Following introduction of the 4th EU Anti-Money Laundering Directive in 2015, the corresponding laws in Estonia, Latvia and Lithuania have been amended, implementing a requirement for companies having their registered address in any of the Baltic countries to disclose and register their ultimate beneficial owners (UBOs) in commercial registers.
However, the status of the 4th Anti-Money Laundering Directive and the procedure for implementing it vary slightly from country to country. We invite you to have a look at these differences in each of the Baltic countries.
The obligation to collect and disclose data about UBOs came into force on 1 September 2018. Changes in the Money Laundering and Terrorist Financing Prevention Act mean that legal entities, with some exceptions, must disclose information about their beneficial owners to the Commercial Register.
Information to be provided to the Commercial Register
A company must register the following information about their UBOs:
- the person’s name, ID code and country of the ID code, the date and place of birth if there is no ID code, and country of residence;
- information on how the UBO exercises control.
A foundation must also submit a list of beneficiaries, which includes each beneficiary’s name, ID code and country of the ID code, the date and place of birth if there is no ID code, and country of residence if beneficiaries are specified by name in the articles of association of the foundation.
Entities not obliged to submit information on UBOs
The following are not obliged to submit information about their UBOs:
- apartment associations and building associations;
- companies listed on the regulated market to which disclosure rules complying with European Union law or similar international standards apply;
- foundations where the goal of their economic activities is safekeeping or collecting assets in the interests of the beneficiaries or group of persons specified in the articles of association and that has no other economic activity;
- branches of non-resident companies, since a branch is not a legal entity and disclosure and reporting of the UBO is managed by the headquarters of the company in its home jurisdiction.
Sanctions for failure meet disclosure obligations
Failure to submit information on the beneficial owner, to notify changes in data or intentionally submit false data is punishable by a fine of up to EUR 1,200 for natural persons and up to EUR 32,000 for legal entities.
Information on UBOs of Estonian companies is publicly available at the website of the Estonian Commercial Register: https://ariregister.rik.ee/lihtparing/kasusaajad?lang=eng.
The obligation to disclose information on beneficial owners came into force in Latvia on 1 December 2017, although companies already registered had to file their notification about UBOs with the Company Register (CR) by 1 March 2018.
The obligation to notify the CR goes both ways – a natural person who believes they have become a UBO must immediately notify the legal entity to that effect, while a legal entity must use its own resources and initiative to determine and identify its UBOs if data filed about the UBO raises doubt or if data is missing.
AML law amendments to expand obligation to more subjects
Recent amendments to the anti-money laundering (AML) law will expand the obligation to more subjects – as of 1 July 2020 foreign entities will also have to disclose information on their beneficial owners to the CR (in the case of branches and representative offices of foreign entities) or to the State Revenue Service (if a permanent establishment is registered solely with the taxpayer’s register).
The AML law requires data of beneficial owners to be registered with the CR either by a separate application or together with registration of other changes to the legal entity; likewise, the CR must be informed if the beneficial owner remains the same in the case of changes to shareholders or board members.
If a legal entity has exhausted all possible means of identification and has concluded that it is impossible to identify any natural person – beneficial owner – and has ruled out any doubt that the legal entity has a beneficial owner, this should also be acknowledged in the application to the CR, stating the reasons.
If the beneficial owner is a shareholder of a public company and control of the legal entity stems only from the shareholder’s status, it is not necessary to provide the CR with information on the beneficial owner, but an application should still be submitted containing a statement to that effect. However, according to the current interpretation the CR only permits this exemption if the company itself is listed on the stock exchange or its direct shareholder is a listed company.
The CR can now request submission of relevant supporting documents
Recent amendments to the AML Law have granted the CR the right ‒ in the event of doubt ‒ to request submission of relevant supporting documents (eg extracts from a foreign commercial register and population register, notarised passport copies), for review prior to registration of the information provided.
Although the amendments entered into force recently, experience in various cases shows that the CR is actively using its newly granted rights and requiring submission of supporting documentation, especially in cases when the application states that it is not possible to determine the beneficial owner or that the beneficial owner is a shareholder of a public company. Therefore, when planning transactions leading to corporate changes legal entities should be prepared to submit the relevant documentation.
Sanctions for failure to meet disclosure obligations
Failure to observe the disclosure obligation (ie legal entities that do not register their beneficial owners) can result in a simplified liquidation procedure in line with the Commercial Law.
Sanctions for failure to submit data or documents to the CR can also be applied for failure of disclosure, ranging from a warning or penalty of EUR 70 to EUR 700. Likewise, sanctions under the Criminal Law apply for intentionally providing false data or failure to provide data to a state institution, for which imprisonment for up to two years, community service or a fine can be imposed.
Finally, in the case of companies, the management board may be held liable for all losses caused to the company due to non-compliance with disclosure obligations, unless the management board proves that it acted with due diligence.
Duty to collect information on UBOs but not to register them
Formally, all companies registered in Lithuania must obtain, collect and register information on their UBOs with the Information System on Participants of Legal Entities (JADIS) as required by the 4th Anti-Money Laundering Directive as of 1 January 2019.
However, currently, there are no technical means for companies to register their UBOs with JADIS.
The Ministry of Justice of Lithuania anticipates that technical means will be implemented and functional by the end of Q2 2020, enabling registration of UBOs.
Even though registration of UBOs with JADIS is currently not possible, all Lithuanian legal entities must still collect and hold information on their UBOs.
Filing information with JADIS
Once technical means are in place, information about UBOs will have to be filed with JADIS by all legal entities having their registered office in Lithuania. By way of derogation, no obligation arises to publish data on JADIS for legal entities whose owner (sole shareholder or member) is either the state or a municipality. The obligation to file data with JADIS is imposed on the managing director (CEO) of the entity. Any change in the data will have to be filed with JADIS within ten days.
Despite the lack of technical means, the statutes of JADIS have already been amended by clarifying what data must be registered in order to disclose UBOs. The key noteworthy aspects are:
- In the case of a corporate veil, companies will have to provide detailed information on their UBOs, including the full chain of controlling entities until (an) individual(s) can be identified as the UBO(s).
- In the case of foreign entities or individuals, data on UBOs will have to be validated by either a simple copy of a passport or by an extract from the commercial register of the corresponding country. This requirement will apply to each foreign entity or individual in the control chain.
The sanction for failing to file data about the UBO or for providing incorrect and/or incomplete information varies from EUR 30 to EUR 1,450 and is imposed on the managing director (CEO) of an entity.