Deadline for disclosure of UBOs and ownership structure postponed for nine months
On 8 October 2021, the Ukrainian Parliament passed the much-needed Law “On amending certain laws of Ukraine regarding identification and submission of information on the ultimate beneficial owner and ownership structure of a legal entity” (the “Law”). The Law postponed the deadline for submission of ownership structure and supporting documents for disclosure of ultimate beneficial owners (the “UBOs”) of Ukrainian companies (the “UBO Package”) for nine months, from 11 October 2021 to 11 July 2022.
The postponement is due to numerous complaints from the business community about inability to comply with the Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of the Proceeds of Crime, Financing of Terrorism and Proliferation of Weapons of Mass Destruction” and implementing regulations. While postponing the deadline for submission of the UBO Package, the Law does not solve any of the problems relating to the unreasonable requirements of implementing reguations to the UBO Package.
The requirements to the UBO Package are contained in the Order of the Ministry of Finance of Ukraine dated 19.03.2021 No.163 (the “Order”) and clarifications issued by the Ministry of Finance. For example, the Order establishes a general requirement to submit ownership structure disclosing all shareholders of any direct or indirect shareholder of a Ukrainian company, including shareholders outside of Ukraine. In its clarifications, the Ministry of Finance reinforces this requirement and emphasizes the absence of any exceptions for public companies. This position effectively means that Ukrainian authorities go far beyond the requirements of anti-money laundering laws to disclose the UBOs of Ukrainian companies, but in fact want to know the identity of every minority shareholder, even in any holding company registered outside of Ukraine. Moreover, they require an update in the register as soon as any such direct or indirect shareholder changes. This requirement not only imposes an unreasonable burden and unjustifiable interference into privacy, but actually makes compliance impossible for public companies that have their shares listed on a stock exchange where shareholders may change on a daily basis.
Other major compliance issues with the disclosure of UBOs and ownership structure include:
- How to disclose all minority shareholders in the ownership structure and to file official supporting documents for each of them?
- How to disclose confidential trust documents disclosing settlors, trustees, beneficiaries and protectors of each trust in the structure?
- How to disclose shareholders of publicly listed companies and update information on them in the future?
- How to disclose information on investors of a foreign fund being an indirect shareholder of a Ukrainian company if such information is not available according to the laws of the fund’s jurisdiction?
- How to identify the UBOs exercising indirect decisive influence irrespective of formal ownership in a Ukrainian company and which documents should be provided to prove such influence?
- Whether directors of a Ukrainian company who are also minority shareholders qualify as its UBOs?
- Do the directors of a Ukrainian company’s shareholder qualify as its UBOs, if there are no other UBOs?
If the issues listed above are not resolved, many Ukrainian companies will be unable to comply with the applicable requirements and will find it impossible to make any changes in the corporate register, including with regard to the directors, shareholders, registered address or other information about the company. Moreover, directors of such Ukrainian companies will be subject to fines.
Problems with disclosure of UBOs and ownership structure should be resolved by the Ministry of Finance amending its Order to stay within the limits and purpose of anti-money laundering legislation. Failure to do so is likely to result in litigation, including to challenge the Order in courts. The postponement of the disclosure requirement until 11 July 2022, gives companies sufficient time to lobby the Ministry of Finance and avoid litigation. Additionally, during this timeframe, Ukrainian companies with sophisticated ownership structures can obtain legal advice to develop individual solutions to their UBO Package, pre-agree them with state registrars, and minimize the risk of noncompliance in controversial situations.
For general information about the updated requirements on disclosure of UBOs by Ukrainian companies introduced in 2021, please refer to our previous alert on this topic:
https://sk.ua/wp-content/uploads/2021/07/sk-disclosure-of-ultimate-beneficial-owners.pdf
