various sanctions regimes. Key points include:
- Ownership and control encompass more than just 50% de facto ownership; they also involve significant influence and decision-making power.
- Presumptions of control exist unless a risk-based analysis proves otherwise.
- Due diligence procedures are essential to avoid violating asset freeze provisions. These include screening, risk assessments, multi-level due diligence, and ongoing monitoring.
Reporting and Compliance
Entities must document their assessments of ownership and control throughout their business relationships and retain these records for five years. If an entity is determined to be owned or controlled by a designated person, it must be reported to the SMB immediately. Economic operators should seek legal advice when needed, as the SMB does not provide legal assessments.
Conclusion
The SMB’s guidance underscores the importance of rigorous due diligence and compliance with sanctions regulations. Regulated entities in Malta must ensure they thoroughly evaluate ownership and control to avoid severe penalties and contribute to the effective implementation of international sanctions.
For any queries or to report ownership or control by designated individuals or entities, contact the SMB at : [email protected].
It is recommended to access and read the full Guidance on : https://smb.gov.mt/wp-content/uploads/2024/05/SMB-Ownership-and-Control-31052024.pdf
