The fourth AML Directive, adopted in May 2015, brought with it intricate regulation of the much-discussed current problem of money laundering and terrorist financing in the territory of the European Union. In comparison with the previous three AML directives, this directive created a new framework of measures and obligations in order to improve the prevention of the legalization of proceeds from criminal activity in each Member State. Moreover, reflecting the 40 revised recommendations of the Financial Action Task Force (FATF) from February 2012, the fourth AML directive can be considered as the most significant regulation in this area at this moment. The fourth AML Directive thus introduced new obligations in respect to customer due diligence as well as measures with the aim of ensuring proper fulfilment of particular obligations. Further, the fourth AML directive put the accent more on risk assessment on the EU level, as well as on the national level, in each Member State. However, as these new rules are quite broad, our article will focus mainly on the regulation of new obligations related to beneficial owners and implementation in both the Czech Republic and Slovakia.
Beneficial owner under fourth AML Directive
In comparison with the third AML Directive, the definition of a beneficial owner was regulated by the fourth AML directive in more detail. Thus, under the fourth AML Directive, a beneficial owner is considered, in general, any natural person who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction or activity is being conducted.
In the case of corporate entities, a beneficial owner is a natural person who ultimately owns or controls a legal entity through direct or indirect ownership of a sufficient percentage (usually 25%) of the shares or voting rights or ownership interest in that entity, including through bearer shareholdings, or through control via other means, other than a company listed on a regulated market that is subject to disclosure requirements consistent with EU law or subject to equivalent international standards which ensure adequate transparency of ownership information.
If, after having exhausted all possible means, and provided there are no grounds for suspicion, none of the above persons is identified, or if there is any doubt that the person identified is the beneficial owner, the beneficial owner is the natural person(s) who holds the position of senior managing official(s).
With regard to the regulation of the beneficial owner, the fourth AML directive also introduced an obligation to identify the beneficial owner within customer due diligence measures without exception. Therefore, in comparison with previous regulations, the identification of the beneficial owner must be executed every time, equally like the identification of the client. The obligation to adopt adequate measures to verify the identification of the beneficial owner remains unaffected.
As the most significant change, the fourth AML Directive obliges Member States to ensure that corporate and legal entities shall obtain and hold adequate, accurate and current information on their beneficial ownership, so obliged subjects can fulfil their identification and other obligations more easily and more efficiently. Also, the Member States shall ensure that the information on the beneficial owners of the corporate and legal entities are held in a central register such as a commercial register or other public register. In this regard, the fourth AML directive requires that the information on the beneficial owner registered in the respective register be adequate, current and accurate and available to certain entities (namely state authorities, entities obliged to undergo customer due diligence and any entity that may have a legitimate interest).
Considering the above, both the Czech Republic and Slovakia have prepared new legislation in order to implement the fourth AML Directive and prepared also a system for registration of beneficial owners. As both countries implemented the fourth AML directive in quite a different way, below, we describe the new legislation changes in these countries in more detail.
Implementation in Czech Republic
The fourth AML directive has been transposed into Czech law by Act No. 368/2016 Sb., which amended Act No. 253/2008 Coll. on Selected Measures against Legitimisation of Proceeds of Crime and Financing of Terrorism.
The measures which have been introduced in order to implement the fourth AML directive also include the duty of all companies and other registered legal entities to obtain and register data on beneficial ownership, including details of the beneficial interests held, so that these data are timely available to the competent authorities, and kept in the relevant register. The new duty to register data on beneficial owners is introduced by Act No. 368/2016 Coll., which amends Act No. 304/2013 Sb., on Public Registers of Legal Entities and Individuals, with effect from 1 January 2018.
A beneficial owner is, for the purpose of these records, defined in s4(4) of the Act on Selected Measures against Legitimisation of Proceeds of Crime and Financing of Terrorism. Similarly, as defined in the fourth AML Directive, a beneficial owner is an individual who has, in fact or legally, the opportunity to exercise, directly or indirectly, substantial influence over the respective legal entity. If this individual may not be determined, mainly based on the individual’s share in voting or ownership rights, or as the recipient of distributed profits of the legal entity, it is presumed that the person who exercises the office of the governing or a similar body of the legal entity is the beneficial owner of this legal entity. In this manner, the individual who is the beneficial owner of the registered legal entity may be determined.
The following data on the beneficial owner will be registered:
a) name and address of the place of residence, and the domicile, if different from the place of residence,
b) date of birth and birth number, where allocated,
c) nationality, and
d) data on
a. the share in voting rights, where the beneficial owner has direct interest in the legal entity,
b. the share in distributed funds, where the status of the beneficial owner is based on the fact that this person is the recipient of these funds,
c. other facts, where the basis of the status of the beneficial owner is different.
The competent courts in charge of the Commercial Register will keep records of data on beneficial owners. These records will be electronic and broken down according to registered legal entities and trusts (in separate files). These records will not be available to the public. In addition to registered legal entities and trusts, only the bodies determined by law and persons who discharge powers and competencies vested in them will have access to the records. Legal entities and trusts will be obliged to apply for the registration of the data by 31 December 2018. Subsequently, applications for registration of, a change in, or the deletion of data, will be filed immediately after the relevant fact has arisen.
Implementation in Slovakia
In Slovakia, new legislation which implements the fourth AML directive has been adopted only recently, even though there was a strict deadline for implementation stipulated in the directive. The Slovak Parliament thus adopted on 1 February 2018 an amendment to Act No. 297/2008 Coll. on the Prevention of Legalization of Proceeds of Criminal Activity and Terrorist Financing and on Amendments and Supplements to Certain Acts (the “Slovak AML Act”).
