In practice, we often encounter the problem of confusing the registration of the ultimate beneficiary in the commercial register with the registration of a public sector partner in the public sector partner register. What is the actual difference between them? Read more in our new article.
The current legal regulation of the obligations to identify and register the ultimate beneficial owners of affected entities in multiple registers may be incomprehensible to the general public or even cause misinterpretations, which may result in these entities failing to comply with their legal obligations, leading to the imposition of sanctions (including financial penalties). The purpose of this article is to help navigate this issue and provide an explanation and brief overview of when it is necessary to register the ultimate beneficiaries of an entity and in which relevant register, what other obligations must be fulfilled in connection with the registration and, above all, how to properly identify the ultimate beneficial owner in accordance with the legislation prior to registration.
The obligation to identify and register the ultimate beneficiaries stems from several legal acts, all of which have their legal basis in European legislation governing the protection against the legalization of proceeds from criminal activity (and the fight against terrorism), in other words, the fight against money laundering.
In Slovakia, this area of European legislation is reflected, among other things, in Act No. 297/2008 Coll. on the prevention of money laundering and terrorist financing and on amendments to certain acts (hereinafter also referred to as the “AML Act”). The AML Act defines the rights and obligations of legal entities and natural persons in the prevention and detection of money laundering and terrorist financing, defines basic terms (e.g., money laundering, terrorist financing, unusual business transaction, obliged entity, politically exposed person, beneficial owner, identification, identification verification, or other terms such as property, client, transaction, and others), defines the due diligence of the obliged entity in relation to the client, the procedure for detecting unusual business transactions, and other obligations of obliged entities and related administrative offenses and measures in case of violation of this Act.
Identification of the beneficial owner
For the purposes of this article, it is necessary to emphasize that, within the meaning of the AML Act, all entities defined by the AML Act as obligated entities (e.g., banks, securities dealers, lawyers, notaries, or even virtual currency wallet service providers) are required, as part of their customer due diligence, (in addition to other obligations within the scope of the duty of care defined by law) to identify the beneficial owner and take reasonable measures to verify the information relating to the identification of the beneficial owner, including measures to determine the ownership structure and management structure of the client who is a legal person or an association of assets.
At the same time, it is necessary to draw attention to the fact that the AML Act, in Section 10(1), defines that every legal entity that is not a public administration entity and a special-purpose association of assets without legal personality is obliged to identify its ultimate beneficial owner. 1) of the AML Act, it is defined that every legal entity that is not a public administration entity or a special-purpose association of assets without legal personality is obliged to identify its beneficial owner and to keep and continuously update, in paper or electronic form, the identification data of the beneficial owner to the extent specified in Section 7( 3 of the AML Act, the data establishing the status of the ultimate beneficiary pursuant to Section 6a(1) of the AML Act, and the data proving the status of the ultimate beneficiary, if such data are not included in the verification document in the register of public sector partners. This provision thus requires the above-mentioned entities to identify their ultimate beneficial owners and at the same time keep and update identification data on the ultimate beneficial owner (this applies to entities required to be registered in the commercial register as well as foundations, non-investment funds and non-profit organizations providing services of general interest).
Registration of the ultimate beneficiary in the Commercial Register
However, both of the above obligations only inform about the obligation to identify the ultimate beneficiary by the entities concerned, but do not include the obligation to register the identified ultimate beneficiary in a specific register.
The legal regulation of the obligation to enter or register the ultimate beneficiary of a specific entity is contained in:
1. Act No. 530/2003 Coll. on the Commercial Register and on amendments and supplements to certain acts (hereinafter also referred to as the “Commercial Register Act”),
2. Act No. 315/2016 Coll. on the Register of Public Sector Partners and on Amendments to Certain Acts (hereinafter also referred to as the “RPVS Act”),
3. legal regulations governing the status of foundations, non-investment funds and non-profit organizations providing services of general interest.
On November 1, 2019, an amendment to the Commercial Register Act came into effect. This amendment stipulated that entities that are required to be entered in the Commercial Register must also enter additional new information, specifically the identification details of the ultimate beneficiaries of these entities.
This obligation to register the ultimate beneficiary applies to legal entities entered in the Commercial Register:
a) legal entities established under the Commercial Code, namely
1. public trading company,
2. limited partnership,
3. limited liability company,
4. simple joint stock company,
5. joint stock company,
6. cooperative
b) legal entities established under European Union law, namely
1. European economic interest grouping
2. European cooperative
3. European company
c) legal entities established by law or on the basis of law, if a special law stipulates that they are to be entered in the commercial register,
d) state-owned enterprises,
e) organizational units of Slovak legal entities,
f) enterprises of foreign legal entities and organizational units of enterprises of foreign legal entities (see § 27 of the Commercial Code
with the exception of legal entities:
- which are public administration entities, or
- which is an issuer of securities admitted to trading on a regulated market that is subject to disclosure requirements under Act No. 566/2001 Coll. on securities and investment services and on amendments to certain acts (Securities Act), as amended, the requirements of an equivalent legal regulation of a Member State of the European Union or the requirements of equivalent international standards, or
- is an entity registered in the register of public sector partners.
