New Rules for the Ultimate Beneficial Owners Disclosure

On 28 April 2020, the Law of Ukraine “On Preventing and Counteracting the Legalization (Laundering) of Proceeds of Crime, Financing Terrorism and Financing the Proliferation of Weapons of Mass Destruction” (hereinafter – “Law No 361-20”) entered into force.

Key issues:

  • Annual confirmation of information on the ultimate beneficial owner
  • Obligation to keep information about the ultimate beneficial owner updated
  • Changes in the registration of new legal entities
  • Liability for violation of the new Law
  • Legal uncertainty regarding the obligation to provide information on the ultimate beneficial owner due to the absence of the necessary form

The new Law has introduced the following changes and obligations for legal entities:

  • Annual confirmation of information on the ultimate beneficial owner (UBO);
  • On-going updates of information on the ultimate beneficial owner;
  • A number of changes to the registration of new legal entities;
  • Increased liability for failure to disclose information on the ultimate beneficial owner.

Annual confirmation of information on the ultimate beneficial owner

Legal entities are obliged to annually confirm information on their beneficial owners.

Documents submitted to the State Registrar for confirmation of information:

  • The confirmation statement;
  • The ownership structure in the prescribed form;
  • A notarized copy of the passport of the founder (if the founder is a resident of Ukraine and does not have a biometric passport).

From April 28, 2020, all legal entities are obliged to update and keep up to date information about their UBO and ownership structure.

If the corporate structure of the company includes “foreign elements” (non-residents of Ukraine), the State Registrar is additionally provided with:

  • An extract or other relevant document from companies registers confirming the registration of a non-resident legal entity (if non-resident legal entities are among the beneficiaries of the company);
  • A notarized copy of the identity document of the ultimate beneficial owners (if non-resident individuals are the beneficial owners).

Law 361-20 provides a transitional period for the implementation of this obligation. Legal entities registered before April 28, 2020 will be obliged to provide information on their ultimate beneficial owners within 3 months of the date of approval of the ownership structure form by the Ministry of Finance of Ukraine. The form does not exist yet; it must be approved no later than July 28, 2020.

Obligation to keep information about the ultimate beneficial owner updated

From April 28, 2020, all legal entities are obliged to update and keep up to date information about their UBO and ownership structure. In particular, legal entities are obliged:

  • In the case of any changes of information on the UBO and ownership structure to report this to the State Registrar and submit all relevant documents within 30 business days from the occurrence of the changes;
  • In the case of any error, incompleteness or inaccuracy in previously provided information about the ultimate beneficial owners – to provide the State Registrar with the correct information no later than 3 working days from the date when the inaccuracy was discovered.

Changes in the registration of new legal entities

From now on, when registering any new legal entities, the Registrar must be provided with the following notarized documents:

  • The ownership structure in the prescribed form;
  • An extract or other relevant document from companies registers confirming the registration of a non-resident legal entity (if any non-resident legal entities are among the beneficiaries of the company that is being registered);
  • A copy of the identity document of the beneficiary – if a non-resident individual is the beneficial owner. The same requirement applies to beneficiaries who are both residents of Ukraine and holders of “old-style” passports (not biometric passports).

Liability for violation of the new Law

Administrative liability (a fine of between UAH 17,000 (USD 630) and UAH 51,000 (USD 1,900)) is applied for late confirmation of information on the UBO or changes of ownership structure.

A fine may be imposed for failure to disclose or untimely disclosure of information, including:

  • information on the UBO of the legal entity;
  • information on the absence of a UBO;
  • documents to confirm information about the UBO.

The liability is on the directors of companies and members of the executive bodies of companies. The beneficiaries will not be held liable for the breach.

The controlling authority will be the State Financial Monitoring Service, issuing administrative reports on the violations. The courts will review the reports and make decisions on liability.

If a legal entity is in the state of a corporate conflict or has other reasons to expect appeals against changes in the state register, we recommend refraining from making changes to information about the legal entity until the form of ownership is duly approved by the Ministry of Finance.

Legal uncertainty regarding the obligation to provide information on the ultimate beneficial owner due to the absence of the necessary form

As of the date on which the Law entered into force, the form for submitting information on the ownership structure had not been yet approved.

This gives rise to contradictions between the obligation to provide such information according to the Law and the practical impossibility of fulfilling it.

The Ministry of Justice of Ukraine has posted a notice on its website stating that, in its opinion, such an obligation arises only after the approval of the appropriate form by the Ministry of Finance. It should be noted that Law № 361-20 does not contain such provisions, and the Ministry of Justice of Ukraine does not refer to any provision of the Law in its commentary. Accordingly, the legality of the Ministry’s position in this case is doubtful, which creates a number of risks:

  • the State Registrar may disagree with the position of the Ministry and refuse to register a new legal entity (or make changes to a record on an existing entity) without receiving information about the UBO as stipulated by the Law;
  • if the State Registrar agrees with the position of the Ministry and registers a new legal entity (or makes changes to a record of an existing legal entity), such actions of the Registrar may be appealed in court as made in breach of the Law.

The Ministry of Justice is a regulatory body in the field of state registration, and therefore most state registrars are likely to favour its position on the issue.

However, if a legal entity is in the state of a corporate conflict or has other reasons to expect appeals against changes in the state register, we recommend refraining from making changes to information about the legal entity until the form of ownership is duly approved by the Ministry of Finance.

If you have any questions regarding the state registration of enterprises and compliance with the requirements of the Law on disclosure of information about ultimate beneficial owners, please contact Taras Tertychnyi or Oleksandr Smishko at our Kyiv office.