Blog - in Slovak

Several entities based in the Czech Republic, particularly commercial companies, also carry out their business activities in the Slovak Republic, and if they are public sector partners under the Public Sector Partners Act, they must be registered as public sector partners in the Public Sector Partners Register. In addition to the data defined by the Public Sector Partner Act, the register of public sector partners also records 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 specificpublic sector partner is disclosed. Since the legal regulations in the Czech Republic and the Slovak Republic 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 Public Sector Partners Register under the Public Sector Partners Act—about the legal institutions and sanctions arising from the Act on the Public Sector Partner Register for violations thereof, 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 topic of the new legislation on the register of beneficial owners (“Register of Beneficial Owners”) in force in the Czech Republic, namely the adoption of Act No. 37/2021 Coll. on the Register of Beneficial Owners (hereinafter also referred to as the “Act”), the necessity of which was argued, among other things, by the often-neglected obligation of registrants (e.g., business corporations, trust funds, and other entities) to register their beneficial owners in the beneficial ownership register. Another reason for the need for new legislation was to address gaps arising from the absence of direct penalties for failing to register the beneficial owners of registrants in this registry. (We briefly discussed the new legislation in our article)

Under the new Act, which will take effect soon, on June 1, 2021, registered entities may face several types of sanctions in the event of failure to comply with registration obligations or the existence of discrepancies between the actual and registered status in the registry, such as financial penalties (in the absence of any data in the registry or failure to correct a discrepancy identified by a court, a registered person may be fined up to CZK 500,000) and a fine may also be imposed on anyone who caused the discrepancy by failing to cooperate (e.g., the beneficial owner). In addition, the Act provides for negative private-law consequences of the absence of a register of beneficial owners, as well as operational and organizational sanctions in the form of the invalidity of corporate decisions or the suspension of shareholders’ voting rights. Similarly, in the event of deficiencies, the payment of profit shares to beneficial owners may be restricted or prevented.

Since the new Czech legislation stems, among other things, from European legislation governing the prevention of money laundering and the financing of terrorism, as well as the fight against money laundering, similar legal provisions regarding the registration of beneficial owners of specific entities in the relevant registers also exist in the Slovak Republic (e.g., commercial companies registered in the Commercial Register are required to register their beneficial owners in the Commercial Register, foundations registered in the register of non-governmental non-profit organizations are required to register their beneficial owners in the register of non-governmental non-profit organizations, and so on). Furthermore, in the Slovak Republic, in addition to this legislation governing the obligation to register the beneficial owners of entities in the relevant registers in which they are registered, there is also an obligation to register the beneficial owners of public sector partners in the so-called public sector partner registry, which is established by Act No. 315/2016 Coll. on the Public Sector Partner Registry and on Amendments to Certain Acts (hereinafter also referred to as the “Act on the Public Sector Partner Registry”).  The differences between the registration of beneficial owners in the relevant registers and the registration of a public sector partner and its beneficial owners in the Public Sector Partners Register are described in more detail in this article.

Register of Public Sector Partners

The establishment of the Public Sector Partners Register was enshrined in the Public Sector Partners Act. This Act governs the establishment of the Public Sector Partners Register, the data entered into the register, the procedure for entering data into the register, the entry of changes to registered data and the deletion of registered data, the verification of data entered into the register, and penalties for violations of the obligations established by this Act.

The Public Sector Partners Register is a public administration information system that contains data in accordance with the Public Sector Partners Register Act and 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 accessible on the website of the Ministry of Justice of the Slovak Republic. The register is part of the Central Judicial Information System.

Public sector partners (and persons under Section 17 of the RPVS Act—voluntarily registered entities) are entered into the Public Sector Partner Register along with the public sector partner data specified in the RPVS Act. One of these pieces of information is data on the ultimate beneficiaries of the public sector partner, including first name, last name, permanent address, date of birth, nationality, and information on whether the ultimate beneficial owner 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 and subject to disclosure requirements under a special regulation, an equivalent legal regulation of a Member State of the European Union or another state that is a contracting party to the Agreement on the European Economic Area, or equivalent international standards, or by a company that is directly or indirectly exclusively controlled and managed by such issuer, the statutory body and members of the statutory body of the public sector partner shall be entered in the register in place of the ultimate beneficial owners.

