Proper record keeping and provision of information about beneficial owners in accordance with legislation that relates to anti-money laundering and anti-terrorism financing will save your company from the risk of receiving a fine or any other sanctions. All legal entities are required to keep records and provide information about their beneficial owners, that is, individuals who directly or indirectly own a share (usually more than 25%) in the capital of the legal entity or have the ability to control its actions. Each legal entity is required to annually update and maintain information about its beneficial owners in accordance with general global law.
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What is beneficial ownership information reporting? Required information and rules
So why is it necessary to establish, maintain and update beneficial ownership information? In accordance with global anti-money laundering and anti-terrorist financing regulations, a legal entity is required to have information about its beneficial owners and take reasonable and reasonable measures in the circumstances to identify its beneficial owners.
In addition, new rules and regulations are constantly being developed and applied in each individual jurisdiction. According to the new provisions or any act for submitting information about beneficiaries, operating at the global level, a legal entity is required to provide information about them within a certain number of days (5-7 on average) from the moment of receiving a request from the authorities. Control and supervision of the fulfillment of this obligation is carried out by the local financial monitoring service.
This data is often included in companies’ annual reports, articles of incorporation, and regulatory filings. Putting all this together will help to form a complete picture of the beneficial owners of the company. The beneficiary information report includes:
- general information about the company (status, registration code, capital, scope of activity according to the local commercial code and register, legal address and address of activity, information on the last submitted annual report);
- directors with the right of representation;
- current board members;
- current shareholders/partners;
- subsidiaries and branches;
- other persons;
- beneficial owners, including:
- beneficial owners (according to the ownership model used by the company),
- visualized ownership structure (i.e. visualized chain of relationships between the company in question and the actual beneficiaries),
- beneficial owners (information from the business register);
- former legal entities associated with the company.
Accessing this data and understanding its significance to beneficial ownership can be difficult for next-mentioned reasons:
- data may be only a small part of a larger document;
- same types of data are displayed differently by different publishers;
- relevant data may be contained in different documents;
- legal terminology may vary from jurisdiction to jurisdiction.
Who is required to file a beneficial ownership report?
Reporting companies can be divided into two types. These are internal for each jurisdiction, respectively, and international. According to globally accepted and current norms, an internal reporting company is one of the following structures:
- a corporation organized nationally and operating only within a designated jurisdiction;
- local limited liability company or
- any other organization created by filing a document with the Secretary of State or any similar office under local law.
A foreign reporting company is one of the following structures.
- A corporation, limited liability company, or other legal entity created under the laws of a foreign country.Any other organization created by filing a document with the Secretary of State or any similar office under the laws of a state or Indian tribe.
If an exemption from reporting has not been granted and if the entrepreneur needs to file the relevant documents with a government agency at the national level, for example, the secretary of state, filing a report on the beneficial ownership of the firm.
To help organizations, their owners and advisers understand the scope and some of the details of the proposed parameters for such reporting, many governments are offering a brief fact sheet that highlights the key elements of the proposed beneficial ownership reporting regulations. Careful review of the beneficial ownership reporting rules and their final revision as each change is published is important to better understand the requirements and the information that must be submitted to the beneficial ownership database.
Information about related parties should be presented clearly and completely so that interested users of the statements understand the nature and content of relationships and transactions with related parties. In particular, when a person discloses information about beneficial owners, information is provided that allows one to uniquely identify this owner. If during the reporting period a person carried out transactions with beneficial owners, then the reporting for each of them discloses the nature of the relationship, types of transactions, the volume of transactions of each type (in absolute or relative terms), cost indicators for transactions not completed at the end of the reporting period, conditions and the timing of the implementation (completion) of settlements for transactions, as well as the form of settlements, the amount of formed reserves for doubtful debts at the end of the reporting period, the amount of written off receivables for which the statute of limitations has expired, other debts that are unrealistic for collection, including through the reserve for doubtful debts.
Beneficial ownership information for keeping business transparency may also include next-mentioned:
- information for identifying owners – individuals;
- information about other legal entities;
- distribution of shares in ownership;
- voting rights assigned to different classes of shares;
- information about intermediate entities in the ownership chain;
- any rule regarding membership in the board of directors.
Companies will need to indicate whether the report being filed is whether an initial report is being filed, a correction to an earlier report, or an update to an earlier report. The company will also be required to report next-mentioned information about each individual who is the beneficial owner or applicant of the company:
- name, date of birth and address;
- a unique identification number from an acceptable identifier;
- name of the jurisdiction where the ID was issued;
- for beneficial owners, a residential address must be provided;
- for company applicants, the person’s mailing address must be provided.
Implementing countries may consider using the high-quality data collection form if they:
- strive to collect information about legal and beneficial owners using an online form;
- carry out their data collection process using existing data available to the government (for example, data from a legal entity registry or cadastre);
- want to share or link collected information with other government data;
- plan to publish most of the collected data publicly via a registry and/or API.
The entrepreneur may consider it necessary to seek further technical support from the regional manager. Our specialists can also help in this matter.
So, what happens if an organization fails to provide beneficial ownership information to the appropriate government agency or fails to update or correct that information in a timely manner? There are both civil and criminal penalties for individuals who knowingly provide false information or intentionally fail to provide complete or updated beneficial ownership information to the responsible government agency. Penalties for non-compliance are severe and include significant fines and complete loss of business interest.
Article’s author is Denys Chernyshov – founder and CEO of the globally-famous organization Eternity Law International.