Blog - in Slovak

Several entities based in the Czech Republic, in particular commercial companies, also carry out their business activities in the Slovak Republic and, if they are public sector partners under the RPVS Act, they must be registered as public sector partners in the register of public sector partners. In addition to the data specified by the RPVS Act, the register of public sector partners also includes the ultimate beneficiaries of public sector partners, and the verification document published in the register of public sector partners discloses the ownership and management structure of a specific public sector partner. As the legal regulations in the Czech Republic and Slovakia differ in many respects, the purpose of this article is to inform the Czech public, and in particular entities that are registered as public sector partners in the register of public sector partners under the RPVS Act, about the legal institutions and sanctions arising from the RPVS Act for its violation, and also to draw attention to the fact that Slovak legislation is stricter than Czech legislation in this area. sanctions arising from the RPVS Act for its violation, and also to draw attention to the fact that Slovak legislation in this area is stricter than Czech legislation, which is enshrined in the aforementioned Act.

You have surely heard about the much-discussed new legislation on the registration of beneficial owners (“Evidence skutečných majitelů”) in the Czech Republic, namely Act No. 37/2021 Coll. on the registration of beneficial owners(hereinafter also referred to as the “Act”), the necessity of which was argued, among other things, by the frequently neglected obligation of registering entities (e.g., commercial corporations, trust funds, and other entities) to register their beneficial owners in the register of beneficial owners. Another reason for the need for new legislation was to remove gaps resulting from the absence of direct sanctions for failure to register the beneficial owners of registering entities in this register. (We briefly discussed the new legislation in our article)

According to the new Act, which will come into force soon, on 01.06.2021, in the event of failure to comply with registration obligations or the existence of discrepancies between the actual and registered status in the register, several types of sanctions may be imposed on registered persons, such as financial penalties (in the absence of any information in the register or failure to correct an irregularity identified by the court, the registering entity may be fined up to CZK 500,000) and a penalty may also be imposed on the person who caused the irregularity by failing to cooperate (e.g. the actual owner). In addition, the Act regulates the negative private law consequences of the absence of registration of beneficial owners, i.e. operational and organizational sanctions in the form of invalidity of corporate decisions or suspension of the voting rights of shareholders. Similarly, in the event of deficiencies, the payment of profits to beneficial owners may be restricted or prevented.

As the new Czech legislation is based, among other things, on European legislation on the protection against the legalisation of proceeds from crime and the protection against terrorist financing, similar legal provisions on the registration of beneficial owners of specific entities in the relevant registers also exist in the Slovak Republic. the fight against money laundering, similar legislation on the registration of beneficial owners of specific entities in the relevant registers also exists in the Slovak Republic (e.g. commercial companies registered in the commercial register are required to register their ultimate beneficial owners in the commercial register, foundations registered in the register of non-governmental non-profit organizations are required to register their ultimate beneficial owner in the register of non-governmental non-profit organizations, and so on). In addition to this legislation regulating the obligation to register the ultimate beneficiaries of entities in the relevant registers in which they are registered, the Slovak Republic also has an obligation to register the ultimate beneficiaries of public sector partners in the so-called register of public sector partners, which is laid down in Act No. 315/2016 Z. on the register of public sector partners and on amendments to certain laws (hereinafter also referred to as the “RPVS Act”). The differences between the registration of ultimate beneficiaries in the relevant registers and the registration of a public sector partner and its ultimate beneficiaries in the register of public sector partners are described in more detail in this article.

Register of public sector partners

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 data entered and the deletion of data entered, the verification of data entered in the register and the penalties for breach of the obligations laid down in this Act.

The register of public sector partners is a public administration information system containing data in accordance with the RPVS Act, which is 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.

A public sector partner (and persons pursuant to Section 17 of the RPVS Act – voluntarily registered entities) is entered in the register of public sector partners together with the data of the public sector partner specified in 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 data entered (hereinafter referred to as the “proposal for entry”) shall be submitted on behalf of the public sector partner by an authorized person (an authorized person is an entity established by the RPVS Act which performs activities for the public sector partner in the registration procedure and which is jointly responsible for the accuracy of the data entered in the register and their regular updating. An authorized person may be a lawyer, notary, bank, branch of a foreign bank, auditor, tax advisor who has a place of business or registered office in the Slovak Republic and who has undertaken, on the basis of a written agreement, to fulfill the obligations of an authorized person for a public sector partner). The public sector partner is obliged to cooperate with the authorized person for the purposes of this Act. When identifying the ultimate beneficiary and verifying the identity of the ultimate beneficiary, the authorized person is obliged to act impartially and with professional care, to obtain all available information on the subject of the entry in the register and to evaluate it. The authorized person is not bound by the instructions of the public sector partner.

