Changes in the regulation of the register of beneficial owners – transposition of AML Directive V

With effect from 1 June 2021, the regulation contained in AML Directive V – i.e. Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU – will be transposed into the Czech Act on the Register of Ultimate Beneficial Owners (hereinafter referred to as the “Act on UBO”). Delayed more than a year from the deadline envisaged by the directive, this change has long been expected (perhaps with concern).

The actual register of ultimate beneficial owners (hereinafter referred to as the “Register”) has existed in Czech legislation since 1 January 2018. It has so far been regulated in the Act on Public Registers of Legal Entities and Natural Persons, but now it will be governed in its own law. The new regulation in this area brings a number of changes (some of which of a fundamental nature) for entities owning other legal entities.

Register of beneficial owners, modifications of the definition of beneficial owner

However, despite the changes contained in the Act on UBO, the very essence of the Register has not changed. Thus, instead of a public register, it will only remain a public administration information system, which is why, for example, the principle of material publicity, i.e. the possibility for third parties to rely on its data, will not apply to it.

However, for the purposes of the Register, a slight modification was made through the Act on UBO to the definition of the beneficial owner. The original regulation only referred to the AML Act, but the Act on UBO contains its own definition.

The ultimate beneficial owner will be the natural person who is the ultimate beneficiary or the person with ultimate influence. The ultimate beneficiary means a person who may have, directly or indirectly through another person or a trust fund, a substantial part of the total property benefit generated both in the activities and liquidation of a legal entity or trust fund (“legal arrangement” according to the wording of the law). The person with ultimate influence is a natural person who is a controlling person pursuant to the Business Corporations Act. The Act on UBO retains a limit of 25% both for the determination of the ultimate beneficiary for property benefit or right to share of profits, other own resources or liquidation balance, and for the determination of the person with ultimate influence, taking into account the person’s direct or indirect share in voting rights (however, this limit is only set as soft).

The Act on UBO also changes the definition of the “substitute beneficial owner” – so far these have been members of the company’s statutory body; now these are members of the statutory body of the company which is the highest in the ownership structure of the Czech company.

The Act on UBO also contains a negative list of entities which do not have a beneficial owner.

Transparency, fines and other consequences of the absence of entry

One of the major changes is the increase in the transparency of the entire Register. Under the current legislation, data about entities entered in the Register was only available to a predetermined range of entities which were entitled to obtain from the Register either an Extract of the registered entity’s data or remote access to such data. Pursuant to the Act on UBO, however, anyone can now obtain an extract from the Register on the website of the Ministry of Justice, although only partially.

Furthermore, it is necessary to draw attention, for example, to the newly introduced fines for failure to comply with the obligation to enter data about the beneficial owner in the Register, or for failure to provide co-operation to the registrar in entering data about the beneficial owner in the Register. The fine for failure to meet these obligations may reach up to CZK 500,000.

However, what should be considered as absolutely crucial is the changes concerning the consequences of the absence of entry of the beneficial owner in the Register. These lay down the following:

  1. the rights and obligations from legal conduct concealing the beneficial owner arising at a time when the beneficial owner is not entered in the Register cannot be enforced;
  2. a business corporation may not pay a profit share to the beneficial owner not entered in the Register, nor to the legal entity or arrangement of which he/she is also the beneficial owner or which does not have the beneficial owner entered in the Register;

           and

  1. in the decision-making of the highest body of a business corporation, voting rights may not be exercised or decisions may not be made as its sole shareholder by the beneficial owner who is not entered in the Register, nor the legal entity or arrangement of which he/she is also the beneficial owner or which does not have the beneficial owner entered in the Register.

Violation of these rules may establish liability for members of the statutory body (if, for example, they pay dividends to someone for whom this is prohibited by the Act on UBO) or cause a problem where some entities (temporarily) lose their voting rights at the general meeting due to the absence of entry in the Register.

After 1 June 2021, even entities which have met their obligation to enter data about their beneficial owner in the Register pursuant to the old regulation will be obliged to ensure that the entered data meet the new requirements of the Act on UBO – which will often apply, for example, to “substitute beneficial owners”. In the event of failure to comply with the obligation to enter data about the beneficial owner in the Register, the liable entities will face the risk of fines pursuant to the Act on UBO and the aforementioned consequences.

Therefore, if you are interested in assistance with proper entry, do not hesitate to contact us

Contributing Advisors