February 2021 – The Czech parliament has recently passed a new Act on UBO Register, no. 37/2021 Coll. (the “New UBO Act”) effective from 1 June 2021, which implements the EU’s Anti-money Laundering Directive no. V (AMLD V). From 1 January 2018, Czech law has required that all companies register their ultimate beneficial owners (“UBOs”) in the Czech UBO Register (the “Register”). The New UBO Act introduces crucial changes to the legal framework regulating both the Register and UBOs. In particular, it introduces updated definitions, public access to data, and significant sanctions for non-compliance.
Change of UBO definition
The former definition of a UBO did not always yield a clear UBO determination. The New UBO Act provides an updated definition of a UBO that focuses on the substantive meaning of the term, rather than the mere fulfilment of certain formal criteria. A UBO will now be defined as any natural person who draws an ultimate benefit or exerts ultimate influence over a legal entity. The definition is further elaborated in respect of various types of legal entities.
Public access to data
Under current UBO legislation, information in the UBO Register is not publicly available. The New UBO Act enables online public access to key data. The aim is to make the UBO Register considerably more transparent.
Previously, only limited sanctions were levied for a failure to register a UBO. The New UBO Act introduces new direct sanctions, including fines of up to CZK 500,000 (approx. EUR 19,000). More importantly, failure to comply with UBO registration requirements could have a significant impact on the corporate governance of companies and expose statutory bodies to new risks and liabilities. Under the New UBO Act:
- a company is prohibited from distributing profits (directly or indirectly) to any UBO not registered in the Register;
- a company is prohibited from distributing profits to any shareholder that has not registered its UBO;
- a UBO may not (directly or indirectly) exercise its voting rights at general meetings or pass resolutions as a sole shareholder if it is not registered in the Register;
- any shareholder that has failed to register its UBO(s) may not (directly or indirectly) exercise its voting rights at general meetings or pass resolutions as a sole shareholder;
- the rights and obligations arising from legal actions designed to conceal the identity of a UBO and which arose during the period when the UBO was not registered in the Register, will not be enforceable.
Statutory bodies will need to ensure that their companies adhere to the above-listed rules.
Companies that duly registered their UBOs under the current legislation must review their registrations for compliance with the New UBO Act and make any necessary amendments by the end of November 2021. Companies that have not yet registered their UBOs can still do so under the existing legal framework. If the UBO is registered after 1 June 2021, the registration must be undertaken in accordance with the New UBO Act (and without undue delay).