In practice, we very often encounter confusion between the registration of the ultimate beneficial owner in the Commercial Register and the registration of a public sector partner in the Public Sector Partner Register. What is the actual difference between them? Read more in our new article.
The current legal framework governing the obligations of affected entities to identify and register beneficial owners in multiple registries may be difficult for the general public to understand, or even lead to misinterpretations, which may result in these entities failing to meet their legal obligations, leading to the imposition of sanctions (including financial ones). The purpose of this article is therefore to help navigate this issue and provide an explanation and brief overview of when an entity’s beneficial owners must be registered and in which relevant registry, what other obligations related to registration must be fulfilled, and, above all, how to properly identify the beneficial owner prior to registration in accordance with the law.
The obligation to identify and register beneficial owners stems from several legal regulations, all of which have their legal basis in European legislation governing the prevention of money laundering (and the fight against terrorism), in other words, the area of anti-money laundering.
In Slovakia, this area of European legislation is reflected, among other things, primarily in Act No. 297/2008 Coll. on the Prevention of Money Laundering and the Prevention of Terrorist Financing and on Amendments to Certain Acts (hereinafter also referred to as the “AML Act”). The AML Act defines the rights and obligations of legal entities and natural persons in the prevention and detection of money laundering and terrorist financing; it defines basic terms (e.g., money laundering, terrorist financing, unusual business transaction, obliged entity, politically exposed person, beneficial owner, identification, verification of identification, or other terms such as property, client, transaction, and others), defines the due diligence obligations of an obligated entity toward a client, the procedure for identifying an unusual business transaction, and other obligations of obligated entities, as well as related administrative offenses and measures in the event of a violation of this Act.
Identification of the Beneficial Owner
For the purposes of this article, it is essential to emphasize that, under the AML Act, all entities defined by the AML Act as obligated entities (e.g., a bank, a securities dealer, an attorney, notary, or even a virtual currency wallet service provider), as part of the obligated entity’s due diligence toward the client (in addition to other obligations under the due diligence defined by law) required to identify the beneficial owner and take reasonable measures to verify information regarding the identification of the beneficial owner, including measures to determine the ownership structure and management structure of the client, who is a legal entity or an association of assets.
At the same time, it is essential to note that Section 10(1) of the AML Act stipulates that every legal entity that is not a public administration entity and every special-purpose association of assets without legal personality is required to identify its beneficial owner and to maintain and continuously update, in paper or electronic form, the identification data of the beneficial owner to the extent specified in Section 7(3) of the AML Act, data establishing the status of the beneficial owner pursuant to Section 6a(1) of the AML Act and data proving the status of the beneficial owner, if such data are not part of the verification document in the Public Sector Partners Register. This provision thus requires the above-mentioned entities to identify their beneficial owner and, at the same time, maintain and update the identification data of the beneficial owner (this applies to entities required to be registered in the Commercial Register, as well as foundations, non-investment funds, and non-profit organizations providing services of general interest).
Registration of the beneficial owner in the Commercial Register
However, both of the above-mentioned obligations only address the duty of the designated entity to identify the beneficial owner; they do not include the obligation to register the identified beneficial owner in a specific registry.
The legal provisions governing the obligation to register the beneficial owner of a specific entity are contained:
1. in Act No. 530/2003 Coll., the Act on the Commercial Register and on Amendments to Certain Acts (hereinafter also referred to as the “Commercial Register Act”),
2. in Act No. 315/2016 Coll., the Act on the Register of Public Sector Partners and on Amendments to Certain Acts (hereinafter also referred to as the “Act on the RPSP”),
3. in legal regulations governing the status of foundations, non-investment funds, and non-profit organizations providing services of general interest.
On November 1, 2019, an amendment to the Commercial Register Act entered into force. This amendment stipulated that entities required to be registered in the Commercial Register must also have additional new information entered, specifically the identification details of the ultimate beneficial owner of such entities.
This obligation to register the beneficial owner applies to legal entities entered in the Commercial Register:
a) legal entities established under the Commercial Code, namely
1. a general partnership,
2. limited partnerships,
3. a limited liability company,
4. a simple joint-stock company,
5. a joint-stock company,
6. a cooperative,
b) legal entities established under European Union law, namely
1. a European Economic Interest Grouping,
2. a European cooperative society,
3. a European company,
c) legal entities established by law or pursuant to law, if a special law provides that they shall be entered in the commercial register,
d) state-owned enterprises,
e) organizational units of Slovak legal entities,
f) enterprises of foreign legal entities and organizational units of enterprises of foreign legal entities (see § 27 of the Commercial Code
with the exception of a legal entity:
- which is a public administration entity, or
- which is an issuer of securities admitted to trading on a regulated market subject to disclosure requirements under Act No. 566/2001 Coll. on Securities and Investment Services and on Amendments to Certain Acts (the Securities Act), as amended, the requirements of an equivalent legal regulation of a Member State of the European Union or the requirements of equivalent international standards, or
- is an entity registered in the register of public sector partners.
