ADGM has, since its establishment, built a regulatory environment that prioritises transparency. Upon a company’s registration in Abu Dhabi Global Market (ADGM), the Registration Authority (RA) has to maintain the registers relating to such businesses, ensuring that it records accurate names of the individuals owning or controlling them. This is essential to curb crimes like money laundering, financial fraud, tax evasion, and terror finance. ADGM’s Beneficial Ownership and Control Guidance provides a detailed guide for entities to ensure that they share accurate information with the ADGM.
THE REGULATORY FOUNDATION
ADGM has embedded within its framework a mandatory requirement for a “record of beneficial owners,” which refers to a real-time updated register that every ADGM entity must maintain from the date of incorporation and during its legal existence.
The obligation applies to ADGM-incorporated companies, limited liability partnerships, ADGM-established foundations, and trustees of ADGM-governed trusts. The governing instruments of the framework are the Beneficial Ownership and Control Regulations of 2018, which have been amended twice in 2019 and 2020.
DEFINING THE BENEFICIAL OWNER
The definition of “beneficial owner” varies by entity type:
Company or LLP: A beneficial owner may be (i) any person who owns or controls (directly or indirectly) including through bearer share holdings or by other means, 25% or more of the shares or voting rights in the entity, or (ii) any persona who controls the entity, or (iii) any person who exercises control over the management of the entity.
Trust: A beneficial owner may be (i) settlor of the trust, (ii) any other trustee aside from the ADGM person, (iii) the person or class of persons in whose main interest the trust has been established, or (iii) any person in the opinion of the Registrar having control over the trust.
Foundation: A beneficial owner may be (i) the founder, (ii) the foundation council members, (iii) the guardian, (iv) the beneficiary or designee.
If any of the above roles is filled by any entity other than a natural person, there is a requirement to identify the underlying natural persons, unless the intermediate company is listed on a recognised stock exchange.
THE THREE-TEST FRAMEWORK
The ADGM has a three-test framework to determine the beneficial owner of an ADGM entity, which is as follows:
Ownership Test: Under this test, the ownership structure of an entity is to be determined, which can be direct ownership, indirect ownership or multiple indirect ownership. This layered structure makes it difficult to determine the beneficial owner of an entity.
Control Test: If the ownership test does not provide clarity on the registrable person, the control test helps determine who directs the exercise of the shareholding rights in an entity, making them the relevant beneficial owner.
Officers Test: In the absence of the above two tests yielding a clear answer, the natural persons holding officer positions in the ADGM Entity are treated as beneficial owners for registration purposes.
CONCLUSION
The importance of the above-stated framework is essential to curb the issues of money laundering, financial fraud, tax evasion, and terror finance. This helps boost the image of ADGM as a responsible financial centre.
“This article is for information purposes only and does not constitute legal or professional advice”.
