All legal entities in Ukraine have been obligated to disclose the names of their true owners

Photo: Unian

Yesterday, the Verkhovna Rada passed the law on determining the beneficiaries of legal entities. The aim of the law is disclosure of the true owners of Ukrainian companies. “The main objective of the law is to unveil the owners of companies among the public,” says MP Olha Belkova (UDAR). “I think we will soon hear the names of businessmen that have long been hiding behind offshore companies,” says partner at the Pavlenko & Poberezhnyuk law firm Valeriya Tarasenko.

Fourth dimension

According to the law, the true owners of companies are named “ultimate beneficiaries”. An ultimate beneficiary is an individual, who regardless of the share he or she formally owns in a company, can influence management or operational decisions. Moreover, the beneficiary can exert influence directly or indirectly, independently or together with other individuals owning 25% or more of the company’s authorized capital or votes in the company. Nominal owners cannot be ultimate beneficiaries. “Investigation will continue until the ultimate beneficiary is unearthed. Even if the company is registered with 10 individuals and they are all affiliated, this factor will be taken into account. Records are being kept on people affiliated with other individuals and relatives,” says Belkova.

“This is a very appropriate document for Ukraine,” member of the National Securities and Stock Exchange Commission (NSSEC) Anatoliy Amelin says. “Without it the fight against corruption and de-shadowing of the economy are impossible.”

Today, the companies often disclose their nominal owner as their beneficiary. For instance, according to the ownership structure of Credit Dnepr Bank, a man by the name of Kris Theodorou is its beneficial owner. Despite this, Ukrainian business tycoon Viktor Pinchuk is named the true owner of the financial institution. The banks often conceal their real owners, even when their names are widely known. This is primarily done to circumvent the NBU norm regarding the issuing of loans to affiliated persons. Now, it will be impossible to circumvent the law in this way. “There is still an agreement between a foreign company and its beneficiary. If the request is filed with the court, the ultimate beneficiary must be disclosed,” says Honorary President of the Jurimex Law Firm Danylo Hetmantsev.

As soon as the law takes force, all companies will be obligated to establish their ultimate beneficiary, regularly update information about this person and provide it to the state registrar. The law, however, does not specify how often a company must disclose such information. The companies also must submit information about their beneficial owner at the stage of registration. If the officials reveal that information about the company’s founders and its beneficiary do not correspond, they have the right to reject the application for registration.

The head of the company shall be held criminally accountable for failing to disclose the real owners of the company or reporting that they changed on time. Criminal accountability for such a violation of the law is not entirely adequate, lawyers believe. “A director of a company may not know that the company was sold,” says Belkova.

Also, the affiliates of foreign companies may experience problems complying with the new law. “For instance, there is CocaCola and its shares circulate freely on stock exchanges. How can its daughter company in Ukraine submit documents regarding its ultimate beneficiary? In truth, there isn’t one,” says Director of PWC Ukraine Andriy Pronchenko.

Dividing by zero

It will indeed become more difficult to hide the real owners of companies, but not totally impossible. Even now all joint stock companies are obligated to disclose their shareholders owning over 10% of the company’s shares. Owners who do not want to disclose their names take advantage of this requirement of the law. They register a company with 11 and more legal entities or individuals. In this case, one shareholder owns no more than 9% of the company, which means it can report that it does not have shareholders “owning considerable stakes” in the system of information disclosure.

In order to hide one’s share in a company, for example, 25%, one needs to divide the stakes in the company between five non-affiliated individuals. “Hiding behind several offshore companies will be economically senseless for medium-sized enterprises. However, for large companies it will not be a problem to circumvent these limitations, though it is becoming more difficult to hide the real owners,” says Tarasenko.

The Legal Department of the Verkhovna Rada also believes that the document must be revised. “The absence of proper criteria for attributing an individual to an “ultimate beneficiary of a legal entity” in practice will lead to the ambiguous interpretation of the norms of the law and incompleteness of legal regulation,” reads the department’s report.

Another novelty of the document is making the State Register of Rights to Real Estate open to the public. This way all citizens will be able to see who owns a particular piece of property. Earlier, Minister of Justice Pavlo Petrenko promised to disclose the registries within a month after the law takes effect.