Legal entities will be required to update information on final beneficiaries
On April 28, 2020, the Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of the Proceeds from Crime, Terrorism Financing and Financing of Proliferation of Weapons of Mass Destruction” (“the Law No. 361-IX”) comes into force. This law sets out in a new version the basic law on financial monitoring (No. 1702-VII) with the same name, and also introduces a number of changes to other laws.
In addition to changes that will only affect financial monitoring entities, it also provides for some innovations that will be relevant to the vast majority of legal entities. In particular, changes are envisaged in the rules for disclosure of final beneficiaries of legal entities in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations of Ukraine (“the USR”).
In particular, most legal entities will need to submit to the USR updated information and documents regarding their beneficiaries within a limited period of time and then periodically confirm/update this information. Responsibility for violating this obligation is also being strengthened.
In light of this, another innovation of Law No. 361-IX is important. Namely, the entities of primary financial monitoring (including banks, insurance, financial companies, auditors, tax advisers, law firms) must separately and independently establish beneficiaries of their clients, and in case of any discrepancy with the information of the USR – inform the State Financial Monitoring Service of Ukraine about it.
That is, we see that the control over the truthfulness of data in the USR on final beneficiaries is increased, and this control is largely entrusted to private business in the form of entities of primary financial monitoring.
Whom does this concern?
All legal entities, except for public associations, bar associations, chambers of commerce and industry, associations of co-owners of apartment buildings, religious organizations, state bodies, bodies of local self-government, their associations, state and municipal enterprises, institutions, organizations.
This also includes legal entities whose founders are directly their final beneficiaries.
Information and documents to be submitted
The information about final beneficiaries remains the same as it is now: surname, first name, middle name, date of birth, country of citizenship, passport details (series and number), the registration number of the taxpayer’s account card (if applicable), as well as full name and identification code (for resident) of the founder of the legal entity in which that person is the final beneficiary (at the same time, the current form of the application for state registration of the legal entity implies providing such information about all legal entities through which the final beneficiary exercises ownership of the share in the legal person).
Of the new, only information about nature and extent (level, degree, share) of beneficial ownership (benefit, interest, influence) is added here.
However, in addition to the information about final beneficiaries, the following documents are also required:
- ownership structure according to the form and content defined by the legislation (the relevant by-law has not yet been adopted; most likely it will be a schematic representation of the relations between the companies);
- an extract, an excerpt, or another document from a commercial, banking, court registry, etc. that confirms the registration of a non-resident legal entity in the country of its location, –if the founder of the legal entity is a non-resident legal entity;
- a notarized copy of the document certifying the person who is the final beneficiary of the legal entity, – for a non-resident individual, and when such a document is drawn up without the use of the Unified State Demographic Register, – for a resident individual.
So, for the first time we see a requirement to provide the registrar with a copy of the passport of the beneficiaries (notarized as well).
Terms of submission of information and documents about the final beneficiaries
Law No. 361-IX provides for several cases where information needs to be updated:
One-time submission of the information
Clause 4 of the Final and Transitional Provisions of Law No. 361-IX provides for a “one-time action” where existing legal entities registered before April 28, 2020, provide the state registrar with information about the final beneficiary to the extent, defined by this Law, and the ownership structure within three months from the date of entry into force of a legal act, which will approve the form and content of the ownership structure.
Such a legal act must be approved by the Ministry of Finance of Ukraine, in agreement with the Ministry of Justice of Ukraine (part 24 of Article 17 of the Law of Ukraine “On State Registration of Legal Entities, Individual Entrepreneurs and Public Organizations” (“the Law on state registration”) as amended by Law No. 361-IX). No such regulatory act has been approved yet.
Annual update of the information
Art. 171 of the Law on state registration, as amended by Law No. 361-IX, provides for confirmation of information about the final beneficiary annually, starting next year from the date of state registration of the legal entity, within 14 calendar days the application for confirmation of the information about the final beneficiary as well as the documents mentioned above (ownership structure, extract from the trade register, copy of the passport) shall be submitted.
We see a potential problem here: if the Ministry of Finance does not approve the form and content of the ownership structure by April 28, 2020, then legal entities, whose period of annual confirmation falls between April 28, 2020 and the effective date of the order approving the form and content of the ownership structure, will not be able to submit a complete set of documents.
Update in case of change data on the final beneficiary
Part 23 of Art. 17 of the Law on state registration as amended by Law No. 361-IX establishes the obligation of legal entities to keep the information about the final beneficiary and ownership structure up-to-date, update it and notify the state registrar of the changes within 30 working days from the day of their occurrence, and to submit documents confirming these changes to the state registrar.
Update when making changes to the USR information about a legal entity
When making any changes to the information on the legal entity in the USR, a set of documents about the final beneficiary (ownership structure, extract from the trade register, copy of the passport) is also submitted.
Here we see the same potential problem as in the case of the annual submission of information. If the Ministry of Finance does not approve the form and content of the ownership structure in time, it may be problematic or impossible to make changes to the USR.
Liability for violation of terms of submission of information
Part 6 of Art. 16611 of the Code of Administrative Offenses has been amended and increases the fine, which is imposed on the manager for failing to provide information about the beneficiary. Currently, such fine is from 300 to 500 tax-free minimum incomes of citizens (UAH 5 100 – 8 500). On April 28, a new version of this part comes into force, according to which:
“Failure to submit or late submission to the state registrar provided by the Law of Ukraine “On State Registration of Legal Entities, Individual Entrepreneurs and Public Organizations” information about the final beneficiary of the legal entity or lack thereof, or documents to confirm information about the final beneficiary of the entity –
entail the imposition of a fine on the head of a legal entity or a person authorized to act on behalf of a legal person (executive body) from one thousand to three thousand tax-free minimum incomes of citizens”.
Thus, the amount of the new fine will be from UAH 17,000 to UAH 51,000.
The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.
Notification of discrepancies in data on ultimate beneficiaries and / or ownership structure in the Unified State Register of Legal Entities, identified by the subjects of primary financial monitoring
New administrative districts: government is reforming, and business is suffering
Plastic bag ban: analysis of the law
New trust property: a year has passed, but nothing has changed
Liability transferred after M&A: How new management can avoid risks
New «old» proceeding
Recent Changes in Administrative Proceedings