Accuracy and completeness of data on the ultimate beneficiary of a public sector partner in the register of public sector partners and possibilities for their verification

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.

The verification of the accuracy and completeness of data on the ultimate beneficiary of a public sector partner entered in the register of public sector partners may only be carried out in court proceedings. The registering authority may verify the accuracy and completeness of data on the ultimate beneficiary of a public sector partner entered in the register of public sector partners on its own initiative or on the basis of a qualified complaint, whereby the legal status and factual circumstances at the time of the commencement of the proceedings shall be decisive for the registering authority. A qualified complaint may be lodged by anyone. In addition to the general requirements for submission, a qualified complaint must include a description of the facts justifying reasonable doubt as to the accuracy or completeness of the data on the ultimate beneficiary entered in the register.

In such proceedings, the court verifies the accuracy and completeness of the data on the ultimate beneficiary entered in the register. In practice, this means that the court verifies the accuracy of the data on the registered beneficial owners in the register (to the extent required by the RPVS Act – name, surname, permanent address, date of birth, nationality, and whether the beneficial owner is a public official performing a function in the Slovak Republic) and further verifies whether the registered ultimate beneficiary of a public sector partner is in fact the ultimate beneficiary of the public sector partner (meets the defining characteristics of an ultimate beneficiary) and also whether there is any other natural person not registered in the register as an ultimate beneficiary, is not also the ultimate beneficiary of a public sector partner (and therefore meets the defining characteristics of an ultimate beneficiary) or whether there are circumstances that establish the status of ultimate beneficiary for a natural person other than the one registered in the register as the ultimate beneficiary of a public sector partner.

If, in such proceedings to verify the accuracy and completeness of the data on the ultimate beneficiary entered in the register, the public sector partner does not credibly demonstrate that the data on the ultimate beneficiary entered in the register are accurate and complete, the registering authority shall decide to delete the public sector partner from the register - this does not apply if, in view of the manner in which the obligation was breached, its consequences, the circumstances under which it was breached and the degree of fault, the breach is minor. Once this decision becomes final, the court shall delete the public sector partner from the register and initiate proceedings to impose a fine.

Sanctions under the RPVS Act

The RPVS Act generally allows for the imposition of the following sanctions, a brief overview of which is provided below:

1. financial sanctions (fines)
2. sanctions in the form of removal of the public sector partner from the register of public sector partners

1. financial sanctions

a) Fines imposed on a public sector partner or its statutory body (its members)

The registering authority shall impose a fine if

• the application for registration contains false or incomplete information about the final beneficiary or public officials
• the obligation to submit an application for registration of changes to the registered data concerning the final beneficiary within the time limit specified in the RPVS Act has not been fulfilled
• the prohibition under Section 19 of the RPVS Act (which regulates the exclusion of an authorized person, i.e., defines circumstances under which an authorized person may not perform the activities of an authorized person for a specific public sector partner, e.g., due to any relationship or personal or material connection between them) is violated

In such cases, the registering authority shall impose the following sanctions:

A) for a public sector partner

• a fine equal to the economic advantage gained by the public sector partner
• if the economic advantage cannot be determined, the registering authority shall impose a fine of between EUR 10,000 and EUR 1,000,000

B) for a person who is a statutory body or a member of a statutory body of a public sector partner at the time of the breach of duty

• a fine of between EUR 10,000 and EUR 100,000; members of the statutory body shall be jointly and severally liable for the payment of the fine in accordance with the previous sentence.

b) Fines imposed on the final beneficiary

The final beneficiary is obliged to notify the public sector partner within 15 days of becoming aware that it has become the final beneficiary of a public sector partner and to deliver the notification to the authorized person registered in the register.

If they fail to comply with this obligation, the registering authority shall impose a fine of up to EUR 10,000 on the final beneficiary.

c) Fines imposed on the authorized person

The authorized person may not perform acts under this Act if

• it is at the same time a public sector partner or the final beneficiary of a public sector partner for whom it is to perform the duties of an authorized person in the same matter,
• the final beneficiary of the public sector partner and the authorized person is the same natural person,
• it has any relationship with the public sector partner or with members of its bodies which could call into question its impartiality, in particular if it is linked to the public sector partner in terms of personnel or property; a relationship that could call into question the impartiality of the authorized person is not a relationship between the public sector partner and the authorized person in the performance of its activities under specific regulations (e.g., the relationship between a lawyer and a client).

If the authorized person violates this prohibition, the registering authority shall impose a fine of between EUR 10,000 and EUR 100,000 on the authorized person.

