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The establishment of the Register of Beneficial Owners (the “Register”) was based on the 4th AML Directive (Directive (EU) No 2015/849 of the European Parliament and of the Council) from 2015. However, in 2018 the 5th AML Directive (Directive (EU) No 2018/843 of the European Parliament and of the Council), which lays down a number of provisions, including the functioning of national registers of beneficial owners, has been adopted by the European Union. These changes are expected quite soon, at the latest by January 2020. A law that will introduce the changes into Czech law must be adopted.
The current legal regulation is criticised for being toothless in enforcing unfulfilled obligations. Typically, these are cases where a legal entity or trust fund (“obliged entity”) does not notify its beneficial owner, something legal entities registered in the Commercial Register were obliged to do by 2018. In this case, there is no enforcement procedure for remedy or direct sanction. The 5th AML Directive aims to eliminate this Achilles heel by explicitly requiring Member States to take effective dissuasive measures or penalties and to put in place mechanisms to ensure that all obliged entities meet the reporting obligation. The most likely is a monetary penalty in case of failure to comply with the information obligation.
Furthermore, the Directive now explicitly stipulates that obliged entities must obtain an up-to-date statement from the Register when establishing a new business relationship. If a legal entity does not have a beneficial owner listed in the Register, it cannot even open a bank account in a new bank. This will also apply to other liable entities, such as tax advisors, auditors, external accountants, and in some cases notaries or lawyers.
Another coercive measure is the mandatory possibility of public checks. Thus, each Member State will now have to allow any public member to access basic information on the beneficial owner. Member States can only set the condition of online registration or the obligation to pay a fee in the amount of costs for making information available.
The Directive also explicitly requires beneficial owners to cooperate with the entities they own. In this way, the Directive seeks to eliminate a grey area where a beneficial owner was not found, but no one is responsible for it. In principle, the new provision permits only two interpretations where a beneficial owner is absent: either the liable entity has not sufficiently undertaken to identify the beneficial owner or the beneficial owner has refused to provide cooperation.
A significant innovation for multinational enterprise groups is the linking of national records of beneficial owners through one central platform. This will clearly impose higher demands on the correct identification of the beneficial owner and the indication of the same beneficial owner in all countries where the group operates. Any other procedure without proper justification can be deemed risky.
Clearly the new Directive does not change the meaning and purpose of the legislation in any way, so if the beneficial owner has been properly identified and registered, it is not necessary to deal with the new regulation in detail. However, if the beneficial owner has not been properly identified and registered, we recommend that companies occasionally return to the issue, as it is only a matter of time before the Czech legislation is adopted and becomes effective.