10.4 Issues and recommendations
10.4.1 Introduction
Bermuda operates a very conservative policy in respect
of company formation. This is evidenced both by the requirement
to notify the BMA of the proposed beneficial owners of companies
and by the restriction on those who can form companies.
In general, we consider Bermuda's approach to this
area to represent good practice, ahead of many onshore and offshore
centres.
Nevertheless, we consider that there are certain
weaknesses to the Bermuda model which need to be addressed in
order for the system to be fully robust against abuse and to meet
the aims of the Guidance Notes. These are detailed below.
In reaching these recommendations we have taken cognisance
of the current structure in Bermuda and have, where possible,
sought to enhance that structure rather than replace it.
10.4.2 Company formation
Given the restriction on those who can form companies
in Bermuda, to lawyers and accountants, both of whom are subject
to professional codes and disciplinary action, the good practice
requirements on the fit and proper nature of those engaged in
this activity are met.
Nevertheless, some Bermudian incorporated companies
have been used for illegal activities in other jurisdictions.
Similarly, there is a need for formal "know your customer"
requirements to be in place for those who form companies in order
to protect Bermuda companies against money laundering.
Therefore, we consider that it would be appropriate
for requirements to be developed covering the due diligence process
on proposed company formations, particularly concerning "know
your customer". This latter point is of critical importance
given the reliance placed by the BMA upon the accuracy of the
beneficial owner information when it undertakes its checks.
We therefore recommend, that the formation of companies
should be covered by the anti-money laundering regulations which
set out the necessary know your customer requirements.
Compliance with these regulations should also be
independently verified.
10.4.3 Company service provision
Whilst company service activities are primarily undertaken
by legal and accountancy firms there is no statutory restriction
on others providing registered office, resident representative
directors or nominee shareholder services.
We consider, that these activities should be brought
within the ambit of the anti-money laundering regulations to impose
a "know your customer" obligation.
10.4.4 Regulatory development
Given the existing conservative approach taken to
company management in Bermuda we consider that whilst the introduction
of a separate regulatory regime for CSPs may be desirable, it
is not essential to achieve the objectives of the Guidance Notes.
However, if Bermuda chooses not to create a regulatory
structure for CSPs it must, as a minimum, bring company service
provision (including formation) within the scope of the Proceeds
of Crime (Money Laundering) Regulations. Furthermore, those firms
which provide these services must be subject to independent review
to verify compliance with the regulations.
Additionally, the risk of abuse of powers of attorney
must be addressed. Such powers can be misused to delegate full
authority to a third party who could then effectively operate
a company whilst remaining unknown to the authorities. If a regulatory
regime is not to be introduced the Companies Act should be amended
to prescribe the use of powers of attorney so reducing the risk
of abuse.
Finally, the lack of a regulatory regime for those
who provide directors means that there is no one with initial
responsibility to assess the suitability of the director. The
BMA should therefore conduct the same checks on proposed directors
as they currently do on beneficial owners. This is covered in
a previous section to this Report. This check should also cover
resident representatives. Furthermore there should also be guidance
issued to resident representatives clearly setting out their duties.
Overall, we consider that lawyers and accountants
should be subject to an enforceable Code of Practice in respect
of the provision of company services. To the extent that this
is not presently achieved by lawyers and accountants own professional
codes, we consider that these codes should be amended or a new
code introduced. The Code of Practice should include requirements
relating to:
- knowing the beneficial owner of a company on
an ongoing basis;
- the maintenance of records in the jurisdiction;
- the suitability and conduct of directors provided;
- the provision of powers of attorney;
- the segregation of client money and assets; and
- the provision of signing authorities to other
persons, including shareholders and the beneficial owners of shares,
to a bank account of a company where the licence holder provides
director services.
The relevant professional bodies should also ensure
that this code is being complied with.