Pursuant to Section 3 of the Commercial Register Act, the following identification data regarding the ultimate beneficial owner of a legal entity shall be entered in the Commercial Register: first name, last name, birth number, or date of birth if a birth number has not been assigned, permanent residence address or other residence address, nationality, and type and number of identity document, as well as data establishing the status of beneficial owner pursuant to a special regulation, namely the AML Act.
For the sake of completeness, we note that information on the beneficial owner entered in the Commercial Register is not publicly accessible, nor is it published on the Commercial Register website www.orsr.sk, in the Commercial Gazette, nor is this information visible on extracts from the Commercial Register.
The obligation to register identification data on beneficial owners was to be fulfilled by the entity itself registered in the Commercial Register by December 31, 2019 (for entities established by October 31, 2018) in the form of a proposal to amend the registered data; entities registered after October 31, 2018, were required to provide information on the ultimate beneficial owner upon their first application for registration in the Commercial Register.
In addition to the identification data of the beneficial owner, the Commercial Register also recorded data establishing the status of the beneficial owner pursuant to Section 6a(1) of the AML Act, specifically by marking the relevant section of the form— “APPLICATION FOR ENTRY OF CHANGES TO REGISTERED INFORMATION ON THE BENEFICIAL OWNER” item 10 - Information establishing the status of the beneficial owner, where this fact may be indicated from the following options:
a) actual control or supervision of a legal entity or deriving benefit from the activities or business of a legal entity,
a1) a direct or indirect share of voting rights in the legal entity or the sum of such shares in the legal entity amounting to at least 25% (percentage points),
a2) a direct or indirect share in the legal entity’s registered capital or the sum of such shares in the legal entity’s registered capital, including bearer shares, amounting to at least 25% (percentage points),
and 3) the right to appoint, otherwise designate, or remove a statutory body, management body, supervisory body, or control body of a legal entity or any member thereof,
and 4) any other means of controlling the legal entity,
and 5) the right to economic benefits from the business activities of the legal entity or its other activities to the extent of at least 25% (percentage points),
a6) fulfillment of at least one of the criteria under subparagraphs a1) through a5) jointly with another person acting in concert with the ultimate beneficial owner or through their joint action,
b) beneficial owner – senior management.
Information regarding the ultimate beneficial owner is not supported by any attachments within the meaning of Section 5(2) of the Commercial Register Act. Such an application may be filed by the entity itself, which is required to enter this information in the Commercial Register; therefore, this entity must do so through its statutory body (or may be represented on the basis of an attached power of attorney—officially certified).
With regard to the identification of the beneficial owner and the provision of data establishing the status of the beneficial owner, the registered person is responsible for the accuracy of this data. This information must be updated on an ongoing basis to ensure it always reflects the actual situation.
In the process of identifying the beneficial owner, the obligated entity proceeds in accordance with Section 6a of the AML Act and identifies as the beneficial owner the person who meets the defining characteristics of a beneficial owner set forth in this provision.
In the event that the beneficial owner is not properly identified and there is therefore a discrepancy between the actual data on the beneficial owner (including the data establishing the status of beneficial owner pursuant to Section Section 6a(1) of the AML Act), a natural person authorized to act on behalf of a registered legal entity faces a fine of up to EUR 3,310 pursuant to Section 11 of the Commercial Code, if such a person fails to fulfill the obligation to file a motion to amend the registered data or a motion to delete the registered data within the time limit set by law, or provides false information in the motion for registration.
Registration of the ultimate beneficial owner in the RPVS
The establishment of the Public Sector Partners Register was enshrined in the RPVS Act. This Act governs the establishment of the Public Sector Partners Register, the data entered into the register, the procedure for entering data into the register, the registration of changes to recorded data and the deletion of recorded data, the verification of data entered into the register, and penalties for violations of the obligations established by this Act.
The Register is a public administration information system containing data pursuant to Section 4 of the Act on the Public Sector Partners Register, and its administrator and operator is the Ministry of Justice of the Slovak Republic. The registering authority is the District Court in Žilina. The register is accessible on the website of the Ministry of Justice of the Slovak Republic. The register is part of the Central Judicial Information System.
Public sector partners (and persons pursuant to Section 17 of the RPVS Act—voluntarily registered entities) are entered into the Public Sector Partner Register along with the public sector partner data specified in Section 4 of the RPVS Act. One of these pieces of information is data on the ultimate beneficiaries of the public sector partner, including first name, last name, permanent address, date of birth, nationality, and whether the ultimate beneficial owner is a public official performing a function in the Slovak Republic.
In the case of a public sector partner that is an issuer of securities admitted to trading on a regulated market and subject to disclosure requirements under a special regulation, an equivalent legal regulation of a Member State of the European Union or another state that is a contracting party to the Agreement on the European Economic Area, or equivalent international standards, or by a company that is directly or indirectly exclusively controlled and managed by such issuer, the statutory body and members of the statutory body of the public sector partner shall be entered in the register in place of the ultimate beneficial owners.
