Starting from 21 December 2016, most Russian legal entities, including subsidiaries of foreign companies, must keep information about their ultimate beneficial owners (“UBOs”). This obligation is provided for by Federal Law No. 215-FZ of 23 June 2016 on Amendments to the Federal Law on Countering the Legalization of Illegal Earnings (Money Laundering) and the Financing of Terrorism (the “Anti-Money Laundering Law”) and the Russian Federation Code of Administrative Offenses.
For the purposes of the Anti-Money Laundering Law, a beneficial owner is an individual who ultimately, directly or indirectly, owns more than 25 percent of the capital of a Russian legal entity or has the ability to control it.
For this purpose, the Russian legal entity must:
- take “reasonable and available measures under the circumstances” to find out the following information about its beneficial owners: full name, citizenship, date of birth, ID details, for foreigners, data from their migration card and visa or any other document confirming the right to reside in the Russian Federation, home or registration address or address of temporary place of stay, as well as taxpayer identification number (if any);
- update information about its beneficial owners at least once a year;
- document the information received and the measures taken to collect it; and
- at the request of Rosfinmonitoring, of the tax authorities or of any other federal executive authority empowered by the Russian Federation Government, provide such information or information on the measures taken to find out such information. The Anti-Money Laundering Law provides that the procedure and time limits for providing information about beneficial owners and measures taken to collect such information must be determined by the Russian Federation Government. As of today, such procedure and time limits have not yet been adopted.
The obligations listed above do not apply to the following entities:
- state governmental authorities, other governmental authorities, local government authorities and institutions under their jurisdiction, state non-budgetary funds, state corporations or organizations in which the Russian Federation, constituent entities of the Russian Federation or municipalities hold more than 50% of the shares (participatory interests);
- international organizations, foreign states or administrative and territorial units of foreign states possessing independent legal capacity;
- securities issuers admitted to organized trading who disclose information in accordance with Russian Federation securities laws;
- foreign companies whose securities have been listed on a foreign stock exchange that is on the list approved by the Bank of Russia (this list includes all major stock exchanges).
Failure by a legal entity to perform the above obligations entails the imposition of an administrative fine on officers of between RUB 30,000 and RUB 40,000; and on legal entities of between RUB 100,000 and RUB 500,000.
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From a foreign investor’s perspective, this new requirement is likely to be viewed as problematic, even in circumstances where the ownership structure of a group of companies is totally transparent. This is due in particular to the fact that it is unlikely that many foreign UBOs would fancy the idea of their passport number or their home address being available in this way – taking into account the poor track record of the Russian authorities at keeping private information confidential. We note that in certain jurisdictions it may actually be illegal to provide the kind of personal data that Russian legal entities are being told to collect.
While waiting for the RF Government to adopt the procedure and the time limits for providing information on UBOs, one can wonder what would constitute “reasonable and available measures under the circumstances” that the Russian legal entity should take. In our view, the Russian subsidiary should at least send a formal written request to its shareholders (participants) for information in accordance with the Anti-Money Laundering Law. The parent company may then decide what information it wants to provide. Please note that, where the parent company is listed on a major stock exchange, the information available through that exchange on its shareholding structure should at least be collected. Whether such steps are sufficient to avoid any liability is uncertain but they would definitely at least provide a first line of defense in case of enquiry from the Russian authorities which, based on previous experience, are likely to be initially cautious in their enforcement practice.