Authors: David Neveselý, Ondřej Florián, Alexandra Parnaiová
In 2017, an amendment to the Act on Public Registers [1] came into effect, transposing Directive [3] AML IV [2], which laid down the duty of every person registered in a public register pursuant to the Act to enter its beneficial owner (which, simply put, is the individual that has the real or legal possibility to exert influence over the legal entity) into the newly established register of beneficial owners of legal entities (the “BOR”).
Legal entities were obliged to register their beneficial owners by the end of 2017. Those who have not, have been acting in conflict with the law since 1 January 2018.
The Act on Public Registers, the Anti-Money Laundering Act [4], the Act on Business Corporations [5] or any other acts do not stipulate any direct sanctions for the breach of this duty. Hence, no fine or other sanction may be imposed upon a company. An indirect sanction can be seen in a more demanding (in administrative terms) procedure of an inspection of the client [6] – there the company must identify its beneficial owner ad hoc, which is certainly more complicated than a simple reference to an already completed registration in the BOR.
In 2018, shortly after the AMLD IV was transposed into the Czech system of laws, the European Parliament adopted AMLD V [7]. The new directive introduced several changes, namely regarding the national registers / lists / records of beneficial owners.
The most crucial changes that the directive has introduced are
EU Member States were obliged to transpose the AMLD V into their national systems of laws by 10 January 2020.
Since the beneficial owner records are not public registers and will not be, even after the transposition of the AMLD V, the lawmakers are quite logically transferring the relevant provisions from the Act on Public Registers to the Bill on the Registration of Beneficial Owners. The definition of the beneficial owner should also be transferred to the provisions under the latter act [8].
On 1 June 2020, the new Bill on the Registration of Beneficial Owners was approved by the government and passed on to the Chamber of Deputies. Below, please find an overview of the key changes brought about by the bill; its individual points may still be subject to alterations during the law-making process.
The bill introduces a slightly altered definition of the beneficial owner – a beneficial owner is each individual who is the ultimate beneficiary or a person with ultimate influence (at the same time, the limit of 25% share in the distributed benefit and 25% share in voting rights is preserved – both direct or indirect share). Apart from that, the government proposal lays down that if a share of a corporation is administered in a legal arrangement [9], the beneficial owner of such business corporation will be determined pursuant to the rules for determining the beneficial owner of the corporation, not pursuant to the legal arrangement (in other words: if a share in a business corporation is placed into a trust, the beneficial owner of such corporation will not be every individual who is the beneficial owner of such trust but instead the person who is the ultimate beneficiary of the corporation or the person with ultimate influence).
Moreover, the act exhaustively lists legal entities that do not have a beneficial owner.
Certain data entered in the register of beneficial owners will be available to the public (name, surname, country of residence, year and month of birth, citizenship, information on the grounds behind the position of the beneficial owner).
In some cases, minors can be designated as beneficial owners, therefore the act allows for not disclosing data on the beneficial owner regarding certain persons. It is necessary to apply for non-disclosure, as it does not occur automatically upon the registration of a minor beneficial owner.
What is new is the proceedings on the registration of beneficial owners to the register; business corporations and legal arrangements must file the application for registration electronically. In certain cases (e.g. limited liability companies where members-individuals have greater than a 25% share, or a one-member joint-stock company with the sole shareholder entered in the Commercial Register), the court will automatically copy the data to the BOR.
Where a public authority or an obligated party pursuant to the Anti-Money Laundering Act become convinced that the entry in the BOR does not reflect reality, they will notify the competent register court. The register court will then make an inconsistency note in the BOR and call upon the registered person to remove the inconsistency within a reasonable timeframe. If the inconsistency is not removed by the set deadline, the register court will open inconsistency proceedings. There the inconsistency may be either confirmed, in which case this fact is entered in the BOR and the court will consequently correct the incorrect data, or – if the court concludes that the beneficial owner has been recorded correctly – the court will delete the inconsistency note.
Since pursuant to the AMLD V, the penalties for the failure to make an entry to the BOR or for an incorrect entry should be serious, lawmakers have also imposed private law penalties apart from the public law penalties (for the failure to make an entry or for not filling in correct data after the deletion of the incorrect data upon the proceedings on inconsistency – a fine of up to CZK 500,000 for the registering person and up to CZK 500,000 for the beneficial owner, the ultimate beneficiary and the persons with ultimate influence for the failure to render assistance during the registration into the BOR). The private law penalties include the invalidation of voting rights and the entitlement to the payment for the beneficial owner not registered in the BOR or for the partners – legal entities whose beneficial owners have not been registered.
As has been mentioned above, the bill is currently heading to the Chamber of Deputies where the individual provisions may undergo significant changes. We will keep monitoring the law-making process and will keep you updated on its further developments.
The Act on the Registration of Beneficial Owners is expected to come into effect on the first day of the fourth calendar month after its promulgation; in the event of a smooth law-making process, the act could become effective in early spring next year.
[1] Act No. 304/2013 Sb., on Public Registers of Legal Entities and Individuals and on Registers of Trusts, as amended
[2] AML is an abbreviation for anti-money laundering used world-wide
[3] Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the Prevention of the Use of the Financial System for the Purposes of Money Laundering or Terrorist Financing, amending Regulation (EU) No. 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC
[4] Act No. 253/2008 Sb., on Certain Measures against Money Laundering and Financing of Terrorism, as amended
[5] Act No. 90/2012 Sb., on Business Corporations and Cooperatives (the Business Corporations Act), as amended
[6] Pursuant to Section 9 of the Anti-Money Laundering Act
[7] Directive (EU) 2018/843 of the European Parliament and the of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the Prevention of the Use of the Financial System for the Purposes of Money Laundering or Terrorist Financing, and amending Directives 2009/138/EC and 2013/36/EU,
[8] Currently laid down in Section 4(4) of the Anti-Money Laundering Act
[9] Trusts and foreign trusts pursuant to Section 2(b) of the bill on the registration of beneficial owners
