March 2017 - A new law known commonly as the “Anti-Letterbox Act” (the “Act”) came into force in Slovakia on 1 February 2017. The purpose of the Act is, broadly, to increase the transparency of all individuals and entities that do business with the state or state-owned / state-controlled enterprises or who otherwise benefit from public funds or property. These persons or entities are called Public Sector Partners (hereafter “PSP”). The Act aims to tackle the issue of the participation of “letterbox” firms[1] in public tenders and generally in all business activities with state bodies by increasing the standards of disclosure and transparency regarding the ownership and corporate structure of PSPs.

Who is a PSP?

In short, a PSP is defined as any individual or legal entity that:

(i) receives payments from the state budget, from EU funds, from entities funded, owned or controlled by the state, including entities where the state nominates the majority of management or members of supervisory bodies (including e.g., electricity and gas distribution companies), health insurance companies, and any entity that receives state or investment aid;

(ii) purchases or otherwise acquires assets or rights to use assets from the state or entities listed in (i) above;

(iii) signs an agreement or concession agreement under public procurement laws;

(iv) is a provider of healthcare;

(v) is specifically defined as a PSP under the relevant regulatory framework (e.g., all healthcare insurance providers and holders of energy generation/trading/supply licences);

(vi) is subcontractor to a PSP listed under items (i) to (v) above; or

(vii) acquires receivables from the state or claims over assets of the state.

Certain de-minimis limits are introduced to prevent the situation that all of the above categories are automatically considered as a PSP even if the volume of business with the state is negligible. Generally, persons or entities will not be considered as a PSP if the value of their business transaction with the state does not exceed EUR 100,000 in a lump-sum or EUR 250,000 cumulatively over the calendar year.

Non-profit organisations (unless acting as contractor in public procurement) and banks receiving payments of debt from the state also fall outside the definition of a PSP.

The Act requires all PSPs to register in a new online Register of Public Sector Partners that will be maintained by a specialised court in Zilina (the “Register”). The online Register (in the Slovak language only) is accessible here.

Enhanced disclosure of ultimate beneficial owners

PSPs must disclose in the Register their basic corporate data and the identity of their ultimate beneficial owners – individual persons actually controlling or managing a PSP and ultimately benefitting from business activities of the PSP (the “UBO”). Identification of the UBO requires full disclosure of the ownership and organisational structure of a PSP, agreements such as shareholder agreements, profit-sharing agreements, trust agreements and other arrangements such as complex holding structures involving so called “letterbox companies” with undisclosed owners.

In corporate structures where there are no ‘typical’ or identifiable UBO, e.g., companies traded on a stock exchange, the members of their top management will be registered as UBO’s.

Role of the “Eligible Representative”

In previous attempts to increase transparency in Slovakia (e.g., the introduction of the register of UBOs maintained by the Public Procurement Office), PSPs themselves were directly responsible to declare the identity of their UBOs. However, under the Act, PSP’s must now appoint one independent “eligible representative” whose role is to verify the disclosed data and identity of each UBO and report that data to the Register (the “Representative”).

The Representative must be either an attorney, notary, bank, auditor or a tax advisor. The Representative’s identity is disclosed in the Register. A PSP does not communicate with the Register directly – this is fully the responsibility of the Representative, while the Representative also bears liability for verification of the PSP and UBO data entered in the Register. The Representative must prepare a comprehensive “verification certificate” that discloses the structure of the PSP and explains how the identity of each UBO was identified. The certificate should be uploaded to the Register.

The Representative’s responsibility is also to maintain and regularly update data in the Register. For PSP’s that maintain a regular / on-going relationship with the state, updates must be performed at least on a semi-annual basis.

Sanctions

Fines for non-compliance are imposed in the following instances:

(i) when incorrect or uncomplete data is provided regarding a UBO;

(ii) when registration of a UBO is not performed or updated on time;

(iii) when there is a conflict of interest on the side of the Representative.

The registration court can impose sanctions both on the PSP and on its statutory bodies. A fine equal to the entire profit from the contract entered into by a PSP in breach of the Act, or a fine of EUR 10,000 – EUR 1,000,000 if the profit from the contract cannot be quantified, is imposed on the PSP. Next, the statutory body (director or BoD member) of the PSP will be subject to a fine of EUR 10,000 – EUR 100 000. The Representative must guarantee the fine payable by the statutory body.

The state or other public administration entity that is a party to the contract with a PSP acquires the right to terminate the relevant contract and is not obliged to make payments under the contract if the PSP is in breach of its obligations under the Act.

Interim period

Generally, a PSP should ensure compliance with the Act until 31 July 2017. If contracts with the state were concluded before 1 February 2017, the relevant PSP must ensure that it appoints the Representative and is registered in the Register by 31 July. Failing to do so is a ground for termination of the contract by the state.

A PSP that has already provided data about its UBO to the “old” register of UBO’s maintained by the Public Procurement Office is deemed to be in compliance with the Act until 31 July 2017 and data from the “old” register is automatically rolled into the Register. However, by 31 July PSP’s must update their data so that it fully complies with the Act and must appoint the Representative.