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Control of beneficial owners

On April 28, the Law of Ukraine “On preventing and combating legalization (laundering) of proceeds from crime, financing of terrorism and financing the proliferation of weapons of mass destruction” No. 361-IX of December 6, 2019, hereinafter the “Law”, came into force. This Law, among other things, introduces a number of changes to the Law of Ukraine “On State Registration of Legal Entities, Individuals – Entrepreneurs and Public Formations”, in particular regarding the procedure for maintaining and confirming information about the beneficial owners of companies, which we would like to draw your attention to further.

  1. Who are subject to the requirements to confirm beneficiary information and in what time frame

The law established an obligation for all legal entities1 to provide up-to-date information on their beneficial owners. The Law determined for the first time the necessity to identify beneficiaries for public organizations and associations (Article 23 of the Law “On Public Organizations”).

Information on the beneficiaries should be specified for all legal entities, including those, to which the participants are exclusively natural persons, and which are beneficiaries; this was not previously required.

Information on beneficiaries is entered into the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Formations, hereinafter referred to as the “Register”.

It should be noted at once that in this part the obligation of legal entities to register the changes in information about the beneficiaries in accordance with the Law should be fulfilled within 3 months from the date of adoption by the Cabinet of Ministers of special forms to be developed by July 28, 2020. The Cabinet promises to adopt them in the near future.

  1. The concept of “beneficiary”

The Law defines the term “final beneficial owner” – hereinafter referred to as “the beneficiary” – as follows: any natural person exercising decisive influence (control) over the activities of a legal entity (including through a chain of control / ownership).

The beneficiary may be identified through an indication of direct or indirect ownership, information about which is entered in the Register.

An indication of direct influence on the activity is the individual’s direct ownership of at least 25% of the share capital or voting rights in the legal entity.

Evidence of indirect influence on operations may include the following:

  • ownership of at least 25% of the share capital or voting rights in a legal entity through related individuals or legal entities;

  • exercising decisive influence through control, ownership, use or disposal of assets (in whole or in part);

  • the right to receive income from the activities of a legal entity;

  • the right to decisively influence the formation of the structure, the results of voting by the management bodies, as well as the conclusion of transactions that make it possible to determine the main conditions of the economic activity of the legal entity, to make binding decisions that have a decisive influence on the activities of the legal entity, regardless of the formal ownership.

A legal person may have one or more beneficiaries, their number is not limited.

At the same time, it has been determined that a person who has a formal right to 25 or more percent of the share capital or voting rights in a legal entity, which is a commercial agent, a nominee holder or an intermediary in respect of such right, can NOT be a beneficiary.

  1. Procedure for confirmation (updating) of data on beneficiaries

Information on beneficiaries should include:

  1. full name, date of birth;

  2. country of citizenship, passport series and number;

  3. place of residence;

  4. taxpayer identification number (if any);

  5. full name and identification code (for a resident) of the founder of the legal entity in which this person is the beneficiary;

  6. nature and extent (level, degree, share) of the beneficial ownership (benefits, interests, impacts) – previously not required.

This information should be accompanied by the following package of documents in all cases of registration of changes of the beneficiary or data about them:

  1. statement and ownership structure (in the form established by the Cabinet of Ministers);

  2. an extract from the trade register or other document confirming the registration of a legal entity – non-resident in the country of its location (in case the founder of the legal entity is a non-resident legal entity);

  • Such an extract should contain up-to-date information, and its validity period is not limited, as stated in the Letter of the Ministry of Justice of Ukraine dd. 23.04.2020 No. 3887/8.4.4/32-20 “On Providing Information on Final Beneficiary Owners”2, hereinafter – “the Letter”.

  1. A notarized copy of an identity document of the beneficiary:

    1. a notarized copy of an ID document means that such a copy is made from the document itself with apostille/legalization. If the document is drawn up in a foreign language, the certified copy of the document shall be translated into Ukrainian and certified by a notary.

It is necessary to submit only pages containing the details of the document, surname, first name, patronymic (if any) of the person to whom it is issued (as specified in the Letter).

    1. a notarized copy of the ID document is not required if it is executed using the Unified State Demographic Register toolsfor residents and citizens of Ukraine.

Registration of information on beneficiaries (with submission of the said package of documents) is mandatory in the following cases:

  1. within 3 months of the Cabinet of Ministers approving the forms (presumably from August to October);

  2. annually, starting from the next year after the registration of the legal entity, within 14 calendar days from the date of such registration.

That is, if the company is registered on May 01, 2019, the “annual” package of documents will have to be submitted from May 01 to May 14, 2021, as stated in the Letter;

  1. in case of changes in information about beneficiaries within 30 working days from the date of change;

  2. in case the information on the beneficiaries in the Register is incomplete or inaccurate within 3 working days from the moment of detection.

In other cases of registration of changes about the company (KVEDs (UICSs), the Charter, addresses, etc.), the package of documents is submitted only in case of changes in information about the beneficiaries, as explained by the Ministry of Justice3.

  1. Responsibility for failure to provide information on beneficiaries

Violation of the requirements for registration of information on beneficiaries, including late or incomplete registration of such information, will result in administrative liability in the form of a fine: from UAH 17 000 to UAH 51 000 (art.166.11 of CoAO).

Protocols on this offense will be drafted by authorized officials of the Ministry of Justice of Ukraine.

In case subjects of primary financial monitoring (banks, insurance companies, notaries, accountants, etc.) discover discrepancies between the information on beneficiaries in the Register and the actual data, they are obliged to refuse service and inform the Ministry of Justice about it4.

The Registrar will notify the Ministry of Justice if a legal entity fails to submit information about its beneficiaries in time. The procedure for such notification is still being developed, as the Ministry of Justice reports in its letter.

In the above cases, notification of the Ministry of Justice on violation of the procedure for registration of information on beneficiaries will be the basis for imposing a fine on an official of the company.

CONCLUSIONS

In view of the above, it should be noted that all legal entities, including public organizations and associations, are obliged to keep information about their beneficiaries up to date:

    • – if the founders of the legal entity are foreign companies and/or beneficiaries are non-residents, the company must always keep up-to-date extracts on the registration of the foreign company and notarized (including apostilled/legalized) copies of passports of the foreign beneficiaries;

    • in 2020, all legal entities will have to submit a package of documents on beneficiaries to the state registrar within 3 months from the approval of the forms by the Cabinet of Ministers, which means it is still early to go to the registrars.

    • all legal entities are obliged to submit the package of documents on beneficiaries annually within 14 calendar days from the date of their registration. This will become mandatory to do as soon as in 2021;

    • the beneficiary package is submitted to the State Registrar when carrying out other registration actions only if such actions involve a change of beneficiaries.

1 The obligation to specify beneficial owners does not apply to: political parties, trade unions, creative associations, employers’ organizations, bar associations, chambers of commerce and industry, condominiums, religious organizations, state bodies, local governments, state and municipal enterprises.

2 https://minjust.gov.ua/files/general/2020/04/24/20200424115843-80.pdf

4 As well as other authorized bodies of state financial monitoring.