An application for entry of data into the register, an application for amendment of registered data, and an application for deletion of registered data (hereinafter referred to as “application for entry”) shall be submitted on behalf of the public sector partner by an authorized person (an authorized person is an entity designated by the RPVS Act that performs activities on behalf of the public sector partner in the registration process and is jointly responsible for the accuracy of the data entered in the register and its regular updating. An authorized person may be an attorney, notary, bank, branch of a foreign bank, auditor, or tax advisor who has a place of business or registered office in the territory of the Slovak Republic and who, on the basis of a written agreement, has undertaken to fulfill the obligations of an authorized person on behalf of the public sector partner). A public sector partner is required to cooperate with the authorized person for the purposes set forth in this Act. When identifying the beneficial owner and verifying the identification of the beneficial owner, the authorized person is required to act impartially and with professional diligence, to obtain all available information regarding the subject of the registration, and to evaluate such information. The authorized person is not bound by the instructions of the public sector partner.

Accuracy and completeness of data on the public sector partner’s ultimate beneficial owner in the public sector partner registry and the possibility of verifying such data

The public sector partner and the authorized person listed in the registry are responsible for the accuracy of the data entered in the registry, the identification of the ultimate beneficial owner, and the verification of the identification of the ultimate beneficial owner.

Verification of the accuracy and completeness of data on the ultimate beneficial owner of a public sector partner recorded in the public sector partner registry may be conducted only in court proceedings. The registering authority may verify the accuracy and completeness of the data on the beneficial owner of a public sector partner entered in the public sector partner registry on its own initiative or based on a substantiated request, whereby the legal status and factual circumstances at the time the proceedings are initiated are decisive for the registering authority. Any person may file a qualified complaint. In addition to the general requirements for a submission, a qualified complaint must include a description of the facts justifying reasonable doubt as to the accuracy or completeness of the information regarding the ultimate beneficial owner recorded in the register.

            In such proceedings, the court verifies the accuracy and completeness of the information regarding the ultimate beneficial owner recorded in the register. In practice, this means that the court verifies the accuracy of the information regarding the beneficial owners entered in the registry (to the extent specified by the RPVS Act—first name, last name, 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 beneficial owner of the public sector partner is in fact the beneficial owner of the public sector partner (meets the defining characteristics of a beneficial owner) and also whether there is any other natural person, not registered in the registry as a beneficial owner, who is also the beneficial owner of the public sector partner (and thus meets the defining characteristics of a beneficial owner) or whether there are facts that establish the status of beneficial owner for a natural person other than the one registered as the public sector partner’s beneficial owner.

If, in such proceedings to verify the accuracy and completeness of the beneficial owner data recorded in the register, the public sector partner fails to credibly demonstrate that the information regarding the beneficial owner recorded in the register is accurate and complete, the registering authority shall decide to remove the public sector partner from the register—this shall not apply if, in view of the manner of the breach of duty, its consequences, the circumstances under which the obligation was breached, and the degree of fault, the seriousness of the breach of the obligation is negligible. Once this decision becomes final, the court shall remove 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 regarding the ultimate beneficial owner or public officials
• the obligation to file an application for the registration of changes to the recorded information concerning the ultimate beneficial owner within the time limit specified by the RPVS Act is not fulfilled
• the prohibition under Section 19 of the RPVS Act is violated (which governs the exclusion of an authorized person, i.e., defines the 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) 

In such cases, the registering authority shall impose a sanction as follows:

     A) for the public sector partner 

• 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 ranging from EUR 10,000 to EUR 1,000,000;

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

• a fine ranging from EUR 10,000 to EUR 100,000; members of the statutory body are jointly and severally liable for payment of the fine pursuant to the preceding sentence.

b) Fines imposed on the ultimate beneficiary 

The ultimate beneficiary is required, within 15 days of learning that they have become the ultimate beneficiary of a public sector partner, notify the public sector partner that they have become its beneficial owner and also deliver the notification to the authorized person listed in the register.

If this obligation is not fulfilled, the registering authority shall impose a fine of up to EUR 10,000 on the beneficial owner.

c) Fines Imposed on an Authorized Person

An authorized person may not perform acts under this Act if

• it is simultaneously a public sector partner or the ultimate beneficiary of a public sector partner in the same matter, for whom it is to perform the duties of an authorized person,
• the ultimate beneficiary of the public sector partner and the authorized person is the same natural person,
• they have any relationship with the public sector partner or with members of its bodies that could call into question their impartiality, in particular if they are linked to the public sector partner through personnel or property ties; a relationship that could call into question the impartiality of the authorized person does not include the relationship between the public sector partner and the authorized person in the performance of their activities under specific regulations (e.g., the relationship between a lawyer and a client).

