On 18 July 2019, Law 129/2019 on the prevention and fight against money laundering and terrorism financing, as well as for amending and supplementing certain regulatory acts, was published in the Official Gazette of Romania. Romania had previously been warned about the potential use of infringement proceedings as a result of the failure to transpose Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorism financing (“the 4th AML Directive”), so that Law no. 129/2019 brings much awaited clarifications in the private field, both regarding the applicable KYC rules and the identification of the beneficial owner, together with changes of a major importance for companies in terms of their obligation to make public more information about the shareholding and beneficial ownership structure of the respective companies.
Who is the beneficial owner?
The concept of beneficial owner and the request to disclose its identity are not an absolute novelty in Romania. The legislation in the field has continuously provided for certain subjects of law the obligation to adopt, in the course of their activity, measures to prevent money laundering and terrorism financing, by applying certain KYC measures.
Within the meaning of the new Law 129/2019, the „beneficial owner of a company” means any natural person who ultimately owns or controls the company and/or the natural person on whose behalf a transaction, operation or activity is performed. The law also offers some benchmarks to help identify who owns or controls a company, and in the case of the companies regulated by Law 31/1990 (the “Companies Law“) the beneficial owner is the one who ultimately owns or controls a legal entity through direct or indirect ownership of a number of shares or voting rights that is sufficiently large to ensure control or through an ownership interest in that legal entity or through control by other means. This criterion is considered to be fulfilled in case of holding at least 25% of the shares plus one share or an ownership interest of more than 25% in the legal entity.
In the situation in which, after exhausting all possible means and provided there are no grounds for suspicion, no natural person is identified on the basis of the above criterion regarding the ownership interest held, or if it is not certain that the identified person is the beneficial owner, the natural person or persons who ensure the management of the legal entity will be deemed to be its beneficial owner/owners.
What is the Register of beneficial owners? How and when to register the beneficial owner?
As an absolute novelty, the creation of a Register of beneficial owners at the level of the Trade Register has been introduced. For the creation of such a register containing the information necessary to identify the beneficial owners of the companies subject to registration in the Trade Register, Law 129/2019 provided for transitional provisions and set deadlines for the authorities to create the necessary administrative framework, but also for the companies to comply with the new obligations imposed.
Thus, the companies registered after its entry into force (with the exception of the autonomous administrations and national companies), will be required, both upon registration and subsequently (annually or whenever necessary), to submit through their legal representative the declaration regarding the beneficial owner, in an authentic form or given in front of a representative of the Trade Register. For the companies already registered, the law establishes a term of 12 months from the date of its entry into force for the fulfilment of the legal obligations imposed.
The obligation to update the information will be continuous during the existence of the company, with the obligation that a declaration regarding the beneficial owner be submitted annually or whenever a change occurs. The annual declaration will be submitted to the Trade Register in which the legal entity is registered within 15 days from the approval of the annual financial statements, and if a change in the identification data of the beneficial owner occurs, the declaration will be submitted within 15 days from the date on which such change occurred.
Failure to comply with the obligation to submit the declaration on the beneficial owner constitutes a contravention and is sanctioned by a fine from RON 5,000 to RON 10,000. According to the legal provisions, the sanction will be applied to the legal representative of the legal entities, who is responsible for compliance with this obligation. In practice, there may be cases in which the shareholders of a company do not cooperate with the director, in the sense that they do not agree to disclose the identity of the beneficial owner in order for the director to be able to submit the declaration. Therefore, we consider that Law 129/2019 should include clarifications on this aspect, for example by introducing this obligation for the shareholders as well.
In the event that the obligation to provide the information on the beneficial owner is not complied with even after the application of the fine, the company may be dissolved at the request of the National Trade Register Office. The cause of dissolution may be removed before the submission of any conclusions on the merits, insofar as the situation that led to the initiation of the dissolution request is remedied.
Aspects to follow in practice – the correlation of the new obligations with other relevant legislative provisions
Applicability of the provisions in the case of listed companies or investment funds
The legal entities registered with the Trade Register whose shares are traded on a regulated market and which are subject to advertising requirements in accordance with the provisions of the European Union legislation or with internationally set standards are exempted from the application of the provisions of Law 129/2019 on the identification of the beneficial owner. Given that the Trade Register does not keep a record of the companies whose shares are traded on a regulated market, it is appropriate to distinguish between companies that are subject to the obligations provided by Law 129/2019 and those that are separately regulated, otherwise there is a risk that the Trade Register will apply sanctions to the listed companies that are required to declare the information on beneficial owners under a separate procedure. We consider that an efficient method would be to specify in the file of each company if and on what regulated market its shares are traded.
