Implementation of the 5thEU Anti-Money Laundering Directive: Changes in the name of transparency

Maria Oikonomou, LL.M., Associate Eversheds Sutherland

In the aftermath of the Panama papers revelations, the EU is making consistent efforts to combat money laundering and terrorism financing. Following the adoption of the 4th Anti Money Laundering Directive, the EU introduced a new directive aiming for a more transparent monitoring over complex corporate entities. Based on the harmonization procedure, the Greek Government amended the relevant legislation (i.e. Law 4557/2018) aligning its context to the new EU Directive. Based on the 5th EU directive, the new Greek legislation enhances transparency increasing pressure on companies to comply. In detail:

Ultimate beneficial ownership: how is it regulated?

According to the legislation, the corporate entities are obliged to notify the ultimate beneficial owner (UBO), i.e. any natural person who ultimately owns or controls an entity either by directly or indirectly owning more than 25% of the shares in voting rights of that entity or exercising control through any other means over the management of the entity or over its direct and/or indirect shareholders. Should an individual fulfill any of these requirements, the companies are obliged to keep a record and submit a certain number of information regarding that person to the transparency register. The latter is an electronic database where all relevant information on the ultimate beneficial owners is stored, facilitating the precise identification of such individuals. After the amendment of the legislation, the information of the UBO that needs to be found in the register is: name, date of birth, place of residence nationality and type of economic interest in the entity. The obligation to notify also applies for trustees in the form of express trust who are required to collect and store sufficient, accurate and up-to-date information on their beneficial owner.

The UBO information is necessarily documented and updated under the responsibility of the legal representative of the company or a person who is authorised by the company. This means that Greek companies need to make inquiries to their shareholders and document the said inquiry. It is important for Greek parent companies to investigate their entire corporate structure and monitor their subsidiaries in which they have a dominant control in order to confirm whether a UBO exists or not. Further it is highly essential to check on a regular basis the local anti-money laundering rules in the countries where the subsidiaries are located.

In addition, the regulation underlines the importance of avoiding any discrepancies on the beneficial ownership information. The companies need to keep accurate UBO information and if any inconsistency is found between the information they have in their records and UBO information already provided to the transparency register, a correction is necessary. The registration of any changes in the transparency register is done within sixty (60) days.

Aiming for public scrutiny, the transparency register can now be accessed by everyone. This amendment which undoubtedly enhances corporate transparency can create some obstacles difficult to overcome for entities that do not wish to disclose all information on their UBO. It should be noted that a restriction to the access of UBO information is possible upon request of the said person only under specific conditions. For example, in case the full disclosure could set that person liable to be a victim of fraud, extortion, assault or coercion.

Considering these legislative changes, a swift response is necessary. This could be in the form of an internal inquiry towards the shareholders in order to check the entire company group if there is a shareholder who indirectly holds more than 25% in the entity or otherwise controls it. In case the shareholders have previously provided such information, the company needs to confirm whether the same information applies or if there has been a change. The inquiry as well as the answer needs to be evidenced in writing. Documentation is required for any related information provided by the shareholders. This is very helpful as through this inquiry, a discrepancy could be detected. For instance, the information provided by the shareholders might not correspond to the respective information submitted to the transparency register. Also, it is highly possible that the documentation shows a UBO identification which has not been yet disclosed. In both cases, the inconsistency needs to be corrected.

In case a company does not comply with the above requirements, it will be subject to fines that will need to be paid within a certain deadline. In case of non-payment or repeated violations then the fine will be doubled. In order to avoid such consequences, it is advised that companies fulfill their obligations according to the disclosure requirements.

The transposition of the 5th EU directive is a significant step towards the fight against money laundering and terrorism financing which attributes a higher corporate responsibility in terms of transparency and widens the scope of compliance obligations. As for future steps, given the transnational character of such activities, the EU member states are now contemplating the implementation of an EU regulation. In particular, the European Commission has formed an action plan for a comprehensive EU policy on preventing money laundering and terrorist financing. The lack of coherent legislation amongst the EU member states requires a profound regulatory framework. Having this in mind and in order to avoid any legislative gaps, the European Commission plans to propose a more harmonized set of rules in the first quarter of 2021.