The amendment to the Slovak AML Act implements the fourth AML directive in full without any exemptions. The amended Slovak AML Act thus modifies, for example, the system of customer due diligence and introduces a new system of risk assessment as well as national risk assessment. The amendment regulating the AML Act itself is not yet in effect – the effective date is stipulated as 15 March 2018.
As regards the obligation to introduce a system for the registration of beneficial owners, the amendment to the Slovak AML Act changes also other acts regulating the registries of legal entities and the conditions for their registration therein. Act No. 530/2003 Coll. on the Commercial Register is one such act which has been amended in this regard.
The Amended Act on the Commercial Register introduces the obligation of every legal entity registered in the Slovak Commercial Register (except for public administration bodies and issuers of shares admitted to trading on a regulated market) to register the identification data of their beneficial owner in the Slovak Commercial Register. Therefore, contrary to the Czech Republic, Slovakia has not created any specific register of beneficial owners in order to fulfil the obligations required by the fourth AML Directive.
In comparison to the amendment to the AML Act, the regulation regarding the registration of a beneficial owner’s data in the Commercial Register comes into effect on 1 November 2018. There is also a temporary provision for existing legal entities, under which each legal entity registered in the Commercial Register until 31 October 2018 will be obliged to submit a motion for registration of a beneficial owner’s data by 31 December 2019 at the latest.
The process of the registration of a beneficial owner’s data is not regulated by the Act on the Commercial Register in more detail and no practice is yet known. Therefore, the registration of a beneficial owner’s data should be done in a similar manner as any other corporate change, using a special form regulated by the particular act (which is not yet available). Submission of a motion for registration of a beneficial owner’s data will be for free.
The following data on the beneficial owner will be registered:
a) name and surname,
b) birth number or date of birth, if birth number was not allocated,
c) address of the place of permanent residence or other residence,
e) type and number of identity document,
f) data proving the status of the beneficial owner.
Similarly as in the Czech Republic, the data of a beneficial owner registered in the Commercial Register will not be publicly available. In this regard, Act No. 272/2015 Coll. on the Register of Legal Entities, which is also amended in this regard (and to which the data of a beneficial owner will be provided by the Commercial Register), regulates the entities which will be allowed to request data on a beneficial owner as well as the conditions for obtaining these data from this register.
In conclusion, the fourth AML directive introduces a new system of obligations to be observed by obliged entities in order to ensure better prevention of money laundering and terrorist financing. The directive aimed in more detail, inter alia, at the beneficial ownership of entities and obliged all Member States to implement new regulations enabling an easy way to maintain and obtain the data of particular beneficial owners. Both the Czech Republic and Slovakia have already implemented the fourth AML directive and introduced their own system for the registration of beneficial owners. However, as the system for the registration of beneficial owners is quite new in the Czech Republic, and in Slovakia the system is not yet in effect, we cannot conclude at this stage if these measures have been effective. Therefore, it will be of interest to monitor in the near future if these systems have been effective and have helped to better prevent money laundering in the two countries.
 The definition of a beneficial owner was already regulated by the Slovak AML Act before the implementation of the AML Directive and copies the definition stipulated in the fourth AML Directive. As a beneficial owner is thus considered any natural person who ultimately owns or controls the legal entity and any natural person on whose behalf the legal entity conducts transactions or activity. In the case of legal entities, a beneficial owner is in general considered a natural person, who
a) has a direct or indirect interest or a total of at least 25% in voting rights in a legal entity or in its equity capital including bearer shares,
b) is entitled to appoint, otherwise constitute or recall a statutory body, executive body, supervisory body or auditing body in a legal entity or any of its members,
c) in a manner other than those stipulated above, owns the legal entity,
d) has the right to economic benefits of at least 25% from the business of the legal entity or its other activity.
If no natural person fulfils the above criteria, as beneficial owner is considered the member of the highest management; as a member of the highest management is considered a statutory body, member of statutory body, proxy and managing employee in direct subordination of a statutory body. As a beneficial owner is considered also a natural person who does not meet the above criteria, but acts in conformity or together with another person, and thus meets any of the above criteria.
 The registration obligation of a beneficial owner’s data in the Commercial Register must be strictly distinguished from the obligation to register a beneficial owner in the Register for Partners of the Public Sector regulated by Act No. 315/2016 Coll. on the Register for Partners of the Public Sector effective from 1 February 2017. This act does not implement the fourth AML Directive – it arose out of an initiative of the Slovak Government to combat “letterbox” companies. Entities which have the obligation to register in this register (partners of the public sector expressly stipulated by this act) are also obliged to register the beneficial owner and its data in this register. However, the fulfilled obligation to register the beneficial owner in the Register for Partners of the Public Sector does not mean that that obligation to register the data of the beneficial owner in the Slovak Commercial Register is also observed. Both obligations must be fulfilled separately regardless of whether the data on the beneficial owner are registered in the second register or not.
[*] Adéla Krbcová is a partner and deputy director at the PETERKA & PARTNERS law office in Czech Republic and specializes in mainly on mergers and acquisitions and corporate law and she is an expert on employment law. Ms. Krbcová can be contacted at email@example.com.
Kristýna Ňaňková is a senior associate and deputy director at the PETERKA & PARTNERS law office in Slovakia and focuses on commercial law issues, real estate, labour law, personal data protection, and compliance and regulatory matters. Ms. Ňaňková can be contacted at firstname.lastname@example.org.