If an 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 removal of a public sector partner

A sanction in the form of the removal of a public sector partner from the register results from:

1. the conclusion of proceedings to verify the accuracy and completeness of the data on the ultimate beneficial owner recorded in the register, in the event that the public sector partner fails to credibly demonstrate in such proceedings that the data on its beneficial owner recorded in the register is accurate and complete (whereupon the registering authority will initiate proceedings to impose a fine). At this point, we emphasize that when deciding on deletion, the registering authority assesses the seriousness of the public sector partner’s breach of duty (to have data on beneficial owners recorded in the register correctly and completely), whether the sanction in the form of the public sector partner’s removal from the register is proportionate, taking into account the manner of the breach of duty, its consequences, the circumstances under which the duty was breached, and the degree of fault. Thus, even if the public sector partner fails to credibly demonstrate in the proceedings that the information regarding its ultimate beneficial owners is complete and accurate, the court is not required to order the removal of the public sector partner if the severity of the breach of duty is minor. For the sake of completeness, we note that if the public sector partner credibly demonstrates that the information regarding the ultimate beneficial owner recorded in the register is true and complete, the registering authority shall discontinue the proceedings.
2. failure to pay a fine within the time limit set by the court, which was imposed on the public sector partner for a breach of the obligation to file a motion to amend the recorded data concerning the ultimate beneficial owner within the time limit or for a breach of the prohibition under Section 19 of the RPVS Act. In this case, the court first decides to impose a fine, and if the fine is not paid within the time limit set by the court’s decision, the court decides to remove the public sector partner from the register. In this case, we refer to the removal of a public sector partner based on 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 removed from the register of public sector partners based on its own motion or the motion of an authorized person. Such a situation is relatively common and occurs primarily when a public sector partner no longer meets the defining characteristics of a public sector partner or when its obligation to be registered in the registry no longer applies—in layman’s terms, it does not have to be (any longer) registered in the register. However, this deletion is not a consequence or a sanction for a breach of obligations arising from the Public Sector Partner Act, as is the case with the deletion of a public sector partner from the register based on a court decision.  

In light of the above, a public sector partner does not file a motion for the deletion of a registered public sector partner on its own behalf or through an authorized person based on a court decision to delete the entry; but the court deletes the public sector partner based on the court’s decision. In such cases, the court directly decides by its decision or order to delete the public sector partner from the register and does not impose an obligation on the authorized person or the public sector partner to file a motion to remove the registered public sector partner from the register.

Violations of the obligations set forth in the RPVS Act by a public sector partner do not constitute the elements of any criminal offense under current legislation. However, it cannot be ruled out that, in the course of court proceedings, facts or conduct by the parties to the proceedings may emerge that are defined as a criminal offense under applicable legislation, and thus constitute the elements of a criminal offense under Act No. 300/2005 Coll., the Criminal Code. This may occur, for example, during the proceedings when the court, in a resolution to initiate proceedings pursuant to Section 12 of the Act on the Public Procurement System, calls upon the public sector partner to state the facts and propose evidence confirming the truthfulness and completeness of the recorded data. If, for example, a public sector partner were to submit evidence in such proceedings that they know to be forged or altered, for the purpose of using it as genuine, or, for example, were to forge evidence, they may commit the criminal offense of obstruction of justice within the meaning of Section 344 of the Criminal Code. Similarly, during the proceedings, the parties may submit documentary evidence that would demonstrate the commission of various property crimes or, potentially, crimes related to fraud within the meaning of the Criminal Code.

Furthermore, under the RPVS Act, public authorities (e.g., law enforcement agencies—the prosecutor’s office and others) and the obligated person under Act No. 297/2008 Coll.  are required to cooperate with the court, upon its request and within the time limit specified by it, in verifying the accuracy and completeness of the data on the ultimate beneficial owner recorded in the register; thus, the court may, upon request, also obtain evidence which confirm or refute the accuracy and completeness of the recorded data. Based on such cooperation, a public sector partner may give rise to reasonable suspicion of the commission of the aforementioned criminal offenses, which law enforcement authorities could investigate. Law enforcement authorities could thus take action, for example, based on a court order or ex officio upon suspicion of the commission of the aforementioned criminal offenses, not on the basis that the obligations of a public sector partner under the Public Sector Partner Act have been breached.  

            In our experience, decisions to delete data based on a court ruling as a consequence of a public sector partner’s breach of obligations—or as a form of sanction—are not entirely “common,” but such decisions do exist. However, this logically follows from the fact 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 applicable legislation. If situations arise where public sector partners act in such a way that the data on their ultimate beneficial owners recorded in the register is not true and complete, or if fines under the RPVS Act are not paid, it is expected that deletions based on the aforementioned court decisions will occur more frequently. 

In conclusion, we would like to note that since the sanctions under the RPVS Act are much stricter than those in the newly adopted and effective Act, it is necessary to ensure proper compliance with the obligations of public sector partners under the RPVS Act and not to rely on the assumption that the legal framework and its provisions are similar.