2. Sanctions in the form of deletion of a public sector partner

The sanction in the form of deletion of a public sector partner from the register is the result of:

1. the termination of the procedure for verifying the accuracy and completeness of the data on the ultimate beneficiary entered in the register if the public sector partner fails to demonstrate in such a procedure that the data on its ultimate beneficiary entered in the register are accurate and complete (the registering authority will then initiate proceedings to impose a fine). At this point, we would like to emphasize that when deciding on deletion, the registering authority assesses the seriousness of the public sector partner's breach of its obligation (to have correct and complete data on the ultimate beneficiaries entered in the register) and whether the sanction in the form of deletion of the public sector partner is proportionate, taking into account the manner of the breach, its consequences, the circumstances under which the obligation was breached, and the degree of fault. Thus, even if the public sector partner does not credibly demonstrate in the proceedings that the data on its ultimate beneficiaries are complete and correct, the court may not decide to delete the public sector partner if the seriousness of the breach of the obligation is negligible. For the sake of completeness, we note that if the public sector partner credibly demonstrates that the data on the ultimate beneficiary entered in the register is true and complete, the registering authority shall discontinue the proceedings.
2. failure to pay a fine imposed by the court on the public sector partner for failure to submit a request for registration of changes to the data on the ultimate beneficiary within the time limit or for violation of the prohibition under Section 19 of the RPVS Act. In this case, the court shall first decide on the imposition of a fine and, if the fine is not paid within the time limit specified in the court decision, the court shall decide on the deletion of the public sector partner from the register. In this case, we refer to the deletion of a public sector partner on the basis of a court decision as a sanction under Section 13 of the RPVS Act.

For the sake of completeness, we note that a public sector partner may also be deleted from the register of public sector partners on the basis of its own proposal or the proposal of an authorized person. This situation is relatively common and occurs in particular when a public sector partner no longer meets the defining characteristics of a public sector partner or its obligation to be entered in the register no longer applies – in layman's terms, it no longer needs to be entered in the register. However, this deletion is not a consequence or sanction for a breach of obligations under the RPVS Act, as is the case with the deletion of a public sector partner from the register based on a court decision.

In accordance with the above, a public sector partner does not submit a request for deletion of a registered public sector partner on its own or through an authorized person based on a court decision, but the court deletes the public sector partner based on a court decision. In such cases, the court shall decide directly by its decision or ruling that the public sector partner shall be deleted from the register and shall not impose an obligation on the authorized person or public sector partner to submit a request for deletion of the registered public sector partner from the register.

Violations of the obligations imposed by the RPVS Act on public sector partners do not constitute a criminal offense under applicable law. However, it cannot be ruled out that, in the course of court proceedings, facts or conduct of the parties to the proceedings may emerge which are defined as criminal offences by the applicable legislation and thus constitute the elements of a criminal offence under Act No. 300/2005 Coll. Criminal Code. This may occur, for example, when the court, in its decision to initiate proceedings under Section 12 of the RPVS Act, requests the public sector partner to provide facts and evidence confirming the accuracy and completeness of the data recorded. If, for example, a public sector partner submits evidence in such proceedings which it knows to be false or altered for the purpose of using it as genuine, or if it falsifies evidence, it may be guilty of the criminal offense of obstruction of justice within the meaning of Section 344 of the Criminal Code. Similarly, during the proceedings, the parties to the proceedings may submit documentary evidence proving the commission of various property crimes or possibly even crimes relating to fraud within the meaning of the Criminal Code.

In addition, under the RPVS Act, public authorities (e.g. law enforcement authorities – the public prosecutor's office and others) and the obligated person under Act No. 297/2008 Coll. are obliged, at the request of the court and within the time limit specified by the court, to cooperate in verifying the accuracy and completeness of the data on the ultimate beneficiary of the benefits entered in the register, and thus the court may, upon request, also obtain evidence confirming/refuting the accuracy and completeness of the data entered. On the basis of such cooperation, a public sector partner may also become subject to reasonable suspicion of having committed the above-mentioned criminal offences, which could be investigated by the criminal justice authorities. Law enforcement authorities could thus take action, for example, on the basis of a court order or ex officio in the event of suspicion of the commission of the above-mentioned criminal offenses, not on the basis of a breach of the obligations of the public sector partner under the RPVS Act.

In our experience, decisions on deletion based on a court decision as a result of a breach of obligations by a public sector partner or as a form of sanction are not entirely “common”, but such decisions do exist. However, it logically follows from this that such deletions are the result of a breach of obligations imposed by legislation or a form of sanction and, as such, should not be common - they are the result of conduct that is not in accordance with the applicable legislation. If situations arise where public sector partners act in such a way that the data on their final beneficiaries entered in the register are not true and complete, or if fines under the RPVS Act are not paid, it is likely that deletions based on the above-mentioned court decisions will occur more frequently.

In conclusion, we would like to point out that, as the sanctions under the RPVS Act are much stricter than those under the newly adopted and effective Act, it is necessary to ensure that public sector partners comply with their obligations under the RPVS Act and not to rely on the fact that the legal framework and its institutions are similar.