Pursuant to Section 3 of the Commercial Register Act, the identification data of the beneficial owner shall be entered in the commercial register for legal entities to the extent of first name, surname, birth number or date of birth if no birth number has been assigned, permanent address or other address, nationality and type and number of identity document, and data establishing the status of the ultimate beneficiary under a special regulation, which is the AML Act.
For the sake of completeness, we would like to mention that the data on the ultimate beneficial owner entered in the Commercial Register are not publicly accessible, nor are they published on the Commercial Register website www.orsr.sk, in the Commercial Gazette, nor are they visible on extracts from the Commercial Register.
The obligation to register the identification data of the ultimate beneficial owners had to be fulfilled by the entity itself registered in the Commercial Register by 31 December 2019 (entities established before 31 October 2018) in the form of a proposal to register a change in the registered data, and entities registered after 31 October 2018 had to provide the data on the ultimate beneficial owners already in their application for registration in the Commercial Register.2018, already provided information on the beneficial owner when submitting their first application for entry in the Commercial Register.
In addition to the identification details of the beneficial owner, the Commercial Register also recorded information establishing the status of the beneficial owner pursuant to Section 6a(1) of the AML Act by marking the section of the form entitled “PROPOSAL FOR ENTRY OF A CHANGE IN THE RECORDED DATA ON THE BENEFICIAL OWNER”. 1) of the AML Act, in the form of a designation in the section of the form entitled “PROPOSAL FOR REGISTRATION OF A CHANGE IN THE REGISTERED DATA ON THE ULTIMATE BENEFICIAL OWNER,” point 10 - Data establishing the status of the ultimate beneficial owner, where it is possible to indicate this fact from the following options:
a) actual control or supervision of a legal entity or deriving benefits from the activities or business of a legal entity,
a1) direct or indirect share in the voting rights of a legal entity or the sum of such shares in a legal entity amounting to at least 25% (percentage points),
a2) a direct or indirect share in the registered capital of a legal entity or the sum of such shares in the registered capital of a legal entity, including bearer shares, amounting to at least 25% (percentage points),
a3) the right to appoint, otherwise establish or dismiss a statutory body, management body, supervisory body or control body in a legal entity or any of their members,
a4) another means of controlling a legal entity,
a5) the right to economic benefits from the business of the legal entity or its other activities in the amount of at least 25% (percentage points),
a6) fulfillment of at least one of the criteria under a1) to a5) together with another person acting in concert with the ultimate beneficiary or through their joint action,
b) ultimate beneficiary – top management.
Information on the ultimate beneficiary shall not be documented by any attachments within the meaning of Section 5(2) of the Commercial Register Act. Such a proposal may be submitted by the entity itself, which is required to enter this information in the commercial register, and therefore this entity through its statutory body (or it may be represented on the basis of an attached power of attorney – officially certified).
As regards the identification of the ultimate beneficial owner and the provision of information establishing the status of the ultimate beneficial owner, the registered person is responsible for the accuracy of this information. This information must be updated on an ongoing basis to ensure that it always reflects the actual situation.
In the process of identifying the beneficial owner, the obliged entity shall proceed in accordance with Section 6a of the AML Act and identify as the beneficial owner the person who meets the defining characteristics of a beneficial owner set out in that provision.
If the beneficial owner is not properly identified and there is therefore a discrepancy between the actual data on the beneficial owner (including data establishing the status of the beneficial owner pursuant to Section 6a(1) of the AML Act) pursuant to Section 11 of the OR Act, a natural person authorized to act on behalf of a registered legal entity may be fined up to EUR 3,310 if that person fails to fulfill the obligation to submit a proposal for the registration of changes to the registered data or a proposal for the deletion of the registered data within the time limit set by law or provides false information in the proposal for registration.
Registration of the ultimate beneficiary in the RPVS
The establishment of the register of public sector partners was enshrined in the RPVS Act. This Act regulates the establishment of the register of public sector partners, the data entered in the register, the procedure for entering data in the register, the entry of changes to the registered data and the deletion of registered data, the verification of data entered in the register and the penalties for breach of the obligations laid down in this Act.
The register is a public administration information system containing data pursuant to Section 4 of the RPVS Act, administered and operated by the Ministry of Justice of the Slovak Republic. The registering authority is the District Court in Žilina. The register is available on the website of the Ministry of Justice of the Slovak Republic. The register is part of the Central Information System of the Judiciary.
The following are entered in the register of public sector partners: public sector partners (and persons pursuant to Section 17 of the RPVS Act – voluntarily registered entities) together with the data on public sector partners specified in Section 4 of the RPVS Act. One of these details is information on the ultimate beneficiaries of the public sector partner, including their first name, surname, permanent address, date of birth, nationality and whether the ultimate beneficiary is a public official performing a function in the Slovak Republic.
In the case of a public sector partner that is an issuer of securities admitted to trading on a regulated market that is subject to disclosure requirements under a specific regulation, equivalent legislation of a Member State of the European Union or another state that is a party to the Agreement on the European Economic Area, or equivalent international standards, or by a company which is directly or indirectly exclusively controlled by such issuer and directly or indirectly exclusively managed by such issuer, the statutory body and members of the statutory body of the public sector partner shall be entered in the register instead of the ultimate beneficial owners.
