The Slovak Republic has transposed regulations to prevent money laundering and terrorist financing. These regulations are mainly stated in the AML Act.
Besides many other regulations, many subjects are obliged to register their ultimate beneficial owners (“beneficial owners”) with public registers. There are two important registers for entrepreneurs: (1) the commercial register and (2) the register of partners of the public sector or the so-called anti-shell register. These two registers differ in those subjects that are obliged to register their beneficial owners, in their registration procedures and the consequences that a faulty or missing registration brings. The primary purpose of registration is also different.
The commercial register is maintained by eight district courts, each of which covers one region of Slovakia. All companies registered with the commercial register are also obliged to register their beneficial owners.
The proposal to register the beneficial owners with the commercial register is submitted by the company itself, usually through a statutory body or an attorney who has been granted power of attorney. Identification of the beneficial owner does not need to be proven by any documentation, but the company is responsible for the correctness of the data. If the beneficial owner is not stated correctly, the statutory body of the company may be fined up to EUR 3,310. However, to this date, no such fines have been imposed. Information about beneficial owners can be found in the register of legal persons, entrepreneurs, and public authorities available on the Statistical Office website.
Beneficial owners registered with the anti-shell register do not need to be registered with the commercial register.
The anti-shell register was established by Anti-shell Act. This Act did not transpose the directive on money laundering, even though it refers to the definition of a beneficial owner set by the AML Act. Its purpose was to reveal and publicly show those beneficial owners who profit from transactions with the state, municipalities and other subjects of the public sector (“public sector”). At the time of its establishment, it was unique within the European Union. This register is maintained by just one district court for the whole of Slovakia.
Partners of the public sector (“partner”) and their beneficial owners are registered with the register. Simply put, a partner is any person who supplies the public sector with goods and services, enters into agreements in public procurement, accepts money and fulfilment from public sources, provides medical care based on medical insurance and meets certain qualification criteria (e.g., the value of the fulfilment). Persons who do business in certain areas (e. g. the energy or mining industries) have to be registered with the anti-shell register.
Proposals to register can only be submitted by an authorised person, not the partner themselves. Only an attorney, notary, bank, auditor or tax advisor with a registered seat in the Slovak Republic can act as an authorised person. It is a paid activity based on a written contract. Authorised persons must act with due care, and they are not bound by a partner’s instructions when identifying the beneficial owners since this is an auditing activity in the public interest. The service fees range from hundreds of Euros in the case of a simple ownership structure, to thousands, if the identification of the beneficial owner is a complex matter with foreign elements.
The partner and the authorised person are liable for the correctness of identifying the beneficial owner.
Identification of the beneficial owner is proven by a verification document. The main part thereof consists of the ownership and management structure of the partner and the explanation of how the beneficial owner was identified by the authorised person. The volume of the verification document and other backing documents varies. In the case of partners with complicated ownership and management structures and beneficial owners in foreign jurisdictions, the document has many pages, supported by tens of other documents (affidavits, commercial register extracts, lists of shareholders, general meeting minutes, financial statements, audit reports, expert opinions on foreign law). The verification document is made public and is often a source of information for investigative journalists, watchdog organizations and public authorities.
False registration can result in the partner and their statutory body being fined, deletion of the partner from the register, the right of the public sector to withdraw from the contract, the risk of losing licenses, and the termination of the statutory body function of the partner. The authorised person is liable for payment of the fine.
Attorney and authorised person at the same time
The authorised person shall not perform the activity as outlined in the Anti-shell Act if they inter alia have any relationship with the partner or members of its bodies, given that the relationship can undermine the authorised person’s impartiality, especially if they are personally or proprietarily connected to the partner. If the authorised person breaches this obligation, both the partner and the person can be fined.
Former doubts about whether an attorney providing long-term legal services to the partner can be the partner’s authorised person were solved by legislation. It stated that the relationship between the partner and an attorney does not per se constitute a relationship that can undermine the impartiality of the authorised person.
Even though the Anti-shell Act does not forbid an attorney from performing any legal activities as an authorised person for their client, this dual position can create some risks.
When providing legal services, an attorney is bound by the client’s instructions (within the boundaries of the law). An attorney is not allowed to check the truthfulness and completeness of any given information without the client’s consent. If the attorney has a reasonable doubt about the truthfulness or completeness of any given information, the attorney must inform the client of any possible consequences. However, the authorised person proceeds irrespective of what the interests and instructions of the partner are and is obliged to check any information given by the client, as well as to search for all relevant information. Such activity is not deemed to be legal services.
The basic obligation of an attorney is to preserve confidentiality that only the client can release the attorney from. There are some very limited exceptions set by the ALM Act or the Criminal Code. Even if a client releases an attorney from such an obligation, this obligation must be kept even when the attorney considers it to be disadvantageous for the client. The attorney, therefore, must duly consider whether acting as an authorised person (e. g. stating some information in verification documents), following a client’s wishes, may bring any harm to the client.
The attorney should carefully explain the difference in these roles to the client if the legal advice relates to mandates with the public sector or any other project requiring a partner’s registration (e. g. gaining a license). There are undoubtedly advantages to being able to access all these services at a one-stop shop, such as reducing bureaucracy and coordinating all the necessary procedures; however, the client should not be surprised if the attorney acts like a suspicious investigator.
Finally, the liability insurance of attorneys does not cover any damage resulting from the incorrect identification or registration of the beneficial owner.
By Andrej Majernik, Partner, PONTES