Who is the beneficial owner?
Under Section 4 (4) of Act No. 253/2008 Coll., on Selected Measures against Money Laundering and Terrorism Financing (the “AML Act”), a beneficial owner means an individual who has a factual or legal possibility to exercise a direct or indirect controlling influence in a legal person, trust or other legal arrangement without legal personality status. The beneficial owner always refers to a specific individual (or a group of individuals). The AML Act further specifies the facts that may indicate a beneficial owner. Nevertheless, the existence of such facts does not need to necessarily mean that the given individual is a beneficial owner. It is always necessary to assess whether the individual has the possibility to exercise a controlling influence.

Companies are obliged to identify the beneficial owner and keep up-to-date data for customer due diligence, including the facts constituting the beneficial owner status or other substantiation as to why the individual is considered a beneficial owner.

Beneficial Owners Register
The Register was established on a basis of a requirement of the 4^th AML directive for the retention of data on beneficial ownership in a central register ensuring the availability of up-to-data and accurate information on ultimate beneficial owners to state bodies, Financial Intelligence Units (FIUs) and obliged entities when taking customer due diligence measures. As a matter of fact, it may be easy to disguise beneficial owners in complex corporate relations.

The Register is a non-public register. Information on beneficial owners is not provided along with a copy of an entry in a public register, nor is it published. The Register may be accessed by a limited yet relatively large scope of people including, apart from state authorities, representatives of obligated persons which have a duty to identify and verify beneficial owners as defined in the AML Act (this principally involves banks and other financial institutions).

The entire process is certainly not completed with the first entry of beneficial owners in the Register. The data need to be up-to-date and accurate.

What does a failure to enter the beneficial owner in the Register result in?
Sanctions have not yet been defined for a legal entity that does not disclose and enter the information on its beneficial owners in the Register by 1 January 2019. Nevertheless, this may pose an issue when the entity applies for providing financial services as pursuant to the AML Act, financial institutions shall conduct customer due diligence including the beneficial owner identification and verification. When the Register is used for the verification and a discrepancy is identified (or no information is found), this may complicate the provision of a banking product or service.

However, legal entities may encounter other issues in tendering for a public contract or applying for a grant from the EU funds. Pursuant to Act 134/2016 Coll., on Public Procurement, the public contracting authority should obtain data on the beneficial owner from the Register. Therefore, if this information is missing in the Register or is contrary to other declared data on the beneficial owner, the chances of the legal entity’s success in the tender procedure will decrease.

Based on an announcement published on the website of the Ministry of the Industry and Trade, the managing body of the Enterprise and Innovations for Competitiveness Operational Programme included a condition in calls published since June 2018, stating that entities without beneficial owners recorded in the Register as of the date of the grant application will not quality for the grant under the programme.

Is it complicated to make an entry in the Register?
For some legal entities with a simple ownership structure, the identification of their beneficial owner and its entering in the Register will not be a major issue. Nevertheless, in our practice we have encountered companies (not only large ones) with such ownership structures, voting rights arrangements etc. that make it complicated to identify beneficial owners. A seemingly unambiguous term “beneficial owner” has a statutory definition entailing many difficulties. A classic example relates to companies co-owned by foreign legal entities.

Increased attention shall also be paid by companies operating in multiple countries (especially within the EU) in which similar registers and duties may also be in place but the definition of beneficial owners may differ and, consequently, other individuals may be entered in local registers. For example, a beneficial owner in the U.S. refers to a person holding 10% of voting rights, as opposed to 25% in most EU member states.

The article is part of dReport – November 2018, Tax news; Grants and investment Incentives.