In order to align with the new legislative changes, the Trade Register has drafted a draft law that is under debate. It does not bring any additional clarifications compared to Law 129/2019 on the procedure for submitting the declaration on the beneficial owner, but it does stipulate that the methodology of registration in the Register of beneficial owners and its structure will be established by order of the Minister of Justice.
If the situation remains unclear, the interpretation should be that it is the company itself, through its legal representative, that will provide proof that the company is not subject to the regulations of Law 129/2019, which may hinder the communication flow with the authorities. In order to avoid the imposition of sanctions and the initiation of burdensome administrative procedures, it is advisable for all companies to comply with the deadlines for submitting the declaration on the beneficial owner and to declare that the regulations are not applicable to them, providing in support thereof documents showing that the company’s shares are traded on a regulated market.
Similarly, it remains however unclear and easy to clarify who should be declared the beneficial owner of a company held by an investment fund. The lack of clarity results from the fact that investment funds can be held by a large number of investors, whose investment in a certain company acquired by the investment fund cannot be concretely determined. The matter is all the more sensitive as the information on the identity of investors is often strictly confidential. The most practical solution, identified so far in other jurisdictions, is to declare that the beneficial owner is the management of the investment fund that makes the most important decisions for its activity. On the other hand, in the absence of express provisions on this matter, we anticipate that the application of the new obligations for investment funds in practice, including the interaction with the competent authorities, will be problematic.
Compliance with the personal data protection legislation
Law 129/2019 expressly stipulates the details that the interested persons will find out about the beneficial owner, namely: the name, month and year of birth, nationality and country of residence, as well as details on the beneficial ownership. The law stipulates that access to the Register of beneficial owners will be in accordance with the rules on the protection of personal data, which requires the Trade Register to take appropriate measures both to store the respective data in a safe and confidential manner and to ensure that the recipients of the information provided will take minimum measures to protect the data obtained and that they will not use them for purposes other than those stated.
Currently, there are no mechanisms that could control such situations, but a clarification of the matter would be useful, perhaps by introducing clear obligations for the recipients of information, all the more so as the public authorities fall within the scope of the General Data Protection Regulation and must fully comply with its requirements.
Correlation of legal obligations with the confidentiality in the business environment
Unlike the previous legislation in which such requests were punctual and the company could control the information disclosure process, in the sense that it could choose with whom it entered into contractual relations, if it was appropriate to declare who was the beneficial owner, the current legislation generally imposes this disclosure, without the company being able to choose or control who has access to such information.
Currently, it is not only the reporting entities, such as, for example, credit institutions, auditors, accounting experts or auditors, that will be able to consult the register when applying KYC measures. The sphere of the people who will have access to the information from the Register of the beneficial owners is much wider, the procedure by which they will be obtained being regulated by Law 129/2019. The information will be available at any time, without any restriction and without the persons concerned being notified in advance or subsequently by the supervisory and control authorities or by the judicial bodies of the fact that the respective information has been provided to an interested person.
This raises the question of the legitimate interest test for all the persons to whom Law 129/2019 gives access to information. Legitimate interest is one of the concepts that raises problems of interpretation, considering that the 4th AML Directive has not provided a definition to give clarity, and at the level of the states that have already implemented the provisions of the 4th AML Directive, various opinions have appeared in relation to this subject.
The legitimate interest test refers to the analysis of each case by the representatives of the Trade Register, starting from the indications that the European Court of Human Rights has offered regarding the assessment of the interest, including: (i) the interest and the legitimate advantages that can be obtained, (ii) the need (iii) the impact on the person in question and the harm that it can create. By way of example, in cases where there is an intention to acquire a company or the intention to conclude commercial contracts, we can consider that the interest is a legitimate one, on the other hand, in cases involving marketing activities or the transmission of information to other persons, the interest should be analysed more narrowly.
We are of the opinion that, in the absence of a definition of the concept of legitimate interest and taking into account the novelty of the creation of the Register of beneficial owners, legal entities should be interested that the Trade Register takes into account the legitimate interest and actually applies it, by conducting the legitimate interest test, not only by imposing an obligation on the applicant to declare his/her capacity as an interested person and the formal justification of his/her legitimate interest.
We can consider that, under the argument of the fight against money laundering and the prevention of financial crimes, it is reasonable and laudable for the authorities to collect certain information about the companies under their jurisdiction. The public interest invoked by the authorities to collect the information will have to be supported by the efficiency of such a register in monitoring the relevant information (possibly by creating a system to verify the accuracy of the information received) that will be useful for preventing the use of the financial system for the purpose of money laundering or terrorism financing, otherwise the costs of monitoring and the “discomfort” caused to the companies could be far too high in relation to the likely benefits.
In conclusion, the alignment of the Romanian legislation with the EU legislation is welcome, it brings certainty to the civil circuit and contractual partners, as long as the confidentiality of the information, the observance of the GDPR rules are ensured and the legitimate interest test is not used in an abusive manner.