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Want to Use Public Funds in the Slovak State? You Have to Disclose Who Your Ultimate Beneficial Owner Is

If you are or will be doing business with Slovak state, local government, municipality or a legal entity financed or controlled by the state, or you are receiving EU funds, as of February 1, you must be registered in the new Register of Public Sector Partners (the “Register”) and disclose your ultimate beneficial owners (UBO). The purpose of this new law is to enhance transparency in the use of public funds. This should be achieved by disclosing the ownership structure and ultimate beneficial owner(s). The Register replaced the Register of Beneficial Owners that was established for purpose of public procurements.

Public Sector Partner

So who is a public sector partner? Basically anyone (being a Slovak entity or foreigner) who entered into or will enter into any agreement with public sector institution such as ministries, municipalities, health insurance companies etc. and value of their contract exceeds €100,000; or in case of multiple payments, €250,000 in a calendar year (“Partners”). But the list of entities subject to registration does not stop here. It also includes subcontractors of such Partners, if they also meet the financial thresholds.

If you are considered to be the Partner, you have to register (at least for the duration of the contract) in the Register. If you have already been registered in the Register of Beneficial Owners, you are automatically registered in the Register.  However, by July 31, 2017, you must submit a verification document confirming your UBO. The Register will be maintained by the District Court Žilina and is publically available on the website of the Ministry of Justice of the Slovak Republic.

Ultimate Beneficial Owner

So who is your UBO? Definition of UBO is given in the Anti-money laundering Act. UBO is:

For legal entities (other than publicly traded entities and trusts), a person:

  • Having at least 25% direct or indirect share on the voting rights or at least 25% direct or indirect shareholding of bearer’s share.

  • Having a right to appoint or recall a statutory, managing, supervisory or controlling body of an entity or any member thereof.

  • Controlling the entity in any other way than described under (1) and (2) above.

  • Having at least 25% share on the positive economic result of the entity or from its other activities.

For entrepreneurs, a person having at least 25% share on the positive economic results of the entity or from its other activities.

For a trust, a person that:

  • Is a founder of the trust; or where a founder is a legal entity, a person covered under the legal entities criteria above.

  • Has a right to appoint or recall a statutory, managing, supervisory or controlling body of an entity or any member thereof or is a member of a body that has a right to recall a statutory, managing, supervisory or controlling body of an entity or any member thereof.

  • Is a statutory, managing, supervisory or controlling body or a member of such body.

  • Receives at least 25% of funds provided by the trust, where recipients have been determined; or where recipients have not been determined, beneficial owners are persons that significantly benefit from activities of the trust or its foundation.

If no person meets criteria described above, then top management is deemed to be ultimate beneficiaries, i.e., directors, proxy holder and manager on level “Board-1”. A UBO is also a person that does not meet any of the criteria above, but meets them when acting together with other person or in concert with other person.

Authorized Person

Don’t worry – You are not the one responsible for investigating and verifying who your UBO really is (although the Act assumes you know it and should have no problem disclosing it). This will be verified by a Slovak lawyer, auditor, a notary, or a bank (a so-called “authorized person”). If you already have a Slovak legal counsel, they should be able to do it for you but there are rumors on the market that not all lawyers will actually do so given the liability related to it.

And not just that. An authorized person will also register you in the Register and verify at the end of each year whether your UBO is still the same. If the UBO has changed, then the authorized person must update the registration within 60 days from when the change occurred. Of course, if you know your UBO has changed, you should inform your authorized person without delay. So you rather do not plan any vacation over that time of the year, as your cooperation will be needed.

One can expect that the authorized person would charge for this service. The more complicated the ownership structure is, and more foreign jurisdictions are involved, the more expensive it would get.

Sanctions

If the registered information regarding your UBO is not accurate or you fail to update it as required a fine can be imposed on either:

(a) the Partner in the amount equal to the economic benefit under the contract with a public institution; or, if the economic benefit cannot be determined, a fine in the amount of €10,000 up to €1 million .

(b) a statutory body or each member of the statutory body (i.e. a director) holding the office when the breach occurred, in the amount of €10,000–€100,000.

In addition, once a fine is imposed on the Partner, the Partner is removed from the Register and can no longer contract with public institutions or receive EU funds and the existing contract can be terminated by the public institution. If a director is fined, they are automatically removed from a director position and disqualified from holding such position for a period of three years from the effective date of the decision.

One thing to note in this respect is that anyone can raise doubts as to the accuracy of information of UBO (yes, your competitors as well!) and, thus, initiate proceedings at the Žilina court. This is yet another tool that should prevent companies from hiding information on their UBOs. However, even if it proves true that you information is correct; facing any investigation can shed a negative light on a company which might be just negotiation its contract with a public institution.

When to Register

July 31, 2017, is still a little way off, but given the complexity of the verification process, as well as the lack of clarity as to how this verification should be done in foreign jurisdictions, we would suggest that you don’t leave compliance with this obligation to the last moment.

© Copyright 2017 Squire Patton Boggs (US) LLP

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About this Author

Silvia Belovičová, Squire Patton, Foreign banking attorney, insolvency matters lawyer
Partner

Silvia is a partner in our Restructuring & Insolvency team based in our Bratislava office. Silvia’s practice focuses on banking and insolvency matters and her previous clients have included Slovak and foreign banks and financial institutions. She advises corporate clients from various industries on a wide range of issues related to financing, insolvency proceedings, competition, energy, real estate and public procurement.

Prior to joining the firm, Silvia was a local partner and co-head of the Bratislava banking and finance practice for an...

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Marek Follrich, Squire Patton, Bratislavia, general corporate, real estate and employment matters
Legal Trainee

Marek Follrich’s practice focuses on general corporate, real estate and employment matters.

Marek’s experience includes advising on all aspects of general corporate and commercial matters, employment and real estate matters to various Slovak and foreign legal entities. Marek conducted due diligence reviews, focusing on corporate and real estate issues, environmental matters and transactional matters. Marek has drafted and revised employment contracts and terminations, as well as other employment related documents and internal policies. Marek also focuses on contractual law and data protection.

Prior to joining Squire Patton Boggs, Marek worked for one of the leading law firms in the Slovak Republic. He was drafting and reviewing legal documents, providing legal opinions on diverse matters, conducting research on legal and related issues, and communicating with public authorities.

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