Sourse: Liga Business
The new law on financial monitoring (“On preventing and counteracting to legalization (laundering) of the proceeds…”), which came into force on April 28, 2020, stirred up the consciousness of the population by limiting money transfers in excess of UAH 5,000; banks – by fines of UAH 135 000 000,00 and fans of non-trivial schemes for the withdrawal of capital – by using a risk-based approach to such operations.
One can agree with the words of the deputy head of the NBU, Ekaterina Rozhkova, that 95% of bank clients will not feel the changes. However, the requirement to disclose information about the beneficiaries will affect every enterprise operating in Ukraine, and especially business with non-residents on board.
This means increasing the fines for non-filing of the beneficiary statements and rethinking the very approach to this information. Now everything is serious – the law “closed” the loopholes and inaccuracies / inconsistencies that were in the previous wording of law.
The following facts have to be realized in the nearest future.
Increased fines to be paid
The experience of past years has shown that the theoretical fine up to UAH 8 500,00 for non-submission of the beneficiary statements was not applied in practice. The State Financial Monitoring Service is a government agency that was supposed to issue fines, but did not fulfill this function, and the threat of being fined very quickly passed. Probably, like many other “fines”, they did not work for several reasons. This is the lack of administrative and human resources, the disproportionate effort spent on the administrative process and a possible reward in the form of UAH 8 500,00 paid to the budget. In addition, legal entities with individual beneficiaries did not have to submit information about their beneficiaries, if the legal beneficiary coincided with the actual one. And in 99% of cases, it was.
We can assume that now everything will be a little different. Firstly, the fines were increased to UAH 51 000,00. Secondly, the authorized body which has the right to draw up protocols on administrative offenses for failure to provide information about the beneficiary has been changed. Now it is the Ministry of Justice. Companies with individuals as founders shall submit information about their beneficiaries and regularly, once a year, within 14 days from the date of state registration of the company, confirm it. It is not hard to imagine that the Ministry of Justice, as the holder of the Unified State Register of Legal Entities and Individual Entrepreneurs, will be able to easily track information about violators and deploy a full-scale campaign to fill the budget at the expense of inattentive entrepreneurs.
A new approach to the issue of beneficiaries. Beneficiaries cannot be hidden
Previously, only banks paid attention to beneficiaries when opening accounts and, in some cases, the Antimonopoly Committee, for example, when obtaining permission for concentration.
Statistics confirm this: as of June 2019 only 21.6% of 1 672 576 registered legal entities submitted mandatory information on the ultimate beneficiary. Another 51.2% of companies did not submit information on the beneficial owner, since they had individuals as founders. And 27% of companies did not fulfill the requirements and did not submit data on the ultimate beneficiary to the register.
Analyzing the norms of the new law, we understand that the “for show” approach is changing and, not least, it is aimed at everyone’s favorite nominees with difficult to pronounce Greek surnames.
Trustees, trusts and nominees of non-resident companies, who are not actually their beneficiaries, now shall prove their beneficial ownership.
What and how shall be disclosed?
The law amended the definition of an “ultimate beneficial owner” and introduced additional requirements, clearly relying on the practical aspects of global practice of working with trust structures. Within three months from the date of approval of the form for filing the beneficiary statements (at the time of this writing the form has not yet been approved) and frequency – once a year, companies shall submit to the state registrar:
- statement confirming the details of the ultimate beneficial owner;
- structure of ownership in form and content, determined in accordance with the legislation (at the time of this writing the form has not yet been approved);
- extract or document from the trade, banking, judicial register confirming the registration of a legal entity;
- a notarized copy of a document that certifies the person who is the ultimate beneficial owner of the legal entity – for a non-resident individual and, if such a document is drawn up without using the funds of the Unified State Demographic Register, – for a resident individual.
The last point deserves special attention. Starting this year, all companies whose beneficiaries are non-residents of Ukraine shall annually confirm the reality of their beneficiary by attaching a notarized and apostilled copy of his passport to the package of documents. We believe that many companies may have difficulties in finding their beneficiary, and obtaining his notarized copy of the passport, not to mention additional costs. The question remains open whether it is possible to make 10 copies of the passport at once, and keep them until the next submission, or for each copy there will be an “expiration date”. Practice will show it in the foreseeable future.
All beneficiary foreigners who have a residence permit in Ukraine do not need to do this, the registrar will check the information according to the data of the registers of the Ministry of Internal Affairs.
Trusts are not a cure-all solution
Special attention should be paid to the issue of disclosing the beneficiaries of international trusts. The law significantly expands the categories of persons falling under the category of “beneficiary”, namely: “founder”, “trustee”, “defender”, “beneficiary” or “group of beneficiaries”, as well as any other natural person who has a decisive influence on the activities of the trust. All of them can be the ultimate beneficiaries, and information about each requires documentary confirmation. Given the special status of confidentiality of trust structures and, in some cases, the impossibility of obtaining such information from local registrars, Ukrainian companies may face significant difficulties and the perspective of a fine.
According to the law, legal entities are obliged to maintain information about the ultimate beneficiary and the ownership structure up to date, update it and inform the state registrar of changes within 30 working days from the date of their occurrence, and also submit documents confirming these changes to the state registrar. If earlier the change of control could go unnoticed abroad, and the beneficiary changed in the USR at the next opportunity (if changed at all), now this information will have to be carefully monitored, since the law establishes the requirement to submit documents confirming changes in the beneficiary and the ownership structure in which the registrar will be interested primarily in the date of their settling. In case of violation of the terms of notification, the head of the enterprise will be subject to a fine.