An application for entry of data into the register, an application for amendment of recorded data, and an application for deletion of recorded data (hereinafter referred to as “application for entry”) shall be filed on behalf of the public sector partner by an authorized person. The public sector partner is required to cooperate with the authorized person for the purposes set forth in this Act. The application for entry shall be submitted exclusively by electronic means to the electronic mailbox of the registering authority using the designated electronic form. The application for entry must be authorized by an authorized person; otherwise, it shall not be considered.
When identifying the beneficial owner and verifying the beneficial owner’s identity, the authorized person is required to act impartially and with professional diligence, to obtain all available information regarding the subject of the registration, and to evaluate such information. The authorized person is not bound by the instructions of the public sector partner. Acting with professional care means acting with the care appropriate to the function or position of the authorized person, after considering and independently evaluating all available information which they have obtained or could have obtained and which relate to or may influence their actions. The provisions of a special regulation apply mutatis mutandis to the procedure for identifying the ultimate beneficial owner and verifying the identification of the ultimate beneficial owner.
The identification of the beneficial owner and the verification of the identification of the beneficial owner shall be evidenced by a verification document in which the authorized person
a) justifies, based on what information, the identification of the ultimate beneficial owner or the verification of the identification of the ultimate beneficial owner pursuant to paragraph 5,
b) specifies the ownership structure and management structure of the public sector partner, if it is a legal entity,
c) provides the information specified in Section 4(4)(f) of the RPVS Act, if they have or could have had knowledge of it, including the designation of the public office,
d) in the case of a public sector partner pursuant to Section 4(5) of the RPVS Act, demonstrate that the conditions for the registration of senior management in the register are met,
e) declare that the facts stated in the verification document correspond to the actual situation as determined by the partner.
It follows from the above that the information establishing the status of the ultimate beneficial owner is demonstrated by a verification document, which, in addition to information on the procedure by which the authorized person identified the ultimate beneficial owner or verified the identification of the ultimate beneficial owner, also specifies the ownership and management structure of the public sector partner.
Upon entry of the proposed data, the registering authority shall issue a confirmation in electronic form, which it shall send to the authorized person without undue delay. Entry in the register is made for an indefinite period.
Pursuant to Section 11 of the RPVS Act, the public sector partner and the authorized person entered in the register are responsible for the accuracy of the data entered in the register, the identification of the ultimate beneficial owner, and the verification of the identification of the ultimate beneficial owner.
If the application for registration contains false or incomplete information regarding the ultimate beneficial owner or public officials, the obligation to file an application to amend the recorded data concerning the ultimate beneficial owner within the time limit specified by law is not fulfilled, or the prohibition under Section 19 of the RPVS Act is violated, the registering authority shall impose
a) a fine on the public sector partner in the amount of the economic benefit obtained by the public sector partner; if the economic benefit cannot be determined, the registering authority shall impose a fine of between EUR 10,000 and EUR 1,000,000,
b) a fine ranging from EUR 10,000 to EUR 100,000 on a person who is a statutory body or a member of the statutory body of the public sector partner at the time of the breach of the obligation referred to in the introductory sentence; Members of the statutory body are jointly and severally liable for the payment of the fine under the preceding sentence.
The following table provides an overview of the key differences in the individual entries:
From the facts described above, it can be concluded that there are significant differences between the registration of the ultimate beneficial owner in the Commercial Register and in the Public Sector Partners Register—namely in the process of identifying the ultimate beneficial owner (its complexity and scope), in the registration procedure, in the entity authorized to perform this registration (a group of entities defined by law), and, last but not least, in the sanctions (their type and amount).
Based on the aforementioned legal facts, we conclude that the registration of the beneficial owner in the Commercial Register is a largely formal and administrative process, and the actions of the statutory body of the registering authority, even when performed with professional care, do not always entail the proper identification of the beneficial owner within the meaning of the AML Act.
In contrast, the registration of the ultimate beneficial owner in the public sector partner registry is an administratively and professionally relatively demanding process and has added value in the person of the so-called intermediary between the public sector partner and the registering authority (the court), who is an authorized person expected to act with a higher degree of professional care, depending on the entity that is the authorized person (their expertise, experience, and knowledge in the field in which they actively practice their profession). It is not realistically possible to always assume that a statutory representative registering a beneficial owner in the commercial register, even when acting with professional care, is objectively capable of assessing all facts and data that could establish the status of a beneficial owner and properly evaluate and assess, for example, acting in concert or acting in concert, or properly identify the ownership structure or chain of legal entities (parent and subsidiary companies, etc.), or properly calculate direct and indirect shares in the share capital, voting rights, or profit (economic benefit) of the entity.
The intermediate step involving an authorized person acting within the scope of their due professional care is thus well-founded and meaningful when registering the ultimate beneficial owners of public sector partners in the public sector partner registry, given the purpose of the Public Sector Partner Register Act.
