Anti-Money Laundering and Terrorism Finance Prevention Act

On 27th November 2017 the Parliament of the Estonian Republic ratified a new Anti-Money Laundering and Terrorism Finance Prevention Act (hereafter referred to as AML Act 2017), which now imposes a whole new set of obligations for all companies registered in Estonia, their directors and shareholders. The new law introduces new compliance requirements, which are in line with the EU 4th AML Directive. Therefore this is now a good time for all fiduciaries, directors and shareholders of Estonian companies to familiarise themselves with the new legislation, since the law prescribes severe fines for non-compliance.

The new law addresses numerous regulatory challenges, which the financial industry is currently facing, partially caused by a rapid development of blockchain technology, the booming cryptocurrency market, the skyrocketing number of ICOs as well as the rapid digitalisation of banking. The main highlights of the new Anti-Money Laundering and Terrorism Finance Prevention Act in Estonia are:

  • Complete abolition of a corporate veil
  • Emphasis on beneficial ownership and enhanced due diligence
  • Mandatory public disclosure of beneficial owners
  • Harmonisation with the 4th AML Directive enacted on 24th June 2015
  • Cash transaction reporting threshold lowered to 10,000 EUR
  • New definitions of cryptocurrency transactions and new types of authorisation

Changes for the beneficial owner

This article reviews some changes in the Anti-Money Laundering and Terrorism Finance Prevention Act in respect of the Declaration of the Ultimate Beneficial Owner in the Commercial Register (§ 76-80). Starting from 1st September 2018, all companies registered in Estonia have to submit personal information regarding their beneficial owner(s) to the Commercial Register (in Estonian: Äriregister) https://ariregister.rik.ee/index?lang=eng

Pursuant to §78 (1): The data of the beneficial owner is made public in the Commercial Register’s information system. Based on subsections 2–4 of sections 9 of §76 of the AML Act 2017, a general partnership, limited partnership, private limited company, public limited company or commercial association need to submit, via the commercial register’s information system, the following data on its beneficial owner:

  1. the person’s name, personal identification code and the country that issued the personal identification code (in absence of a personal identification code, the date and place of birth can be submitted), and their country of residence;
  2. the nature of the beneficial interest held.

§9 (1) defines a beneficial owner as “a natural person who, taking advantage of their influence, makes a transaction, act, action, operation or step or otherwise exercises control over a transaction, act, action, operation or step or over another person and in whose interests or favour or on whose account a transaction or act, action, operation or step is made.”

The AML Act 2017 considers a natural person to be a beneficial owner via direct or indirect ownership of 25% +1 share of a company.

It seems that the Act disregards any equitable arrangements such us trusts, community ownership and other legal arrangements and requires the identification and disclosure of a person or persons who have de facto control of ownership:

§9 (6) states:

“In the case of a trust, civil law partnership, community or legal arrangement, the beneficial owner is the natural person who ultimately controls the association via direct or indirect ownership or otherwise and is such associations’:

  • settlor or person who has handed over property to the asset pool;
  • trustee or manager or possessor of the property;
  • person ensuring and controlling the preservation of property, where such person has been appointed, or
  • the beneficiary, or where the beneficiary or beneficiaries have yet to be determined, the class of persons in whose main interest such association is set up or operates.”

In a situation where a beneficial owner cannot be identified or there are doubts that the identifiable person is a true beneficial owner, then the most senior member of the management board may be designated as the beneficial owner. The beneficial owner disclosure is not applicable to entities listed on regulated markets, which are subject to disclosure requirements according to the existing European Union rules or other international standards ensuring full transparency of ownership.

A person recorded as a beneficial owner has a right to correct information with the company’s beneficial registry as well as apply for a correction with the Commercial Register. Upon liquidation or dissolution of a company, all recorded information about the beneficial owner remains available (including to the general public) for 5 years.

Penalties

The AML Act does not foresee circumstances where an obligation to disclose a beneficial owner remains unfulfilled and a willing contravention of the AML Act or failure to submit information about beneficial owner or a submission of false information is punishable in accordance with §95:

(1) The penalty for failure by a shareholder or member of a private legal person to submit the data of the beneficial owner or for failure to report on a change of the data or for knowingly submitting false data, where a situation where the obliged entity cannot take the due diligence measure provided for in clause 3 of subsection 1 of § 20 of this Act has been caused, is a fine of up to 300 fine units.

(2) The penalty for the same act committed by a legal person is a fine of up to 400 000 euros.”

In light of the amendments of the AML Act, we urge all owners of Estonian companies to analyse all statutory requirements carefully and prepare to submit all required information by September 2018 or plan other arrangements in accordance with their business strategies.

Roman Loban

[email protected]