Money Laundering and Terrorism Financing Prevention Act

Obligation to publicly disclose beneficial owners of companies

Kristel Tiits Kristel Tiits

In September, a new amendment to the Money Laundering and Terrorism Financing Prevention Act will enter into force, requiring companies to disclose data on their beneficial owners.

To this point, only persons obliged to combat money laundering and terrorism financing (e.g. auditors, attorneys, etc.) had the obligation of identifying beneficial owners. This was one means of performing background checks on their clients. But now, the amendment will require all legal persons to know their beneficial owners, including to disclose information about them.

Effective 1 September 2018, all companies registered in Estonia are required to declare data in the Commercial register regarding their beneficial owners. For the purpose of the Money Laundering and Terrorism Financing Prevention Act, a beneficial owner is a natural person with direct or indirect shareholding in a company. Direct shareholding means the natural person holds over 25 percent of the shares or right of ownership in a company. Indirect shareholding is when another company controlled by the natural person holds over 25 percent of the shares or right of ownership in a company.

For companies with a simple ownership structure, the new obligation will probably not result in any difficulties or problems and compliance will mean only additional time expenditure. On the other hand, in case of companies with a more complicated ownership structure with some or all owners located abroad, it is more complicated to identify the beneficial owner and this is a more onerous task for the company management.

The company is required to submit, through the Commercial Register information system, data about its beneficial owner’s name, personal identification code and country that issued the personal identification code, and in the absence of a code, their date of birth and place of birth and country of residence and data on how the person exercises control over the company.

If the information about the beneficial owner changes or is inaccurate, the company management must communicate the new data within 30 days. If the data do not change during a financial year, the management board certifies the veracity of the data when it files its annual report.

The Money Laundering and Terrorism Financing Prevention Act also sets out liability for failure to submit the data or submission of false data. In addition, companies must document and retain records on all procedures that they performed in order to identify the beneficial owner.

As to how the compliance with the new obligation, initial notification of the Commercial Register and compliance with the obligation of identification will take place in practice, this will become evident once the legislation is implemented.