On 1 July 2019, significant amendments to the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing (AML Law) came into force. The amendments supplement the AML Law with new subjects of beneficial owners’ (BO) disclosure obligation and new rights of the Company Register:
- to request supporting documentation on the BO of a legal entity,
- to temporarily postpone registration until required supporting documents are provided,
- to terminate a legal entity via simplified liquidation procedure in the event of failure to disclose the BO.
In a previous news release we reported on the obligation for all legal entities to disclose their company’s beneficial owner (BO), as well as the legal consequences of failure to observe the disclosure obligation.
New subjects of BO disclosure obligation
Until now, the BO disclosure obligation has been limited to legal persons, i.e. private limited and public limited companies, Societas Europaea, as well as other entities, including associations, foundations, cooperatives, and the like. However, from 1 July 2020 branches and representative offices of foreign entities registered with the Company Register will also be subject to the BO disclosure obligation. This means that as of 1 July 2020 foreign entities will also have to disclose information on their BO to the Company Register (if they maintain a branch or representative office) or to the State Revenue Service (if a permanent establishment is registered solely with the taxpayer’s register).
Relevant supporting documentation on a legal entity’s BO
From now on, upon registration of a new entity or on registration of changes in information on the BO of an existing legal entity, the Company Register may in the event of doubt require additional supporting documents on the legal entity’s BO by temporarily postponing registration. This applies both to registration of a new BO and to cases where the legal entity has previously disclosed the BO without submitting supporting documents. In addition, in accordance with recent practice of the Company Register, if the BO is a foreign national, it will always be necessary to provide a notarized passport or ID card copy PLG (natural person).
The amendments also affect the two exceptions to the disclosure obligation when there is no need to submit BO information:
- from now on statements that by fulfilling all requirements of the AML Law it is not possible to identify the BO must be accompanied by an affirmation;
- statements that the BO is a shareholder of a public limited company and control of the legal entity results only from the shareholder’s status will most likely be accepted only if shares of the company or its direct shareholder are listed on a stock exchange. In other cases, where a listed company is not a direct shareholder of a legal entity but is a shareholder of the legal entity at any of the subsequent stages of the shareholding structure, the Company Register may request the application to be accompanied by an affirmation disclosing the ownership structure of all entities up to the listed company. Similarly, if in the past, when it is established that a shareholder of a legal entity is a listed company such a finding may have led to the assumption that it is not possible to determine the BO of the legal entity, now ‒ along with the amendments ‒ the Company Register also requires affirmation of such information. Therefore, we suggest making sure that no shareholder owns more than 25% of shares in a listed company because otherwise that could indicate that such BO should be disclosed.
Supporting documents are official extracts from foreign company registers and other similar documents with public credibility certifying incorporation of a company, as well as indicating information on shareholding and apportionment of shares. If the extract does not contain such information, any other document indicating information on shareholding and apportionment of shares of a legal entity in accordance with the local law will be sufficient.
Important note: under the AML law, every legal entity must keep documentation proving information on BO control even after disclosing it to the Company Register.
Consequences of failure to observe the disclosure obligation
Under the new amendments, subjects of the AML Law, including sworn attorneys, sworn notaries, outsourced accountants, credit institutions, and the like must report to the Company Register if during customer due diligence they find that newly indicated information on the BO does not match the information disclosed in the Company Register. In such cases these subjects may refuse to provide their services and cause the Company Register to question the veracity of the BO of the legal entity.
To legal entities that fail to observe the disclosure obligation, i.e. do not register their BOs, if the obligation is not fulfilled after receiving a reminder from the Company Register, the Company Register will perform a simplified liquidation procedure in accordance with the Commercial Law. In such cases, the Company Register gives one month’s notice to disclose information on the BO.
The above can have an important impact on the planned course of a transaction if one of the parties fails to disclose information on its BO to the Company Register. Therefore, we suggest that everyone should verify whether other parties to contracts relevant to commercial activity have disclosed to the Company Register information about their BO and are not in danger of being liquidated. We also suggest taking into account that the registration process at the Company Register might take more time than before, and be prepared to submit the relevant documentation.
We ask our clients and cooperation partners to draw attention to these significant amendments. For additional information or assistance, contact Sorainen or your own legal counsel.