Determining the beneficial owner of the company

We advised a company belonging to a financial group of companies on the following project:

DETERMINING THE BENEFICIAL OWNER

• The Anti-Money Laundering and Countering the Financing of Terrorism (AML) Act provides for the reporting of the information on the beneficial owner to the Central Register of Beneficial Owners maintained by the Minister of Public Finance. The obligation is addressed to a wide range of entities, including all incorporated companies (limited liability companies, joint stock companies and simple joint stock companies) registered in Poland. The Act provides for a short (7-day) deadline for filing and updating information entered in the Central Register of Beneficial Owners.
• The filing should be made by a person legally authorized to represent the entity with respect to which the information on the beneficial owner is being filed. The notification should include a statement of the person making the notification to the Central Register of Beneficial Owners (member of the management board) regarding the accuracy of the reported information, which is submitted under the pain of criminal liability for making a false statement.
• A fine of up to PLN 1,000,000 is imposed for failure to report or update the information on beneficial owners within the time limit specified in the Act and for provision of the false information.
• Notwithstanding the statutory obligation to make the notification to the Central Register of Beneficial Owners, obliged institutions are entitled to require a company to submit the information on its beneficial owners as part of the application of the financial security measures indicated in the AML Act.
• This might be the case, for example, when entering into a bank account agreement, where the bank, as an obliged institution, is required to identify the beneficial owner of its customer and take reasonable steps to verify its identity and establish ownership and control.
• Furthermore, obliged institutions may not solely rely on the information from the Central Register of Beneficial Owners when identifying the beneficial owner. As a result, obliged institutions often request the information on beneficial owners directly from their clients. In such case, if the company fails to provide the information requested by the obliged institution (e.g. a bank) or provides incorrect information, it may result in a refusal to conclude an agreement.
• The aforesaid cases in which an entrepreneur must identify its beneficial owner indicate that this issue is of significant importance to any company involved in business transactions. In practice, however, entrepreneurs often face difficulties when identifying their beneficial owners, particularly the companies belonging to multi-level capital structures.
• The aforementioned difficulties result from ambiguous statutory definition of the term “beneficial owner”. This ambiguity is due to both the content (unclear prerequisites of “exercising control” and “decisive impact on actions or activities”) and the structure of the regulation (unclear link between the general introduction of legal persons to the definition and the specific part concerning such legal persons as well as between the prerequisites in this specific part of the definition).
• Interpretative ambiguities are additionally increased by discrepancies between the Polish and EU definitions of the “beneficial owner” and lack of a clear statement by relevant authorities (no formal position of the Inspector General of Financial Information on the subject).

In practice, the following issues most often arise when determining beneficial owners of the company:

• whether it is permissible to indicate the so-called “alternate beneficiaries”, i.e., individuals in senior management posts (board members),
• how the fact that the beneficial owner is also a shareholder of a company whose securities are listed on a regulated market (stock exchange) may impact the company,
• how to determine the individuals who exercise indirect control over the company, including calculation of the amount of indirectly held interest in the company,
• indicating beneficial owners based on the general control criterion vs. specific criteria for legal entities (including the issue of the so-called “cascade”).

The advisory services of DLK Legal included:

1. analysis of facts (thorough examination of the ownership structure of the company for which the beneficial owner was determined),
2. legal analysis including substantive resolution of issues arising from the definition of the “beneficial owner” together with the analysis of the positions of EU supervisory authorities,
3. identification of beneficial owners of the company, with justification for both internal use (correct identification of the beneficial owner for the purpose of reporting the information to the Central Register of Beneficial Owners) and external use (submission of the information on beneficial owners at the request of an obliged institution, such as a bank).

See also on the DLK websites:
AML/CFT package (2021-2023)