In order to participate in public tenders in Slovakia, a company must register its ultimate beneficial owners (“UBO”).
The new rule stems from new public procurement legislation enacted at the end of last year. In all public tenders announced after November 1, 2015, a company must have its UBO registered in a publicly accessible register; otherwise, it may not enter into any contracts as a winning bidder of a public procurement.
Although the aim of the amendment to the Slovak Public Procurement Act was to bring more transparency to public procurement, it has been the subject of much political and expert discussion about its ability to fulfill its declared purpose, and it has drawn contradictory responses.
Who Should Be Registered as UBO?
Due to the broad interpretation of the wording of the new public procurement rules, bidders of public procurements have been rightly curious to learn the practical implications for their business.
In general, the definition of a UBO follows that set out in AML (anti-money laundering) legislation. In simple terms, a UBO is a natural person who in fact (not just formally), owns a company participating in public procurement. In order to define this natural person the law sets several criteria: the UBO is a person who has direct or indirect ownership interest(s) representing at least 25% of the registered capital of the company or voting rights in the company or has the right to appoint or dismiss a statutory body, a majority of the members of the statutory body, or a majority of the members of the supervisory board or similar body (“Ownership Criteria”).
In practice, however, it may arise that no person meets the Ownership Criteria (e.g., in listed companies), in which case the law requires that all members of the statutory body of the shareholder – the legal entity that meets Ownership Criteria – be registered as the UBO.
However, even then, it may still be complicated to define a UBO in companies with very complex ownership structures. If several companies meet the Ownership Criteria, then the members of the statutory body of the parent company that has direct or indirect decisive influence on the applicant (e.g., majority voting rights, right to appoint or dismiss majority members of a statutory body) (“Managing Company”) are registered as the UBOs. By parent company, the law generally recognizes the top parent company in the ownership structure. However, especially for multinational companies, that may not always be the case, as the top parent company is usually a holding company that does not always exercise control over a subsidiary participating in a public tender in Slovakia. In order to determine the Managing Company, corporate governance must be evaluated and it may well be the case that a company in the middle of the ownership chain meets the criteria of a Managing Company.
The Slovak Office for Public Procurement does not examine the correctness of registered data at the time of registration; however, the Office may examine its correctness if challenged by a third party, even through the Financial Intelligence Unit (Financna spravodajska jednotka).
Failure to register a UBO, or to enter correct or complete data, may be sanctioned by a penalty of up to EUR 1 million and a prohibition against participating in public tenders for three years. Moreover, any contract concluded with a bidder without a registered UBO is invalid.
For years, there has been an urgent need for an effective tool against shell companies that shed dark light over public tenders. And while registering a UBO may not be the most efficient tool to establish transparency, the sanctions for not following it are too high to be ignored.
By Jiri Sixta, Partner, Glatzova & Co.
This Article was originally published in Issue 3.1 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.