Introduction
In an effort to combat money laundering and the financing of terrorist activities, the European Union (EU) has implemented several Anti-Money Laundering (AML) directives. The most recent, Directive (EU) 2018/843, also known as the EU's 5th Anti-Money Laundering Directive (AMLD 5), has been pivotal in filling in the gaps in the AML regulatory framework. The directive tackles a range of issues, including the regulation of cryptocurrencies and associated service providers, extending the scope of scenarios where enhanced due diligence is required, etc. However, the most notable change legislated for in the new directive is the establishment of an Ultimate Beneficial Owners' Register in all member states of the EU.
What is an Ultimate Beneficial Owner (UBO)?
A UBO is a natural person who ultimately exercises control over a company or trust and benefits from its activities. In order for an individual to be classified as the UBO of a company under Cypriot and EU law, he must hold direct or indirect ownership or control over a certain percentage of shares or voting rights, typically 25% +1 or more, or otherwise have significant influence or control over the entity.
Why Does it Matter Who the UBO of a Company Is?
As the UBO of a company is the individual who ultimately controls and benefits from it, it is important to verify their identity, the origin of the capital they have invested into the company, and any ties they might have to sanctioned entities, terrorists, criminal organizations, or otherwise illicit activities. The primary purpose of the register is to expose complex ownership structures that may be used to obscure these individuals, thereby enhancing transparency around the ownership and control of companies, trusts, and other legal entities. This ensures their finances are aboveboard and not derived from or used for the benefit of any sanctioned persons, terrorist groups or criminal enterprises.
Amendment of the AML Law in Cyprus
On 18 February 2021, the Cypriot parliament enacted several amendments to Cyprus' Prevention and Suppression of Anti-Money Laundering Activities and Terrorist Financing Law (188 (I)/2007), transposing AMLD 5 into Cypriot legislation. Cyprus now has an official UBO register where all Cypriot companies must provide and regularly update the details of their respective UBOs.
The Register of Ultimate Beneficial Owners (UBOs)
The register of UBOs is a governmental system where all ultimate beneficial owners of Cypriot companies must be registered. Access to the UBO register is currently limited to competent authorities and obliged entities for due diligence purposes. The Ministry of Finance is currently consulting on amending the AML law to potentially grant access to persons and organizations demonstrating a legitimate interest, provided they meet specific criteria. We are waiting for the outcome of this consultation to see if access will be expanded under these new conditions.
What do Companies Need to do?
Companies must provide detailed and accurate information regarding the companies UBO(s). Between 1 October 2024 and 31 December 2024, companies are required to enter the Beneficial Owners Registry system and update or reconfirm the details. The company and its officials are responsible for updating any changes in the information, or UBO(s), within the legally specified timeframes. Failure to confirm and maintain accurate information may result in substantial penalties and fines under Cyprus' AML Law.
Final Thoughts
While the new amendments to Cyprus' AML Law brings about certain challenges, especially for companies with complex multi-layered corporate structures that will likely have to provide detailed information on a range of shareholders, it has been deemed necessary for the curtailing of money laundering and other criminal activities.
While the procedural and practical requirements for UBO registration may seem complex and burdensome, we are here to assist you in any way we can, to ensure you are compliant with the new regulations and do not face any penalties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