A proposal for the entry of data in the register, a proposal for the entry of changes to the data entered, and a proposal for the deletion of the data entered (hereinafter referred to as the “proposal for entry”) shall be submitted by the authorized person on behalf of the public sector partner. The public sector partner is obliged to cooperate with the authorized person for the purposes of this Act. The proposal for registration shall be submitted exclusively by electronic means to the electronic mailbox of the registering authority using the electronic form designated for this purpose. The proposal for registration must be authorized by an authorized person, otherwise it shall not be taken into account.
When identifying the ultimate beneficial owner and verifying the identity of the ultimate beneficial owner, the authorized person is required to act impartially and with professional care, obtain all available information on the subject of the registration and evaluate it. The authorized person is not bound by the instructions of the public sector partner. Acting with professional care means acting with care appropriate to the function or position of the authorized person, taking into account and independently evaluating all available information that they have obtained or could have obtained and that relates to or may affect their actions. The provisions of a special regulation shall apply mutatis mutandis to the procedure for identifying the ultimate beneficiary and verifying the identification of the ultimate beneficiary.
The identification of the ultimate beneficiary and the verification of the identification of the ultimate beneficiary shall be demonstrated by a verification document in which the authorized person
a) justifies, on the basis of the information obtained in accordance with paragraph 5, how it identified the ultimate beneficiary or verified the identity of the ultimate beneficiary,
b) specifies the ownership structure and management structure of the public sector partner, if it is a legal entity,
c) provides the information referred to in Section 4(4)(f) of the RPVS Act, if it has or could have had knowledge of it, including the designation of the public function,
d) in the case of a public sector partner pursuant to Section 4(5) of the RPVS Act, proves that the conditions for the registration of senior management in the register are met,
e) declare that the facts stated in the verification document correspond to the facts as actually ascertained by it.
It follows from the above that the data establishing the status of the ultimate beneficiary shall be proven by a verification document which, in addition to information on the procedure by which the authorized person identified the ultimate beneficiary or verified the identification of the ultimate beneficiary, shall also indicate the ownership and management structure of the public sector partner.
The registering authority shall issue a confirmation in electronic form of the entry of the proposed data and send it to the authorized person without undue delay. The entry in the register is made for an indefinite period.
Pursuant to Section 11 of the RPVS Act, the public sector partner and the authorized person entered in the register are responsible for the accuracy of the data entered in the register, the identification of the ultimate beneficiary, and the verification of the identification of the ultimate beneficiary.
If the application for registration contains false or incomplete information about the ultimate beneficiary or public officials, the obligation to submit an application for the registration of changes to the registered data concerning the ultimate beneficiary within the time limit specified by law is not fulfilled or the prohibition under Section 19 of the RPVS Act is violated, the registering authority shall impose
a) a fine equal to the economic benefit obtained by the public sector partner; if the economic benefit cannot be determined, the registering authority shall impose a fine of between EUR 10,000 and EUR 1,000,000,
b) a fine of between EUR 10,000 and EUR 100,000 on the person who is a statutory body or a member of a statutory body of the public sector partner at the time of the breach of the obligation under the introductory sentence; the members of the statutory body shall be jointly and severally liable for the payment of the fine under the previous sentence.
The following table provides an overview of the main differences between the individual entries:
From the above, it can be concluded that there are significant differences between the entry of the ultimate beneficiary in the commercial register and in the register of public sector partners – namely in the process of identifying the ultimate beneficiary (its complexity and comprehensiveness), in the procedure for its entry, in the entity that can make this entry (the group of entities defined by law) and, last but not least, in the sanctions (their type and amount).
Based on the above legal facts, we conclude that the registration of the ultimate beneficiary in the commercial register is a highly formal and administrative process and that the proceedings of the statutory body of the registering authority with professional care do not always include the proper identification of the ultimate beneficiary within the meaning of the AML Act.
In contrast, the registration of the ultimate beneficial owner in the register of public sector partners is an administratively and professionally relatively demanding process and has added value in the form of an intermediary between the public sector partner and the registering authority (court), which is an authorized person who is expected to have a higher level of professional conduct. intermediary between the public sector partner and the registering authority (court), which is an authorized person who is expected to act with a higher degree of professional care, depending on the entity that is the authorized person (their expertise, experience, and knowledge in the field in which they actively practice their profession). It is not always realistic to assume that the statutory representative entering the ultimate beneficial owner in the commercial register, even when acting with professional care, is objectively capable of assessing all the facts and information that could establish the status of the ultimate beneficial owner and properly evaluate and assess, for example, acting in concert or acting in concert, or to properly identify the ownership structure or chain of legal entities (parent and subsidiary companies, etc.), or to properly calculate the direct and indirect shares in the registered capital, voting rights or profits (economic benefits) of the entity.
The intermediate stage in the form of an authorized person acting within the scope of their professional care is therefore justified and meaningful when registering the ultimate beneficiaries of public sector partners in the register of public sector partners, given the purpose of the RPVS Act.
