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The beneficial owner of a legal entity – Novelization of the Czech AML Act (part one)

The beneficial owner of a legal entity – Novelization of the Czech AML Act (part one)

This article is focused on the new legislation of the beneficial owner of a legal entity in the Czech Republic, which was brought by the novelization of the Act. No. 253/2008 Coll., on the prevention of money laundering and terrorist financing (“the AML Act”) and became effective as of 1st January 2017.

I. Definition: the beneficial owner

The new definition of the beneficial owner is embodied in the Czech AML Act, which was amended by the Act No. 368/2016 Coll. (with its effectiveness as of 1st January 2017) and is based on the Art. 3 (6) of so-called AML Directive – Directive (EU) 2015/849 of the European Parliament and of the Council of 20st May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC.

According to the amended AML Act (Section 4 (4)) the beneficial owner is newly defined as any natural person who may de facto or legally directly or indirectly control the legal entity, the trust fund or other legal organization(s) without legal personality, whereas it is thought that the beneficial owner of a business corporation is such natural person,

  1. who himself or together with others, who are acting in agreement with this natural person, controls more than 25% of the voting rights of the business corporation or owns an ownership interest exceeding 25% of the registered capital,
  2. who himself or together with others, who are acting in agreement with this natural person, controls the entity mentioned in the point (i) above,
  3. who will receive at least 25 % of the profit of such business corporation, or
  4. who is a member of the statutory body, a representative of a legal entity in this statutory body or who is in the position similar to the position of the member of the statutory body, provided that the beneficial owner does not exist or cannot be identified pursuant to any of the points (i) to (iii) above.

The beneficial owner is defined by his material characteristics. It is a natural person (individual), who de facto or legally, directly or indirectly, controls the legal entity. Information stated under the points (i) to (iv) above only indicate who may be in the position of the beneficial owner. At the same time it is considered that the fulfilment of the characteristics stated under the points (i) to (iv) shall not automatically lead to the determination of such person being the beneficial owners. It is essential to meet the material characteristics.

In the point (iv) above addresses the situation, when no person can be identified as the beneficial owner according to the material definition. In such case the legal fiction will be applied that the beneficial owner is the natural person, who is the member of the statutory body or the representative of a legal entity in this statutory body or a natural person in the position similar to the position of the member of the statutory body.

II. Retention of the data of a beneficial owner

The novelization of the AML Act (Section 29b) imposed a statutory obligation upon all legal entities and trust funds to keep actual data allowing the determination and verification of their beneficial owner, including the data about the facts which establish or justify the position of the beneficial owner.

These data must be retained for all the time of the duration of the position of the beneficial owner plus the minimum of additional 10 years.

By Michaela Fuchsová & Magda Stárková

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