For many individuals involved in asset associations (foundations, nonprofit organizations providing services for the public good, non-investment funds, and other special-purpose asset associations), it may be unclear whether they, too, are considered beneficial owners. The conditions under which individuals are subject to legislation regarding beneficial owners in asset associations are described in this article.
Pursuant to Act No. 315/2016 Coll. on the Register of Public Sector Partners and on Amendments to Certain Acts (hereinafter also referred to as the “Act on the RPVS”), which defines the conditions under which the entity in question is considered a public sector partner subject to the obligation to be entered in the Register of Public Sector Partners pursuant to this Act and other related legal regulations, a public sector partner may be any entity with legal personality—this may include a natural person, a natural person who is an entrepreneur, a legal entity, including an asset association. Since “property association” is not a term that is entirely common or frequently used by the general public, the purpose of this article is to briefly explain to the general (as well as professional) public what is meant by the term “property association” and how the ultimate beneficial owner is identified in the context of a property association pursuant to Act No. 297/2008 Coll. on the Prevention of Money Laundering and the Financing of Terrorism and on Amendments to Certain Acts (hereinafter also referred to as the “AML Act”).
According to Section 9(e) of the AML Act, an “asset pool” is a client that is a foundation, a non-profit organization providing services of general interest, a non-investment fund, or another special-purpose association of assets, regardless of its legal personality, which manages and distributes financial resources.”
For the purposes of the RPVS Act and also within the meaning of the AML Act, foundations are therefore considered asset pools (their status is governed by Act No. 34/2002 Coll. on Foundations and on Amendments to the Civil Code, as amended), non-profit organizations providing services of general interest (their status is governed by Act No. 213/1997 Coll. on Non-Profit Organizations Providing Services of General Interest, as amended), non-investment funds (their status is governed by Act No. 147/1997 Coll. on Non-Investment Funds and Amending Act No. 207/1996 Coll. of the National Council of the Slovak Republic, as amended) and other special-purpose asset associations, regardless of their legal personality, that manage and distribute funds (however, if they lack legal personality, they cannot be registered as public sector partners in the register of public sector partners).
Pursuant to the Public Sector Partner Act and the Anti-Money Laundering Act, an authorized person is required, in the process of identifying the beneficial owner of a public sector partner, including an asset pool, to (among other things) identify the ownership structure of the public sector partner (as well as its management structure) and include it in the public sector partner’s verification document. The result of the process of identifying the beneficial owner of a public sector partner that is an asset pool is the determination of which natural person(s) in the asset pool are its beneficial owners. The definitions of which natural persons are considered the beneficial owners of the asset pool, or their defining characteristics, are set forth in Section 6a of the AML Act.
Pursuant to Section 6a of the AML Act, quote:
“(1) A beneficial owner is any natural person who actually controls or exercises control over a legal entity, a natural person—entrepreneur, or an asset pool, and any natural person for whose benefit these entities conduct their activities or business; beneficial owners include, in particular,
a) in the case of a legal entity that is neither an asset pool nor an issuer of securities admitted to trading on a regulated market subject to disclosure requirements under a special regulation, equivalent legislation of a Member State of the European Union or another state that is a party to the Agreement on the European Economic Area (hereinafter referred to as a “Member State”) or equivalent international standards, a natural person who
1. holds a direct or indirect interest, or a combination thereof, of at least 25% of the voting rights in a legal entity or of its share capital, including bearer shares,
2. has the right to appoint, otherwise designate, or dismiss the statutory body, management body, supervisory body, or audit body of a legal entity or any member thereof,
3. controls the legal entity in a manner other than that specified in the first and second points,
4. has the right to at least 25% of the economic benefit from the legal entity’s business or other activities,
b) in the case of a natural person—entrepreneur, a natural person who is entitled to at least 25% of the economic benefit from the business of the natural person—entrepreneur or from any other activity thereof,
c) in the case of an asset association, a natural person who
1. is the founder or establisher of the asset association; if the founder or establisher is a legal entity, the natural person referred to in subparagraph (a),
2. has the right to appoint, otherwise designate, or remove the statutory body, management body, supervisory body, or audit body of the asset pool or a member thereof, or is a member of a body that has the right to appoint, otherwise designate, or remove such bodies or their members,
3. is a statutory body, management body, supervisory body, audit body, or a member of such bodies,
4. is the recipient of at least 25% of the funds provided by the asset association, if the future recipients of these funds have been designated; if future beneficiaries of the assets of the association have not been designated, the group of persons who derive significant benefit from the establishment or operation of the association shall be considered the ultimate beneficial owners.
(2) If no natural person meets the criteria set forth in paragraph 1(a), the members of that person’s senior management shall be considered the beneficial owners; a statutory body or members of a statutory body shall be considered a member of senior management.
(3) A beneficial owner is also a natural person who does not personally meet the criteria under paragraph 1(a), b) or c) of the second and fourth points, but who, together with another person acting in concert or in a joint arrangement with them, meets at least some of these criteria.”
