On February 23, 2017 the Italian Government approved the final draft of the legislative decree (the “Decree”) that is going to implement the provisions of the Directive (EU) 2015/49 of May 20, 2015 (the so called “IV Anti Money Laundering Directive”). The decree was sent to the Parliament for its review and with the consent of the Parliament it will become law.

One of the key concepts of the new anti money laundering legislation is the definition of “beneficial owner”, meaning, the natural person who must be properly identified by the persons or entities obliged to carry out the customer due diligence and report a transaction or legal arrangement whenever required under the anti money laundering law.

Whenever the customer is an entity, as opposed to a natural person, article 20, paragraph 1 of the Decree provides a general definition of beneficial owner, as follows:

The beneficial owner of customers different from natural persons is identified with the natural person or natural persons to whom, ultimately, the direct or indirect ownership or control of the entity is attributable.

The definition of beneficial owner of an entity revolves around two concepts: ownership, or control, of the entity. Also, the ownership or control can be direct or indirect.

The first test to apply is the ownership test.

Article 20, paragraph 2 provides on direct or indirect ownership as follows:

When the customer is company:

a) it is an indicia of direct ownership, the ownership of an interest exceeding 25% of the capital of the customer, owned by a natural person.

b) it is an indicia of indirect ownership, the ownership of an interest exceeding 25% of the capital of the customer, owned through controlled entities, fiduciaries or intermediaries.

Beneficial ownership through indirect ownership in another entity requires that the tested natural person directly owns an ownership interest in another entity, which in turn holds ad ownership interest in the customer, ultimately making that natural person the indirect owner of the customer under the “more than 25%” test.

The percentage of ownership owned in the intermediate entity, by the tested natural person, which should be required to qualify that entity as a controlled entity for the purposes of ultimately determine the existence of an indirect ownership interest in the customer, is not determined, and no attribution rules are set forth in the legislative decree for the purpose of applying the indirect ownership rule.

It would seem reasonable to assume that a direct ownership of more than 25% of the capital of the intermediate entity, could be sufficient to qualify that entity as a controlled entity, for the purpose of the indirect ownership test. The controlled entity, in turn, should directly own a sufficient percentage of the capital of the customer, as required so that, once percentage of direct ownership in the capital of the intermediate entity, owned by the natural person, is multiplied by the percentage of direct ownership in the capital of the customer, owned by the intermediate entity, the result would meet the “more than 25%” test for the indicia of beneficial ownership required for anti money laundering purposes.

Under that approach, when a natural person owns 50% of the capital of a company, which owns 51% of the capital of another company, there would indication of beneficial ownership, because the natural person would indirectly own 25.5% of the capital of the customer.

Instead, if a natural person owns 20% of the capital of a company, which owns 100% of the capital of another company, there would be no indicia of beneficial ownership, because the intermediate ownership would be less than 25%. The same should be true when a natural person ones 100% of the capital of a company, which owns 24% of the capital of the customer.

Conversely, if a natural person owns 25.1% of the capital of two companies, each one of which owns 50% of the capital of the customer, there would indicia of beneficial ownership.

The control test applies whenever the beneficial owner cannot be identified through the application of the ownership test.

Article 20, paragraph 3 defines the control test (that applies whenever the ownership test is insufficient to identify the beneficial owner of the customer) as follows:

In the event that the ownership structure of the customer does not allow to identify in an unequivocal manner the direct or indirect ownership of the customer, the beneficial owner coincides with the natural person or persons to whom, ultimately, the control of the customer is attributable due to:

a) the control of the majority of the votes that can be exercised in the general meeting of shareholders,

b) the control of a sufficient number of votes to exercise a dominant influence in the general meeting of shareholder.

c) the existence of particular contractual constraints which allow a person to exercise a dominant influence (on the customer).

The control requirement is defined as control of the majority of the votes exercisable in the general meeting of shareholders, or dominant influence over the general meeting of the shareholders through voting power of contractual arrangements.

When neither the ownership nor the control test are sufficient to identify the beneficial owner, article 20, paragraph 5 provides that the beneficial owner is the person who holds powers over the administration and direction of the entity.

Article 20, at paragraph 5 provides that in case of private associations and foundations or other entities governed by Presidential Decree n. 361 of February 10, 2000 the definition of beneficial owner includes all of the following:

– the founder, when living;

– the beneficiaries, when they are identified or can be easily identified;

– the individuals with powers or authority over the administration or direction of the entity.

No specific provision applies to trusts, which are not entities governed by Presidential Decree n. 361 of 2000, but are typically created under foreign law and recognized and made effective in Italy pursuant to the Hague Convention of July 1 1985 on Trusts.