Act on the Register of Beneficial Owners, an effective tool in the fight against money laundering or just more bureaucracy for entrepreneurs?

April 8, 2021 Czech Republic

Starting 1 June 2021, there will be a fundamental change concerning the Register of Beneficial Owners, in connection with the entry into force of Act No. 37/2021 Coll. on the Registration of Beneficial Owners.

The Act responds, inter alia, to the obligation to transpose into Czech law the requirements brought by the amending Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018, which amends Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.

Main principles

The mainstays and principles of the Act are transparency, the fight against money laundering and terrorist financing, clarity, business security, as well as compliance with European law. The transparency of the organizational structure of legal entities should make it clear where its resources go and which natural person manages it.

This is also linked to the fact that so far, only a limited number of entities, such as banks, courts, law enforcement agencies, etc., have had access to the data entered in the register of beneficial owners. The fundamental change introduced by the Act is the fact that from 1 June, this register will, at least in its basic scope, be publicly accessible to all persons.

Beneficial owner

In the new legislation, we will also find a more precise definition of terms related to the registration of beneficial owners. The beneficial owner is defined as any natural person who is a final beneficiary or a person with ultimate influence, and thus who can directly or indirectly obtain more than 25% of the property benefit and has a significant share of voting rights or can otherwise effectively control and exercise its impact on society.

If, after due diligence, it is not possible to determine the final beneficiary or the person with ultimate influence, every person in the management of the top company, i.e. members of the statutory body of the highest parent company in the ownership structure of the company, will be considered the beneficial owner. According to the currently valid law, in this case, the members of the statutory body of the company directly concerned by the registration are registered as the beneficial owners. This new regulation, therefore, means a unification with other EU countries, fulfilling the intention and purpose of the relevant directives of the European Parliament and the Council (EU), however, at the cost of additional administrative burdens for companies.

Business corporations that have registered in accordance with the current legislation must, within 6 months of the entry into force of the Act, ensure that these data comply with the requirements of the Act and, if necessary, update them.

In the event that the beneficial owners have not been registered on the basis of the current legislation, it is necessary to make this registration without undue delay after the entry into force of the Act. If the registrant does not apply for registration within 15 days from the day when the obligation arose, anyone who proves a legal interest in it may apply for registration.

Obligations and sanctions

Another fundamental change is the introduction of fines/sanctions for breaches of certain obligations stipulated by the Act, which are missing in the current legislation. The first type of sanction for offenses is a fine of up to CZK 500 thousand. Offenses include, among other things, a violation of the obligation to register the beneficial owner in the register; failure to ensure the registration of new data or failure to provide the necessary cooperation to the registrant, if this violation of the obligation is confirmed by the court.

The second type of sanction is the inability of a shareholder in the decision-making of the highest body of this business corporation to exercise voting rights or to decide as to its sole shareholder. If this has occurred despite an explicit prohibition, the invalidity of this decision can be invoked under the rules on the invalidity of the decision of the sole shareholder deciding within the competence of the highest body under the law governing the legal relations of business corporations.

If a beneficial owner of a business corporation is not registered in the register of beneficial owners, this business corporation may not pay him/her a share of the benefit (profit or own resources). In relation to this corporation, this restriction applies not only directly to the owner, but also to the legal entity of which he/she is also the beneficial owner.

Summary

With regard to the wording of the Act and the complexity of the ownership structures of some companies, in practice there will be frequent cases where using legal rebuttable presumptions, will be difficult to identify the beneficial owner at all.

This will certainly lead to cases where no person will be entered in the register or the wrong person will be entered as the beneficial owner.

Reconciling the data in the register of beneficial owners register with the actual situation can therefore be somewhat problematic in light of the above. It also remains an open question of how consistent the approach of the competent courts will be in enforcing this obligation.

Eventually, liable persons within the meaning of the AML Act could become a certain catalyst, who, if they have doubts about the conformity of the data in the register with the actual state, is obliged to notify the client of these discrepancies. If despite this warning, the irregularities are not eliminated or refuted, the liable person will be forced to report the irregularity to the court which has jurisdiction over entries in the register of beneficial owners.

For more information or to ensure compliance with the new legislation at your company, do not hesitate to contact our Corporate Services Team.

Klára Janovská
Klára Janovská Corporate Services Manager
ASB Czech Republic
kjanovska@asbgroup.eu
Jiří Bosák
Jiří Bosák Head of Corporate Services
ASB Czech Republic
jbosak@asbgroup.eu