The full details
The Fourth Anti-Money Laundering Directive (Directive (EU) No. 2015/849) (the “Directive”) entered into force on 26 June 2015. It takes into account the 40 recommendations adopted by the Financial Action Task Force (FATF) in 2012 which all EU Member States have committed to.
The Directive plays an important part in the EU regulatory framework dedicated to combatting financial crime. It confers a key role to the principle of risk analysis and the corresponding adequate safeguards regarding money laundering and terrorism financing, setting clear transparency requirements about beneficial ownership for companies.
Central registers of ultimate beneficial owners
Among other measures designed to fight money laundering and terrorism financing, the Directive provides for an obligation for all EU Member States to set up central registers containing information on the ultimate beneficial owners (UBO) of all corporations, including Anglo-American trust structures. Pursuant to the previous anti-money laundering legislation, obliged entities had to rely solely on the statements of corporations and the information provided by them when taking customer due diligence measures. With the new rules, a central register will considerably increase the quality of the available data used to identify the respective contractual party’s beneficial owner and therefore also meet the demand of the FATF for a higher level of transparency with respect to beneficial ownership.
As for the set up and functioning of the central registers, it was left up to individual Member States to determine how to implement the Directive. While some countries preferred to create brand new central registers, designated solely for registration of information about UBO (e.g. Austria, Belgium, Croatia, Hungary, the Netherlands), other countries decided to keep the registration of UBO information within their current trade registers (e.g. Bulgaria, Estonia, Finland, France, Italy).
The Bulgarian framework
The Directive was transposed into the Bulgarian legislation on 31 March 2018 with the adoption of a new Measures against Money Laundering Act (the “Act”). Pursuant to the Act, all legal persons and other establishments registered in Bulgaria, including those acting in their capacity as trustees of trusts, trust funds and legal arrangements similar to trusts, established and existing under the law of jurisdictions allowing such forms of trust, are required to announce information about their beneficial owners and the legal persons and other establishments that directly or indirectly control them.
In addition, each entity that does not have at least one legal representative – individual, who resides permanently in Bulgaria, has the obligation to appoint and register under its batch a contact person that resides permanently in Bulgaria. The contact person’s role is essential as this person is assigned a number of legal obligations, such as to obtain, hold and provide (to the legally obliged persons under the Act and the State Agency for National Security) adequate, accurate and up-to-date information on the UBO of the respective entity. Any failure to comply with their legal obligations would lead to financial sanctions to the appointed contact persons.
The above information is to be entered under the batch of the respective person in the Commercial Register and Register for Non-Profit Legal Entities, or the BULSTAT Register, until 1 February 2019.
Recent amendments to the Ordinance on keeping, maintenance and access to the Commercial Register and Register for Non-Profit Legal Entities lay down the technical procedure for registration of the information required by the Act. It is to be entered via application No B7, which up until now was used for registration of information required under the Economic and Financial Relations with Companies Registered in Preferential Tax Treatment Jurisdictions, the Persons Controlled Thereby and Their Beneficial Owners Act. For the purposes of disclosure of UBO and persons exercising control, this application was supplemented so that it allows registration of the mandatory information under both acts. Relevant amendments to the BULSTAT Register Act have also been made.
The disclosure of the required information in the two registers will be done on the basis of a designated declaration containing detailed information about the respective entity‘s UBO, the legal persons and other establishments that directly or indirectly control it, as well as about the appointed contact person. The declaration is to be accompanied with official documentation (translated and legalized where needed), supporting the information, contained in the declaration. The official template of the declaration, however, is yet to be approved by the Council of Ministers with the adoption of new Rules for Implementation of the Act. They are currently undergoing public hearing scheduled to finish in mid November. The new Rules are expected to become effective shorty after and thus the mandatory UBO disclosure procedures will commence soon.
Actions to be taken
Given the short deadline, 1 February 2019, to ensure compliance with the new framework, each entity needs to consider whether it is subject to any of the newly introduced requirements, namely:
The registration procedure may not be as serious a challenge as performing the necessary detailed analyses of the corporate structure in order to determine the UBO and the entities that directly or indirectly control them. When making these analyses, entities should adhere to the new, quite broad, legal definition of the term beneficial owner introduced by the Act which corresponds to the one in the Directive. As for control, the Act refers to the legal definition of the term under the Commercial Act.
An important new element is that where the beneficial owner cannot be identified, or when there are doubts that the person identified is not the beneficial owner, the individual who acts as a senior managing official in the respective entity shall be considered the beneficial owner.
In view of the relatively short deadline for aligning businesses with the new disclosure requirements, as well as the fact that determining UBO and controlling entities is often quite a complex task, it is time for all entities to plan their next steps forward. Any non-compliance with these obligations within the statutory deadline may lead to penalties ranging from BGN 500 to BGN 5,000 for individuals and from BGN 1,000 to BGN 10,000 for legal entities. The penalties will be imposed on a monthly basis until the legally required information has been duly registered in the respective register.
Juliana Mateeva, Partner, Legal Advisory, KPMG in Bulgaria
Peter Stanchev, Senior Manager, Legal Advisory, KPMG in Bulgaria
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