Introduction of a Central Register of Beneficial Ownership of Companies and other Legal Entities in Cyprus
In May 2015, the European Parliament and the Council issued the 4th European Directive on the prevention of the use of the financial system for the purpose of money laundering or terrorist financing. Article 30 of the 4th Directive provides that all EU member states must ensure that adequate, accurate and current information on the beneficial owner(s) of corporate and other legal entities, including details of the beneficial interest held are kept in a central register, for example a commercial register, a companies register or a public register. It is also provided that the information which will be included in the database of the central register should be collected in accordance with the national system of each EU member state.
Article 3(6) of the 4th Directive defines the beneficial owners as any natural persons who ultimately own or control the customer and/or the natural person on whose behalf a transaction or activity is being conducted and includes at least:
(a) in the case of corporate entities:
(i) the natural person who ultimately owns or controls a legal entity through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in that entity, including through bearer shareholdings, or through control via other means, other than a company listed on a regulated market that is subject to disclosure requirements consistent with EU law or subject to equivalent international standards which ensure adequate transparency of ownership information.
A shareholding of 25% plus one share or an ownership interest of more than 25% in the customer held by a natural person shall be an indication of direct ownership.
A shareholding of 25% plus one share or an ownership interest of more than 25% in the customer held by a corporate entity, which is under the control of a natural person, or by multiple corporate entities, which are under the control of the same natural person, shall be an indication of indirect ownership.
This applies without prejudice to the right of member states to decide that a lower percentage may be an indication of ownership or control. Control through other means may be determined, inter alia, in accordance with the criteria in Article 22(1) to (5) of Directive 2013/34/EU of the European Parliament and of the Council.
(ii) if, after having exhausted all possible means and provided there are no grounds for suspicion, no person under point (i) is identified, or if there is any doubt that the person identified is the beneficial owner, the natural person who holds the position of senior managing official, the obliged entities shall keep records of the actions taken in order to identify the beneficial ownership under point (i) and this point.
In order to ensure compliance with the 4th Directive, the Law on the Prevention and Suppression of Money Laundering Activities Law 2007 of Cyprus (the “Law”) has been amended pursuant to the amending law of 2018 which was passed in April 2018 and has introduced various amendments to the Law.
Among others, the abovementioned definition of the beneficial owner has been incorporated in the Law.
A new Article 61A has also been introduced in the Law and provides for the establishment and maintenance of a central register of beneficial owners of companies and other legal entities in which adequate, accurate and current information of the beneficial owners should be kept.
The 4th Directive was subsequently amended by the 5th European Directive.
Pursuant to the amendments introduced by the 5th Directive, all members of the relevant public, including the competent authorities and financial intelligence units without any restriction and the obliged entities within the framework of customer due diligence, will have access to the register and more specifically to the following information of the beneficial owners:
- month and year of birth;
- country of residence; and
The 5th Directive notes that in exceptional risk related cases, the EU member states may provide for exemptions from such access to all or part of the information on the beneficial ownership on a case by case basis.
EU member states will have to implement the new regulations of the above directives in their domestic law by 10 January 2020 and should set up their central registry of beneficial owners of companies and other legal entities by that date. The central registry of each member state should also be interconnected though the European Central Platform by 10 March 2021, pursuant to Article 22(1) of the EU Directive 2017/1132.
In light of the above changes, it is expected that the Department of the Registrar of Companies and Official Receiver of Cyprus will set up a central register which will include information of the beneficial owners of companies and other legal entities. It is also expected that the Cyprus Companies Law Cap. 113 will be amended in order to be aligned with the EU Directives. It is not, however, clear yet as to the exact way that changes will be implemented, but the disclosure of beneficial ownership will very soon be a fact.