In recent years suspicions regarding massive conflicts of interest, corruption, and the favoritism of creditors have created the political will to mandate the disclosure of ownership backgrounds of companies dealing with public finances. Attorneys from Taylor Wessing Bratislava have participated in the preparation of the so-called Anti-Letterbox Companies Act, which entered into force on February 1, 2017.
The Act is based on the principle that only those companies that voluntarily and reliably reveal their beneficial owners can “do business” with the state. In other words, private sector entities may receive cash and non-cash benefits from the public sector only if they disclose and register their beneficial owners in a register established for that purpose. The relevant data will be verified and can be reviewed at any time or upon qualified motion by the court.
The register will be managed by the District Court Zilina and will be publicly accessible via Internet. Sanctions for infringements of the Act can include enforced withdrawal from the contract, suspension of consideration, fines, liability, withdrawal of the economic benefit, removal from the “register of partners of the public sector,” and listing on the “register of disqualified persons.”
Partners of the Public Sector, Beneficial Owners, and Authorized Persons
Every person who is not a subject to public administration, who has a statutorily-defined business relation with the state, or who wishes to enter into such a relation is obliged to register. Such person is called a Partner of the Public Sector (PPS). Among other things, statutorily-defined relations with the state include receiving financial means from the public budget, receiving property rights from the public sector, being a supplier in a public procurement, or fulfillment of other statutory criteria (for instance, as a mining permit owner). However, a person receiving financial means not exceeding EUR 100,000 in one installment or EUR 250,000 per year or whose acquired property or rights do not have value exceeding EUR 100,000 will not be considered a PPS.
A natural person who benefits from the activities of a PPS is a so-called beneficial owner (BO). The BO either has control over a legal entity (solely or jointly with another person) or receives an economic benefit from the business of another legal entity. A special regime applies to issuers of shares that are regularly traded on the stock market and their subsidies.
An “authorized person” (AP) entitled to conduct a registration of PPS into the register can be an attorney-at-law, a public notary, banks or branches of a foreign bank, an auditor, or a tax advisor. The AP must have a registered seat or place of business in the Slovak Republic and independently collect and assess all available information about the BO in a verification document. In this document, the AP determines the basis upon which the BO has been identified or verified and identifies the PPS shareholders and management structure.
A BO has to be verified on December 31 of each calendar year, or when it registers a PPS in the register, or registers changes in the BO and/or AP, or concludes a contract or its amendment, or receives consideration exceeding EUR 1 million under a contract.
Where incorrect or incomplete information about the BO is provided in the register, a fine will be imposed by court in an amount corresponding to the economic benefit gained. If not possible to determine, a flat rate ranging from EUR 10,000 to 1 million will be set.
In addition, the PPS executive bodies can be fined from EUR 10,000 to 100,000 and will subsequently be banned from the executive body function, followed by a registration into the “disqualification registry.” The AP acts as a guarantor of payment of the fine imposed on the PPS executive body, unless the AP proves it acted with professional diligence.
Anybody can file a qualified motion to the court to verify the registration of the BO. However, facts justifying the doubts about the accuracy and validity of registration must be presented. In such case, the PPS bears the burden of proof regarding the accuracy and completeness of the BO registration.
New Act Supports Transparency
By adopting the Act, the Slovak Republic starts applying the highest standards on fighting money laundering in its own state apparatus. Making public who deals with the state will have a positive impact on competition and higher administrative costs related to the new Act will be balanced out by the removal of market disturbances caused by lack of transparency.