We would like to inform you that following the adoption of the Directive (EU) of the European Parliament and of the Council 2018/843 of 30 May 2018 (hereinafter referred to as “Directive AML V”), the existing Czech legislation in the field of registration of beneficial owners of legal entities has been amended.
In this regard, we would like to remind you that Directive AML V has amended the original EU Directive concerning the AML (i.e. the Anti-money laundering), namely Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (hereinafter referred to as “Directive AML”). The reason for such amendment was the fact that the original legislation in this area contained several shortcomings (e.g. the effective sanctions for breach of the obligation to notify a beneficial owner were missing), which caused the negligence in fulfilment of the obligations related to keeping records of beneficial owners. In addition to the above-mentioned sanction obligations, Directive AML V introduces another major innovation for Member States that are obliged to implement the Directive AML V in their legal systems, namely the obligation to ensure the transparency of data entered in the register of beneficial owners in the form of public access to certain recorded data.
In connection with the implementation of Directive AMLV into the Czech law, Act on the Registration of Beneficial Owners (hereinafter referred to as the “Act”) was approved, which comprehensively regulate the area of registration of beneficial owners. The Act has already been submitted to the President of the Czech Republic for his signature.
Definition of a beneficial owner
The Act contains the comprehensive definition of a beneficial owner, according to which the beneficial owner is “any person who is the final beneficiary or a person with ultimate influence”. For the purposes of the Bill, the final beneficiary means “any person who can directly or indirectly obtain more than 25% of the total property benefit generated during activity or liquidation of a legal entity, and does not pass on this benefit”, respectively, “any person who directly or indirectly has the right to a share in the profits, other own resources or liquidation balance of a business corporation of more than 25% and does not pass on that share”. According to the Bill, the person with ultimate influence is “a natural person who is a controlling person according to the law regulating the legal relations of business corporations”.
Based on the above-mentioned Bill, the relevant legal entity will be obliged to register all persons who would meet the above-mentioned defining features of the beneficial owner. The Bill also provides an exhaustive list of legal entities that do not have a real owner (e.g. public corporations, associations of unit owners, etc.).
Transparency of records
In connection with the intention of greater transparency of the register of beneficial owners, according to the Act, the Ministry of Justice of the Czech Republic will be obliged to set up a public register of beneficial owners on its website, from which the public will be allowed to obtain a so-called partial extract of valid data on the beneficial owner in the scope of: the name of the beneficial owner; the state of residence of the beneficial owner; year and month of birth of the beneficial owner; the nationality of the beneficial owner; the indication of the nature of the position of the beneficial owner; the date from which the natural person is the beneficial owner; the day until which the natural person was the beneficial owner. The partial extract of valid data on the beneficial owner may also include other data for the publication of which the beneficial owner has given his consent. However, in the cases set out in the Bill, the beneficial owner will be allowed to request non-disclosure of such data (e.g. if the beneficial owner is a person who has not acquired full legal capacity or disclosure would entail a disproportionate risk for the beneficial owner).
According to the Act, registration in the register of beneficial owners will take place on the basis of an electronic proposal for registration in the register of beneficial owners. However, the Act states that in cases where the real owner will be apparent from the entry in the Commercial Register, the relevant data from the Commercial Register will be automatically transferred to the register of beneficial owners (so-called automatic transcript). Based on the just mentioned, e.g. in the case of a limited liability company, a member keeping a share of more than 25 % or the actual owner of a legal entity that is a member keeping a share of more than 25 % will be automatically entered in the register of beneficial owners.
However, the mechanism of the automatic transcript does not release the registrant (a legal entity with the beneficial owner) from the obligation to register other beneficial owners, and in the event that another person meets the definition of the beneficial owner, the registrant will be obliged to submit a relevant proposal for registration of such person. For the sake of completeness, we only add that the automatic transcript takes place without the submission of any proposal by the registrant.
Sanctions in connection with non-fulfilment of registration obligations
The proposed sanctions connected with non-fulfilment of the above-mentioned registration obligation of the registrant arising from the Bill are not only financial penalties (i.e. fine up to CZK 500,000, which the competent administrative body (a Municipal Office of the Municipality with Extended Powers) may impose on the beneficial owner, too, if such person does not cooperate in registering records of beneficial owners), but also aim to (at least partially) prevent the real functioning of the legal entity that will not fulfil its registration obligations, for example in the form of (i) a restriction of the payment of a share in the profit for as long as the beneficial owner is not registered (i.e. in the form of a prohibition of paying a share in the profit of a legal entity to the beneficial owner or other legal persons of which such natural person is also the beneficial owner); or (ii) a restriction of the voting right (i.e. in the form of a prohibition of exercising the voting right of the unregistered beneficial owner, or another person acting on the instructions of such beneficial owner, in the decision-making of the highest body of the relevant legal entity).