Updated Requirements to Financial Monitoring and Disclosure of Ultimate Beneficial Owners (“UBOs”)

We continue following updates in the area of financial monitoring and would like to draw your attention to several recently adopted regulations.

To adapt the legislation of Ukraine to certain standards of the Financial Action Task Force (the “FATF”) and the requirements of EU Directive 2018/843 and protect the financial system of Ukraine from the actions of the Russian Federation (the “RF”), the Verkhovna Rada of Ukraine (the “VRU”) adopted Law of Ukraine No. 2736-IX which entered into force on 19 November and introduced a range of significant changes to the designated law on financial monitoring.

Major developments:

1. Changes have been introduced to certain categories of obliged entities (“OEs”), in particular:
   • A new category has been added – business entities engaged in trading in cultural values or rendering intermediary services in such activities;
   • A category has been expanded in respect of business entities that render intermediary or consulting services in the course of real estate purchase and sale operations which, now, may render the services related to leases of immovable properties;
   • Requirements have been restricted to the category of business entities engaged in trading for cash in precious metals and precious stones and products made from those materials; now, this category should undertake financial monitoring measures if the amount of a financial transaction is equal or exceeds UAH 400 thousand (earlier, it was UAH 40 thousand).
2. A list of entities has been complemented with which OEs should set a high risk of business relations, in particular:
   • Citizens of the RF (other than those granted with the status of a participant in hostilities after 14 April 2014);
   • Legal entities that are residents of the RF, have in their composition participants/shareholders as represented by the RF, have UBOs with citizenship of the RF and/or place of permanent residence (residence, registration) in the RF;
   • Entities in respect of which it has been established that their source of funds is from the RF;
   • Entities whose places of residence and/or registration are in the RF and who transfer (receive) assets to (from) Ukraine by using depository institutions, banks, other financial institutions, and non-banking providers of payment services.
3. The validity of a politically exposed person (PEP) charter has been shortened from lifetime to three years, after a relevant position is taken up.
4. It has been established that no penalties shall be applied to OEs for the violation of certain requirements of the legislation on financial monitoring if they are located in the areas of military (combat) operations or in temporarily occupied territories, provided that they fulfill those requirements within one month after the territory is excluded from such a list.
5. A feature has been complemented for threshold transactions; now, in the event a party to an agreement is a person or an entity registered, residing, or located in the RF, the transaction shall be treated as a threshold one.
6. Requirements have been updated in respect of a director/deputy director of an OE; in addition to possessing an impeccable business reputation, those persons should not have the citizenship of the RF.

In addition, we would like to remind you that, in September, the VRU adopted the Law of Ukraine No. 2571-IX “On Amending Certain Laws of Ukraine Regarding the Improved Regulation of Ultimate Beneficial Ownership and Ownership Structure of Legal Entities” (the “Law”), which changed the requirements to disclosure of UBOs and ownership structure. The Law comes into effect from 29 December.

The Law has also introduced a range of changes to the designated law on financial monitoring, in particular:

1. In the event OEs identify any incompleteness, inaccuracies, or errors in the Unified State Register (the “USR”) of Legal Entities, Individual Entrepreneurs, and Public Organizations regarding information on UBOs/ownership structure of a legal entity, the OE should notify the Ministry of Justice (the “MoJ”) about the discrepancies identified. Violation of this requirement is subject to a penalty of up to UAH 340,000.
2. The MoJ, upon receiving a notification from an OE, shall send:
   • A direction to a registrar to enter a mark into the USR about the potential unreliability of data about UBO/ownership structure;
   • A message to a legal entity with a request to provide explanations in respect of the information identified.
3. The state registrar shall review the explanations/documents from a legal entity and remove the mark from the USR about the potential unreliability of data, if the information about UBO/ownership structure is confirmed. In the event no explanations/documents have been provided or, based on the review, it is identified that data about UBO/ownership structure are out-of-date, the information about UBO shall be excluded from the USR.
4. Legal entities the activities of which are regulated and supervised by the NBU shall be subject to a similar procedure. The NBU shall recognize the ownership structure to be non-transparent, send a notification to the MoJ which, in its turn, orders the state registrar to make a mark about recognizing the ownership structure as non-transparent.
5. OEs shall set a high risk of business relations regarding the legal entities in respect of which the data about UBOs have been removed from the USR or marked with a flag that their ownership structures are recognized as non-transparent.

We believe that the above developments are significant and require certain actions from OEs regarding the update of АML policies and internal systems.

In addition, a range of changes to the legislation on the state registration of legal entities have been introduced, in particular:

1. The amount of penalty has been increased to UAH 340,000 for non-submission/failure to provide information about UBOs. At the same time, legal entities shall be exempt from responsibility in connection with the failure to receive this information from participants;
2. Participants of a company shall provide, upon requests of legal entities, information about UBOs and/or notify legal entities about changes in UBOs and/or ownership structure. For the breach of their duties, participants (individuals and legal entities-residents) may be exposed to a penalty in the amount from UAH 17,000 to UAH 340,000;
3. A requirement has been cancelled to update, on an annual basis, data about UBOs and submit ownership structure; besides, the ownership structure should be submitted when UBOs change, when changes are introduced to the data on the amount of share capital, the amount of shares in the share capital or composition of a company’s participants, and also when any incompleteness, inaccuracies, or errors are identified in the earlier submitted data about UBOs/ownership structure;
4. It is required to indicate in the USR all countries of citizenship (nationality) of UBOs, if there are several of them;
5. A possibility has been granted to certify passport copies of UBOs by using qualified electronic signatures (QESs);
6. The requirements to submit information about UBOs/ownership structure do not apply to public joint stock companies (PJSCs) whose shares are admitted to trading on at least one stock exchange from the list of foreign stock exchanges approved by the Cabinet of Ministers of Ukraine (the CMU) and which are subject to the requirements for disclosure of information about UBOs.

The new procedure for disclosing information about UBOs/ownership structure requires developing bylaws, in particular, the methodology on definition of UBOs and the procedure for notifying the state registrar about the possible unreliability of information about UBOs.

In What Way Can Deloitte Experts Be of Assistance?

Our team offers the following services:

1. Analyze anti-money laundering (“АML”) policies and internal documents on financial monitoring;
2. Update АML-policies in compliance with the legislation requirements;
3. Provide advice on financial monitoring;
4. Analyze the current status of UBO disclosure, with an emphasis on potential difficulties to be taken into consideration when disclosing UBOs.
5. Get ready for the UBO disclosures, in particular, analyze a company’s structure and its presentation in accordance with the legislation requirements;
6. Provide support during the UBO information disclosure in the USR;
7. Provide consultations regarding the UBO disclosure and submission of the ownership structure.

If you have any questions regarding the information contained in this alert or you need advice, please do not hesitate to contact our team of experts who will be happy to provide answers to all your questions.

Subscribe to our Telegram channel "Deloitte Ukraine Voices" to stay tuned on the latest firsthand news, articles, podcasts, and other materials. Hear the voices of our experts!