Changes in the Rules of Information on Ultimate Beneficial Owners of Legal Entities Registered Under the Law of Ukraine Disclosure

On 28 April 2020, the Law of Ukraine “On Preventing and Combating the Legalization (Laundering) of Proceeds of Crime, the Financing of Terrorism and the Financing of the Proliferation of Weapons of Mass Destruction” entered into force, which establishes new requirements and procedures for financial monitoring. In addition to changes that will affect only financial monitoring entities, the Act introduces significant innovations for most legal entities, in particular for those with participants or beneficiaries who are non-residents (both natural and legal persons), regarding the rules and procedures of the disclosure of ultimate beneficial owners of legal persons in the Single State Register of Legal Persons, Natural Persons-Entrepreneurs and Public Associations (hereinafter referred to as the Register).

The effect of this Act is that most legal persons will be required to submit to the Register, within a limited period of time, updated information and documents concerning their beneficial owners and thereafter to confirm/update this information periodically, the liability for non-compliance of this legal requirement will also increase. In addition, the Act expanded the list of primary financial monitoring entities that now include banks, insurance companies, financial companies, auditors, tax consultants, law firms that are also required to identify separately and independently the beneficial owners of their customers and, in case of discrepancies with the Register, to report to the State Monitoring Authority (financial monitoring regulator). This indicates that the monitoring of information validity in the Register about ultimate beneficial owners is being strengthened and that this control is now put on private business as primary financial monitoring entities. However, the new rules apply not only to legal entities with complex ownership structures, but also to legal entities whose founders are also the ultimate beneficiaries.

In fact, the information on the ultimate beneficial owners remains mainly the same as it is now: name of the beneficiary, surname, date of birth, country of nationality, series and passport number, taxpayer card registration number (if available) as well as the full name and identification code (for residents) of the founder of the legal entity where the person is the ultimate beneficial owner. Now additional information should be added: nature and extent (level, degree, share) of beneficial ownership (benefits, interest, impact); the obligation to submit additional documents: form and content of ownership structure, defined in accordance with the law (the relevant by-law has not been adopted yet; it is likely to be a schematic representation of the relationship between the companies), an extract or other document from the trade, banking, judicial register confirming the registration of a non-resident legal person in the country of its location, if the founder of the legal person is a non-resident legal person; a notarized copy of the identity document of a non-resident natural person who is the ultimate beneficial owner of the legal person and, similarly, of a resident natural person, if his passport document has been issued without using the means of the Single State Demographic Register will be added.

So, it is the first time when we see the requirement to submit to the registrar a copy of the passport of the beneficiary (also notarized), and this is the most important change.

The Act provides for several occasions when it is necessary to update the information:

ONE-TIME REPORTING – existing legal entities registered before 28 April 2020 must submit to the State Registrar the information on the ultimate beneficial owner to the extent determined by this Law and the structure of the ownership within three months of the legal act entry into force, which will approve the form and content of the ownership structure. So far, such regulation has not been adopted.

ANNUAL UPDATE OF INFORMATION – all legal entities will be required to annually confirm the information of the ultimate beneficiary and to submit an application for confirmation of the information of the ultimate beneficiary, as well as the documents referred to above (ownership structure, trade register extract, passport copy). Such applications and information must be submitted annually, starting from the following year from the date of the State registration of the legal entity, within 14 calendar days.

UPDATING IN CASE OF A CHANGE IN THE DATA ON THE ULTIMATE BENEFICIAL OWNERS – it obliges legal persons to keep the information on the ultimate beneficial owner and the ownership structure up-to-date, update it and report changes to the State Registrar, and submit documents to the State Registrar confirming these changes within 30 working days since their occurrence.

UPDATING WHEN CHANGES ARE MADE IN THE REGISTER OF A LEGAL PERSON – it obliges legal persons to submit a set of documents on the ultimate beneficial owner (to the extent indicated above) amending the information about the legal person in the Register.

A separate point should be made about the liability for the violation of the deadlines for submission of information, since the law imposes quite substantial fines for such violations, ranging from 17,000 to 51,000 hryvnias (the equivalent of 630 to 1,900 USD respectively). This is not a small amount and it would therefore be prudent to hire a lawyer and submit all the necessary information in the Register in order to avoid unnecessary expenses and complexity in the work of a legal person.

Author: Kydalov Igor