by Andreea Botez, Senior Associate Voicu & Filipescu
On July 18, 2019, the anti-money laundering and terrorist financing Law no. 129/2019 (“Law no. 129/2019” or “Law“) was published, which repealed Law no. 656/2002, a previous act regulating this matter.
The law transposes Directive (EU) 2015/849 of the European Parliament and Council of 20 May 2015 on the prevention of the use of the financial system for the purpose of money laundering or terrorist financing (“AML 4 Directive“), Romania having been alerted in advance about a possible applicability of an infringement procedure for non-transposition of the AML 4 Directive.
2. Beneficial owner – how to establish it?
The notion of beneficial owner is not a novelty in the field, because even before the entry into force of Law no. 129/2019 this notion was present in the legislation that obliged certain entities to carry out know your client activities, including the beneficial owner. The AML 4 Directive states that one of the key factors in the detection of crimes consists in “identifying any individual who exercises the right of ownership or control over a legal entity“.
According to art. 4 paragraph (2) let. a) of Law no. 129/2019, the “beneficial owner”, in the case of the companies provided in the Companies Law no. 31/1990, republished, with subsequent amendments and additions, means:
- “the natural persons(s) who ultimately own or control a legal person by exercising the right of ownership, directly or indirectly, on a number of shares or voting rights sufficiently large to ensure their control or through the participation in the equity of the legal person or by exercising control by other means, the legal person owned or controlled being not a legal person registered in the trade registry whose shares are traded on a regulated market and which is subject to publicity requirements in accordance with the regulations of the European Union legislation or with internationally set standards. This criterion is considered to be fulfilled in the case of owning at least 25% of the shares plus one share or the participation in the equity of the legal person in a percentage of over 25%.
- the person or natural persons ensuring the management of the legal person, if, after exhausting all possible means and provided there are no grounds for suspicion, no natural person is identified in accordance with point 1 or if there is any doubt that the identified person is the beneficial owner, in which case the reporting entity is obliged to keep the records of the measures applied in order to identify the beneficial owner in accordance with point 1 and this point”.
In other words, the beneficial owner is the natural person who owns over 25% of the shares. In the exceptional situation in which the conditions described above are not met, the natural person(s) ensuring the management of the legal person is considered a beneficial owner.
Although the text seems clear, in practice there have been multiple questions regarding the incidence of the obligation to register the statement regarding the beneficial owner in specific cases. Below we address the most common cases at the moment in the practice of companies.
3. What happens to companies traded on the regulated market? Does listing in such a market bring sufficient transparency?
According to the legal provisions indicated above, legal entities registered in the Trade Registry whose shares are traded on a regulated market and which are subject to publicity requirements in accordance with regulations of the European Union law or with internationally set standards are exempted from applying the provisions of Law 129/2019 regarding the identification of the beneficial owner.
However, at present, the Trade Registry does not have information on the companies that are traded on the regulated market. It is expected / imperative that this aspect be clarified within the implementing rules to be adopted by the National Anti-Money Laundering Office (the “Office“), as there is a risk that these companies will be sanctioned by the Trade Registry although they have no obligation to declare the beneficial owner. Until these issues are clarified, it is advisable for these companies to submit evidence that they have no obligation to file the statement regarding the beneficial owner.
4. What happens with companies whose shareholders are companies traded on a regulated market?
However, the situation is different if a shareholder in a company registered in Romania is a company that is traded on a regulated market. In practice, the question was raised whether in this case, these companies have the obligation to declare the beneficial owner having the quality of shareholder (of a company traded on a regulated market). According to the statements contained in an opinion issued at our request by the Office, these companies have the obligation to declare the beneficial owner and in this case: “the beneficial owner is the natural person(s) who ultimately owns or controls a legal person, namely the or natural person(s) exercising the highest function within the company in accordance with the publicity requirements regulated by the law of the European Union or with international standards”.
5. When and how does one register the beneficial owner into the Trade Registry?
As an absolute novelty, the law provides establishment of beneficial owner registries of legal persons. Thus, the beneficial owners will be registered, as the case may be, in the Trade Registry or in the Registry of associations and foundations, registries that will be used by the state authorities, but also by the entities obliged to apply know-your-client measures. These national registries will be interconnected at European level so as to ensure the transparency of financial circuits.
Law 129/2019 provided transitional provisions and set deadlines for the authorities, but also for companies, to create the necessary administrative framework for implementing and complying with the new obligations imposed.
Thus the companies established after the entry into force of Law no. 129/2019 (with the exception of government business entities and national companies), will have the obligation, both at registration and later (annually or whenever needed), to submit through the care of the legal representative (usually the director) the statement regarding the beneficial owner, as well as the modalities of exercising control over the legal person, in authenticated form or given in front of a representative of the Trade Registry.
The annual statement is submitted to the Trade Registry where the legal person is registered within 15 days from the approval of the annual financial statements, and if a change regarding the identification data of the beneficial owner occurs, the statement is submitted within 15 days from the date of the change.
For companies already established, the law sets a deadline of 12 months from the date of its entry into force, namely until July 21, 2020, for the fulfillment of the legal obligations imposed.
The access to the Registry of beneficial owners will have to be provided to the reporting entities free of charge when applying know-your-client measures (art. 19 paragraph (8) of Law no. 129/2019). It remains to be seen how this measure will be implemented in practice because, at present, access to information from the Trade Registry is subject to fees.
In order to fulfill the obligation to identify the beneficial owner, the reporting entities shall rely on the Beneficial Owner Registry.
In practice, there may be cases where the legal representative does not fulfill its obligation to declare the beneficial owner within the deadlines and under the conditions provided by Law no. 129/2019. Such a situation can be caused by the fact that the shareholders of a company are reluctant to reveal to the director the identity of the beneficial owner, so that the director can submit the statement. Also, in the case of investment funds, they may have many investors whose participation cannot be determined or is confidential.
Therefore, this aspect should be clarified by rules and, possibly, by putting the obligation to declare the beneficial owner in the charge of the shareholders.
Failure to comply with the obligation to submit the statement regarding the beneficial owner is an administrative offence and is sanctioned with a fine between RON 5,000 and 10,000.
From the legal provisions it appears that the sanction will be applied to the legal representative of the legal persons (the director), since it is their responsibility to comply with this obligation.
In the event that the obligation to provide information on the beneficial owner is not fulfilled even after the respective fine is applied, the company may be dissolved at the request of the National Trade Registry Office. The dissolution cause can be removed before any arguments on the merits can be raised, insofar as the situation that led to the initiation of the dissolution request is remedied.
7. Our advice
Since in the case of many companies with shareholders foreign legal entities, receiving information on the beneficial owner is a long process involving requesting successive information from several companies, we recommend that you take early steps to identify the beneficial owner and to submit the afferent statement, consulting our team in a timely manner.
Legal Changes of December 2019
Voicu & Filipescu is a full service law firm, covering all legal areas relevant to your company’s activity. This issue of our monthly newsletter provides you with a brief description of some of the recent legal amendments in: