In a global effort to enhance transparency and combat money laundering and terrorist financing, jurisdictions around the world are implementing measures to identify and record beneficial ownership of entities.
Cyprus, a prominent international business hub, has established its Register of Beneficial Owners to comply with European Union directives and strengthen its regulatory framework. This article aims to provide an overview of the Cyprus Register of Beneficial Owners, analyze the current status after the implementation of the final stage, and highlight potential pitfalls that companies may encounter.
Understanding the Cyprus Register of Beneficial Owners:
- Background:
The Cyprus Register of Beneficial Owners is part of the island nation's commitment to align with the European Union's Fourth Anti-Money Laundering Directive (4AMLD) and Fifth Anti-Money Laundering Directive (5AMLD).
The register aims to enhance transparency by identifying the individuals who ultimately control and benefit from companies registered in Cyprus.
- Registration Requirements:
Companies incorporated in Cyprus are obligated to identify and register their beneficial owners with the Registrar of Companies.
Beneficial owners include individuals who directly or indirectly own or control more than 25% of the company's shares or voting rights or have the ability to control the company through other means.
- Information Recorded:
The register includes details such as the beneficial owner's name, date of birth, nationality, residential address, and the nature and extent of the beneficial interest.
Current Status of Affairs:
- Implementation Stages:
The Register of Beneficial Owners was implemented in stages, with the final stage requiring existing companies which already complied with the interim solution system, to submit beneficial ownership information by December 31,2023. An extension to the said timeframe was announced on December 20,2023. The Registrar’s announcement stated that companies or any other legal entity and each officer/partner thereof, who until November 13, 2023, submitted information regarding their beneficial owners to the Companies Registrar through the interim solution, and this information has not changed, are called upon to confirm the information that is registered and presented in the final solution system, by completing it in the final solution system, no later than February 29, 2024.
The Announcement also recommended that companies or other legal entities where the beneficial owner ends up being a Trust, Foundation, or another Legal Arrangement similar to the Trust, consult the information in the FAQs on the Department's website for the type and extent of information that should be entered in the final solution of the electronic system (Frequently Asked Questions - Beneficial Owners), as well as the section on the Register of Beneficial Owners on the Department's website.
The above announcement created a huge misunderstanding to companies and legal entities as it was not clear whether the extension applies to all the entities submitted any data in interim solution or not.
- Compliance Challenges:
After the implementation of the Directive on January 1, 2024, entities faced challenges during submission. Specifically, in cases that the beneficiary of a private company was a public company, despite the fact that submissions have been duly made in interim solution system, fines were automatically generated and imposed to the companies and their directors and secretary.
In this regard, the competent bodies communicated their dissatisfaction with the way the Directive was implemented to the Registrar of Companies through a letter, along with submitting suggestions.
- Registrar’s actions
Taking into account the suggestions from the entities, the Registrar of Companies requested a written opinion from the Legal Service stating (i) whether it is legally possible to grant an extension to entities that were exempted from the extension (trusts, foundations, other legal arrangements), and (ii) whether the financial burdens imposed and already paid by the reported entities can be refunded within the framework of the revocation of the administrative act.
In the meantime, the system was updated so that the Companies and other legal entities are permitted to submit any data without payment of penalty to be mandatory prior to submission.
Potential Pitfalls for Companies:
- Penalties for Non-Compliance:
Failure to comply with the registration and reporting obligations may result in significant penalties, including fines and potential criminal liability for company officers.
- Public Access to Information:
The register is not public, but certain authorities and entities may access the information for specific purposes. Companies should be aware of the limited confidentiality and potential reputational risks associated with this disclosure.
- Ongoing Monitoring and Reporting:
Companies need to establish mechanisms for ongoing monitoring of beneficial ownership information and promptly report any changes to the authorities.
- Legal and Reputational Risks:
Non-compliance may expose companies to legal risks and damage their reputation. Adhering to the regulatory requirements demonstrates commitment to transparency and good corporate governance.
Conclusion:
The Cyprus Register of Beneficial Owners represents a crucial aspect of the nation's commitment to global anti-money laundering efforts. Companies operating in Cyprus must navigate the complexities of compliance, ensuring accurate and up-to-date information on their beneficial owners. By understanding the current status and potential pitfalls, businesses can safeguard their interests and maintain a strong reputation within the regulatory framework. Seeking professional advice and staying informed about regulatory updates is essential for successfully managing the evolving landscape of beneficial ownership requirements in Cyprus.
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