The Government of Ukraine has recently implemented additional measures to prevent and counteract the legalization (laundering) of proceeds of crime, terrorist financing and financing of proliferation of weapons of mass destruction. Thus, Ukraine made one more step towards implementing 4th Money Laundering EU Directive.
According to the Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of Proceeds of Crime or Financing of Terrorism and Proliferation of Weapons of Mass Destruction” adopted on 6 December 2019 (the Law), Ukrainian companies shall disclose their ownership structure, including ultimate beneficial owners (the UBOs) in compliance with the form and new requirements to be approved by the Ministry of Finance.
Finally, the long-awaited legal enactment, namely the Order of the Ministry of Finance of Ukraine No. 163 "On Approval of Regulations on Form and Content of Ownership Structure" dated March 19, 2021 (the Order), was approved and came into force on 11 July 2021.
According to the Law, the companies have three months to fulfill the new requirements, namely, to file the ownership structure along with the supporting documents. The three-month period started on 11 July 2021 (when the new rules started to apply) and will expire on 11 October 2021.
What are new requirements for legal entities?
From 11 July to 11 October 2021, all legal entities must provide the state registrar with the ownership structure which is executed in writing (no particular form is required) and illustrates a brief overview of all persons who directly or indirectly own a legal entity independently or jointly with other persons.
The Order says that the ownership structure shall show:
- all persons owning a legal entity, whether directly or indirectly, independently or jointly with the other legal entities;
- stake held by each of the shareholders;
- persons who, irrespective of the form of ownership, have a significant influence on the legal entity’s management or activities;
- description and nature of the UBO’s decisive influence on the legal entity’s activities.
Samples of the brief representation of the ownership structure are published on the official website of the Ministry of Finance of Ukraine.
Notably, the ownership structure shall be submitted along with the official documents (copies thereof) that confirm the title to make a decisive influence on the legal entity’s management or activities.
Once these documents have been submitted, the information about the UBOs (name, surname, ID information, residence address) will be updated and available in the Unified State Register of Legal Entities, Individual Entrepreneurs, and Civic Organizations (the Company Register), which is public.
The Law says that all legal entities must keep the information on the UBO and ownership structure up to date, update it and notify the state registrar of changes within 30 working days from the date thereof, and submit documents confirming these changes to the state registrar.
Considering that the Order was approved in 2021, the obligation to confirm information about the UBO will apply starting from 2022. In 2022, legal entities shall update information about the UBO and submit related documents to the state register within 14 calendar days from the legal entity’s state registration date.
Therefore, it is advisable to keep an eye on the legal entity’s state registration date to be ready to collect the documents required in advance.
Moreover, the fulfillment of the disclosure obligation will be required to amend the legal entity’s profile in the Company Register. In other words, if a legal entity has to introduce any changes into the legal entity’s profile in the Company Register (e.g., registration of the restated charter, legal address, registration of director, etc.), the ownership structure and related documents shall be submitted first. Therefore, it is highly advisable to follow legal requirements and submit an ownership structure in advance.
Failure to submit. What are the sanctions?
Failure to submit or delayed submission to the state registrar of the legal entity’s UBO information or relevant documents will result in the penalty imposed on the legal entity’s director and amounting to UAH 17,000 – 51,000 (approximately EUR 510 -1,530).
Given that the Law made the meaning of the UBO broader, businesses should carefully review their ownership structures and identify the ultimate beneficial owners in line with the new requirements.
The requirements as to the ownership structure and supporting documents are rather detailed and might be a challenge for the companies which have a complex multi-level ownership structure. Therefore, local subsidiaries of the multinational groups should start collecting documents as soon as possible.
By Vasyl Yurmanovych, Counsel, and Yuliya Bleshmudt, Associate, Integrites