“Privacy Preservation” Life Insurance?

Access to beneficial ownership information has been on the international agenda for many years now. Obtaining and keeping such information is a standard across most of the global financial services industry. A good summary is available in a 2019 OECD paper[1] and a House of Commons paper[2]. The extension to public registers of beneficial ownership is happening in certain jurisdictions and further expansion cannot be ruled out. Disclosure of beneficial ownership of real property is coming in the UK and this trend is likely to continue.

This is a legitimate threat to privacy and security. I recently wrote about some of the issues facing the British Overseas Territories[3]. There are also legal challenges to what is being proposed[4][5]. The initial registers relate to companies and other legal arrangements -such that trusts are also in the firing line.

If public registers become more widespread, could the use of private placement life insurance (“PPLI”) to hold companies[6] (or, more likely, the underlying assets themselves) become a strategy to ensure privacy?

The insurance company is the legal and beneficial owner of the assets. The policy holder has a contractual relationship with the insurance provider. The insurance provider typically has hundreds of thousands of clients and billions of dollars of assets.

The insurance company is required to hold standard due diligence information relating to policy holders and beneficiaries but there seems no movement for any so-called “beneficial ownership” or “customer” information to be public. The "client" may need to step back from active management of the assets.

The current emphasis of the OECD is on companies and other “legal arrangements”. If we look at the FATF Recommendations – recommendation 25 is entitled “Transparency and beneficial ownership of legal arrangements”. Legal arrangements are described as “meaning express trusts or other similar arrangements, including fiducie, treuhand and fideicomiso”.[7]

Furthermore, for the purposes of customer due diligence, the FATF Recommendations distinguish between beneficiaries of trusts and other legal arrangements on the one hand and beneficiaries of life insurance policies[8] on the other- perhaps illustrating that there is a difference.

There are many other potential advantages of PPLI[9] - perhaps this can be another?

[1] https://www.oecd.org/tax/transparency/beneficial-ownership-toolkit.pdf

[2] https://commonslibrary.parliament.uk/research-briefings/cbp-8259/

[3] https://www.dhirubhai.net/pulse/after-you-richard-grasby-tep

[4] https://www.mishcon.com/news/mishcon-de-reya-files-claim-against-public-nature-of-eu-beneficial-ownership-registers

[5] https://www.step.org/industry-news/bvi-appoints-withers-challenge-uk-public-beneficial-ownership-registers

[6] If a company were used, then the “client” may need to avoid being a director – either to avoid disclosure or to satisfy the insurance company.

[7] https://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-transparency-beneficial-ownership.pdf at para 54

[8] https://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF%20Recommendations%202012.pdf see pages 64-67

[9] See the following by way of example: https://www.hubbis.com/article/ppli-an-overlooked-planning-tool and https://www.wealthbriefing.com/html/article.php?id=189316#.X-1u1dgzZPY