Obstacles to providing data on ultimate beneficial owners diminish. What is essential to know?
For two years already, legal entities of all legal forms established in the Republic of Lithuania have had a formal duty to obtain, update and keep precise information on their ultimate beneficial owners (UBO) and provide it to the processor of the Information System of Legal Entities Participants (JADIS). So far, fulfillment of this obligation was restricted by technical possibilities; however, from January 2022, legal entities have not only the obligation but also a real opportunity to make the information on their UBOs public.
With the launch of the JADIS beneficial owners subsystem (JANGIS) at the beginning of this year, legal entities established in the Republic of Lithuania must publish the data on their UBO namely on this platform, thus fulfilling the duty set out in the Law on the Prevention of Money Laundering and Terrorist Financing. The above duty has occurred and JANGIS has launched while implementing the 4th EU Anti-Money Laundering Directive that has the main objective to ensure transparency and disclosure of information on UBO.
It should be noted that, although formal data can be already provided to JANGIS by legal entities of all legal forms, currently provision of data is only starting and will be organised in separate stages about which legal entities will be informed by separate notifications of the State Enterprise Centre of Registers.
Below are the main aspects of the duty to disclose the information on UBOs: how the provision of documents will be organised, which information will have to be provided and what liability applies for failure to fulfill this duty.
How will data be provided?
The currently starting first stage of the data provision is important to legal entities that are exclusively under direct control by their UBOs: (i) natural persons holding more than 25 % of ownership interest in a legal entity or (ii) persons (natural and/or legal) none of which holds more than 25 % of ownership interest in a legal entity (in such case the legal entity’s CEO, chairman of the collegiate management body or other senior manager is specified as UBO).
Meanwhile, in Q2 of 2022, it is planned to make a possibility to provide data on (i) natural persons who jointly own more than 25 % of ownership interest in a legal entity and (ii) indirect UBO (i.e. natural persons who control a legal entity on which data are provided to JANGIS via another legal entity that holds more than 25 % ownership interest in the legal entity), too.
Furthermore, in the latter case, where a legal entity is controlled via one or several other legal entities, the entire structure of the legal entity up to the UBO – a natural person, will have to be reflected in JANGIS and data on such intermediary legal entities will have to be provided, too.
According to the State Enterprise Centre of Registers, the possibility for the interested persons to obtain information from JANGIS and provision of data to the subsystem on behalf of investment funds should be realised preliminarily at the end of Q2 – Q3 of 2022.
Notably, the duty to make the information on UBO public is not applied to legal entities whose sole participant is a state or municipality. Accordingly, such legal entities will not be obligated to provide any information to JANGIS.
What data on ultimate beneficial owners should be provided?
While JANGIS is gaining momentum, legal entities can now start collecting information on their UBOs and other persons within their ownership structure. It would also be helpful to inform their UBOs and any persons within their ownership structure on their duty to disclose the above information. Thus, you will be properly prepared to fulfil your duty in due time.
In any case, the following UBO data will have to be submitted to JANGIS: (i) name, (ii) surname, (iii) date of birth, (iv) personal number (if any), (v) state issuing personal ID document, (vi) place of residence, (vii) nationality (nationalities), (viii) state (states) of residence for tax purposes, (ix) information on the available ownership rights (or other control rights) and their scope.
In the case of an indirect UBO, where a legal entity is controlled via one or more other legal entities, data of each such legal entity will have to be indicated in JANGIS. Such data on a legal entity include: (i) name, (ii) code, (iii) legal form, (iv) headquarters, (v) scope of the ownership rights held; in case of a foreign legal entity, the data to be indicated additionally are (vi) name of a state in which the legal entity is registered, (vii) name of the register in which the legal entity is registered, (viii) date of registration.
Where the legal entity’s ownership structure includes foreign natural or legal persons, the scope of information to be provided extends even more. E.g., if a UBO is a foreign natural person, a copy of such a natural person’s ID document must be provided to JANGIS. While providing data on intermediary foreign legal entities, extracts on such legal entities from the respective foreign registers, legalized and translated into Lithuanian, will need to be provided. An exception will be applied where information in such registers is public and accessible for all free of charge.
Threats in case of failure to comply with the requirement to disclose UBO
Failure to comply with the requirements stipulated in the Law on the Prevention of Money Laundering and Terrorist Financing may give rise to administrative liability and fines (to responsible persons EUR 500–1,800, for repeated infringement EUR 1,500–5,200; CEO of legal entities EUR 2,000–3,500, for repeated infringement EUR 3,500–5,800).
There is also a risk for legal entities to be included in the public list of unreliable taxpayers for one year, which can become a ground to remove a supplier from the public procurement procedure. Such sanction is provided for in the Law on Tax Administration if a fine of EUR 1,500 or a higher fine was imposed on CEO or another responsible person of the legal entity for failure to comply with the above-mentioned requirements and/or a fine was imposed on him for such administrative infringement committed repeatedly.
Later, once JANGIS becomes fully operational, properly processed JANGIS data will likely be essential for legal entities in maintaining business relationships with banks, credit institutions, or other financial market participants. E.g., the provision of extracts from JANGIS can become a precondition in the know-your-client (KYC) procedure to open a bank account in the name of the legal entity. While for performing certain notarial actions (e.g., certifying a share purchase and sale agreement of the company), a notary may request the legal entities to update the data in JANGIS, if it has not been done yet, before notarial certification of the documents.
Consequently, the availability of information on UBOs may become an equally important condition in choosing business partners, too. With transparency trends becoming significant in commercial relationships, UBO verification can, to a certain extent, be transferred to the everyday activity of legal entities (e.g., entering into agreements with clients, developers, or suppliers) for legal entities to independently implement AML measures and introduce ESG (environmental, social, governance) principles that get increasingly widespread in the world of business.