It follows from the above definition that the legislature has specifically defined, for a legal entity—an asset pool—in Section 6a(1)(c) of the AML Act, the group of natural persons who may be considered beneficial owners in an asset pool. This also follows from the fact that asset pools as such do not have a “standard” ownership structure like other legal entities (most commonly business corporations). For this reason, it is nearly impossible to identify their beneficial owners pursuant to Section 6a(1)(a) of the AML Act—these associations do not have share capital, the voting procedures of their governing bodies differ, economic gain is not the purpose of their establishment or the conduct of their activities—as a rule, this involves, for example, supporting a public-benefit purpose, fulfilling a generally beneficial purpose, or providing generally beneficial services, from which the profit must be used in its entirety to provide services of general benefit (it may not be used for the benefit of founders, members of governing bodies, or employees).
In the process of identifying the ultimate beneficial owner of a public-sector partner that is an asset association, it is necessary above all to take into account the fact that the ultimate beneficial owner of any entity is ALWAYS a natural person who actually, i.e. effectively controls or manages the asset pool (or another entity), and any natural person for whose benefit the asset pool (or another entity) conducts its activities (or business). At the same time, such a person may be, for the asset pool, any of the persons listed in Section 6a(1)(c) of the AML Act (including multiple persons, each individually meeting a criterion listed in that provision), however, it may also be a person not listed in Section 6a(1)(c) of the AML Act, provided that such person is a natural person who actually (i.e., de facto) controls or manages the asset pool.
Pursuant to Section 5(1) of the RPVS Act, a public sector partner is obligated to cooperate with an authorized person for the purposes of this Act, i.e., to provide them with all information, supporting materials, and documents proving the status of the ultimate beneficial owner to the natural persons concerned and demonstrating the legal relationships and legal framework governing the operation and organization of the asset pool, as well as the management or administration, or the possibilities for disposing of the property of the asset pool (extracts from relevant registers, articles of incorporation, founding documents, bylaws, statutes, organizational rules, foundation deeds, etc.). The public sector partner, together with the authorized person, is responsible for the proper identification of the ultimate beneficial owner of the public sector partner. The authorized person is required to act impartially and is required to obtain all available information regarding the subject of the registry entry with professional diligence and to evaluate it. The authorized person is not bound by the instructions of the public sector partner—that is, any instructions from the public sector partner regarding whom to identify as the beneficial owner are irrelevant (especially if they conflict with the law)—the authorized person must always identify the beneficial owner in accordance with the AML Act.
We reiterate that when identifying the beneficial owner in a trust, it is always necessary to determine which persons are those who actually control the trust, or in whose favor the trust carries out its activities. The beneficial owner of a public sector partner is always a natural person who meets the definitional criteria set forth in Section 6a(1) of the AML Act, and if no such natural person exists, the members of its senior management (statutory body) are considered the beneficial owners of that entity. Section 6a(1)(c) provides examples of which persons could meet the criteria set forth in Section 6a(1) for an asset pool:
- the founder or establisher of the asset pool;
- a natural person who has the right to appoint, otherwise establish, or dismiss the statutory body, management body, supervisory body, or control body of the asset pool or its member, or who is a member of a body that has the right to appoint, otherwise appoint or dismiss these bodies or their members (however, this right must belong individually to a specific person—whether a natural or legal person; it is not the right of a specific body of the asset pool);
- a statutory body, management body, supervisory body, audit body, or a member of such bodies;
- a recipient of at least 25% of the funds provided by the asset association, if future recipients of these funds have been designated; if future recipients of the association’s funds have not been designated, the ultimate beneficial owner is considered to be the group of persons who derive significant benefit from the establishment or operation of the association.
Determining who among these persons is the beneficial owner for the trust, the authorized person is required to make this determination only after a proper evaluation of all available information and after an individual assessment of the internal structure of relationships and the competencies of the individual bodies within the asset pool.
The above must always be evaluated on a case-by-case basis, particularly if the founders (establishers) are not entities that are persons controlling or supervising the asset association, or in whose favor the asset association carries out its activities (even if, for example, the founders have the authority to propose members of the statutory body, such as members of the board of directors). In other cases, after assessing the powers conferred upon them by the founding document or, for example, the articles of association, the ultimate beneficial owner of the asset pool may be a natural person who is a statutory body, a management body, a supervisory body, an audit body, or a member of these bodies (e.g., board of directors, director, management, auditor, etc.).
Procedures for identifying the ultimate beneficial owner in an asset pool may also appear contentious if, for example, the founders are public administration entities—whether or not they can be identified as ultimate beneficial owners. The registration of statutory bodies of cities or municipalities (as founders) is not excluded as such. They could be identified as beneficial owners, for example, if they derived a certain economic benefit through the public administration entity’s participation in a public-sector partner (if they were recipients of at least 25% of the funds provided by the asset pool). However, this would also depend on the assessment (and fulfillment) of other relevant facts.
