UBO and ownership structure: what businesses should check to avoid fines

Legal entities should ensure that information on their ultimate beneficial owners (UBOs) and ownership structure is kept up to date. Failure to update this information in a timely manner or providing inaccurate information in the Unified State Register (USR) may result in fines. In practice, the Ministry of Justice is already applying procedures to hold companies liable for violations related to state registration.

The Forvis Mazars team has summarised the key points businesses should consider: how information on UBOs and ownership structures is verified, which deadlines need to be monitored, what liability may arise in case of violations and what businesses should pay attention to in order to mitigate risks.
 

Monitoring the accuracy and timeliness of information on the Ultimate Beneficial Owner (hereinafter – the “UBO”) and ownership structure

Discrepancies between information on the UBO and ownership structure and the data contained in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations (hereinafter – the “USR”) may be identified, inter alia, by primary financial monitoring entities (banks, insurance companies, etc.).

In our practice, such discrepancies are most commonly identified by banks in the course of KYC/AML checks and subsequently reported to the Ministry of Justice.

Following such notification, the Ministry of Justice instructs the state registrar to enter a note in the USR regarding the possible inaccuracy of the information on the UBO and/or ownership structure and to send the legal entity a request for explanations and supporting documents.

Upon completion of the verification, the Ministry of Justice determines the further actions to be taken in respect of the information on the UBO and/or ownership structure contained in the USR:

• if the information is confirmed to be up to date, the note regarding its possible inaccuracy is removed;
• if technical errors or outdated information on the UBO are identified, the relevant data are corrected and the note is removed;
• if the information is determined to be outdated, the information on the UBO and/or ownership structure is removed from the USR. In such a case, the USR indicates that the relevant information has been removed upon instruction of the Ministry of Justice.

For this reason, it is important for legal entities to independently and regularly monitor whether their information in the USR remains up to date.

In addition, pursuant to Article 5¹ of the Law of Ukraine “On Prevention and Counteraction to Legalisation (Laundering) of the Proceeds of Crime, Terrorist Financing and Financing of Proliferation of Weapons of Mass Destruction” (hereinafter referred to as the “AML Law”), legal entities are required to:

• have up-to-date information on the UBO or the absence thereof and on the ownership structure;
• keep such information up to date;
• notify the state registrar of any changes within 30 business days from the date on which such changes occur;
• submit documents confirming the relevant changes.

If a legal entity independently identifies any incompleteness, inaccuracy or error in previously submitted information on the UBO or ownership structure, the corrected information must be submitted to the state registrar no later than three business days from the date on which such incompleteness, inaccuracy or error is identified.

Failure to comply with the above obligations and deadlines may constitute grounds for the application of liability measures provided for by law.
 

Liability for violations in the field of state registration

Failure to comply with the requirements regarding keeping information on the UBO and ownership structure up to date and submitting such information in a timely manner may result in fines under Article 35 of the Law of Ukraine “On State Registration of Legal Entities, Individual Entrepreneurs and Public Organizations” (hereinafter referred to as the “State Registration Law”), in particular for:

• submission of knowingly false information on the UBO or the absence thereof;
• failure to submit or late submission of information on the UBO or the absence thereof;
• failure by participants (founders) to provide the information required to update the data on the UBO and ownership structure.

❗Such violations may result in a fine being imposed on the legal entity in the amount of UAH 17,000 to UAH 340,000.

Separately, Part 6 of Article 166¹¹ of the Code of Ukraine on Administrative Offences provides for administrative liability of the head of a legal entity or another person authorised to act on its behalf for failure to submit or late submission of information on the UBO or the absence thereof, or documents confirming the information on the legal entity’s UBO, in the form of a fine ranging from UAH 17,000 to UAH 51,000.

Pursuant to paragraph 4 of Section X of the AML Law, legal entities registered before the entry into force of the regulations governing the form and content of the ownership structure and the methodology for identifying ultimate beneficial owners (UBOs), which have not previously submitted information on their UBOs and ownership structure (subject to statutory exceptions), are required to submit such information within six months from the date these regulations enter into force, but not earlier than 90 days after the termination or cancellation of martial law in Ukraine.

Order of the Ministry of Finance of Ukraine No. 161 dated 2 April 2024, introducing amendments to the Regulation on the Form and Content of the Ownership Structure, will enter into force 90 days after the termination or cancellation of martial law in Ukraine. Accordingly, the aforementioned six-month period will commence on the date this Order enters into force.

In addition, paragraph 3¹ of Article 14 of the Law of Ukraine “On Specifics of Provision of Public (Electronic Public) Services” provides for the possibility of submitting documents in the field of public services until the end of the calendar year in which martial law is terminated or cancelled, but in any event for at least three months following its termination or cancellation, unless a different deadline is established by law.

At the same time, the extension of the deadlines for submitting information on UBOs and ownership structures does not preclude the application of statutory procedures for verifying the accuracy of such information. In particular, obliged entities under financial monitoring legislation may notify the Ministry of Justice of Ukraine of identified discrepancies, state registrars may issue requests for explanations and supporting documents, and the Ministry of Justice may, where sufficient legal grounds exist, initiate proceedings to hold a legal entity liable.
 

Procedure for imposing liability

The Ministry of Justice initiates and conducts proceedings to hold legal entities liable in accordance with the Procedure approved by Order of the Ministry of Justice dated 13 September 2023 No. 3258/5 (hereinafter – the “Procedure”).

When determining the amount of the fine, the circumstances of the specific violation are taken into account, including its nature, causes and underlying circumstances, the number of violations, their duration, the degree of fault, and other factors specified in the Procedure.

A protocol concerning a violation for which a legal entity may be held liable may be served or sent:

• against signature;
• through the electronic interaction system of executive authorities;
• to the email address specified in the USR or otherwise confirmed by supporting evidence;
• by registered mail with acknowledgement of receipt to the registered address of the legal entity.

❗Note: If the registered mail is not delivered, information on the protocol drawn up is published on the official website of the Ministry of Justice.
 

Practical steps for businesses

In view of the above, we recommend that legal entities proactively verify whether the information on their UBOs and ownership structure is up to date, in particular by:

• periodically reconciling the current ownership structure and UBO information against the data contained in the USR;
• in the event of corporate changes, monitoring compliance with the 30-business-day deadline for updating the relevant information;
• separately reviewing multi-tier ownership structures, structures involving foreign participants, trusts and other similar legal arrangements;
• taking into account changes occurring at the level of foreign parent companies or other entities within the ownership structure.

Our experts:

Denys Shendryk, Partner, Head of Tax&Legal Practices	Tetiana Levkivska, Head of Legal Practice