What led the Ministry for the Economy, Investment and Small Businesses to issue regulations requiring companies to disclose their ultimate beneficial owners?
The journey started in May 2016 when Malta participated in the London Anti-Corruption Summit and made commitments to fight corruption. The pledge at that time was to establish a central Register of Beneficial Owners for companies incorporated in Malta, as well as to facilitate the exchange of beneficial ownership information in line with EU Directives. It was further pledged that it would ensure law enforcement agencies have full and effective access to beneficial ownership information for companies and other legal entities registered within Malta.
The Minister responsible for Commercial Partnerships (the “Minister”) was given the power, under the Companies Act, to issue regulations that transpose EU directives. Thus, in 2017, the Minister issued the first set of transposed regulations, namely the 4th AML Directive. This obliged all companies to keep a Register of Beneficial Owners, and further obliged them to report their beneficial owners to the Registrar of Companies. The Regulations were entitled the Companies Act (Register of Beneficial Owners) Regulations (the “Regulations”).
Then, in 2019, the Minister further amended the regulations; this time to transpose the 5th AML Directive. This gave the general public access to the Register of Beneficial Owners and obliged Member States to ensure that this register is both accurate and up-to-date. In 2020, the Minister again amended the Regulations to give additional powers to the Registrar of Companies. This enabled the latter to ensure that the information disclosed to them on beneficial owners is accurate and up-to-date.
These regulations were introduced to support Malta’s fight against money laundering and terrorist financing.
Who is a beneficial owner?
A beneficial owner is always a natural person who ultimately owns or controls that body corporate or body of persons through direct or indirect ownership of twenty-five per centum (25%) plus one (1) or more of the shares, or more than twenty-five per centum (25%) of the voting rights or through control via other means. Provided further that if, after having exhausted all possible means and provided there are no grounds of suspicion, no beneficial owner has been identified, subject persons shall consider the natural person or persons who hold the position of senior managing official (‘SMO’), or officials, to be the beneficial owners and shall keep a record of the actions taken and any difficulties encountered to determine who the beneficial owner is.
Based on the above definition, if the first condition is not applicable, you move to the next until all the conditions are exhausted. The conditions are such that at least one or more natural persons has to meet the stipulated criteria, and it is vital to note that a beneficial owner is always a natural person.
The information requested for every beneficial owner includes the name, surname, identification document number, nationality, country of residence, nature and extent of beneficial ownership held.
What are companies required to do?
Companies are legally obliged to disclose their beneficial owners to the Registrar of Companies and, in turn, the Registrar of Companies will make this information public.
To facilitate this required reporting, statutory forms are available and they clearly list all of the information that must be disclosed. There are six forms in total, and they cover everything from disclosures that must be made before the registration of a new company, to changes in beneficial owners and senior managing officials, to changes in the details of beneficial owners and senior managing officials.
Although the forms are very straightforward and the Malta Business Registry (‘MBR’) has also issued a 30-page guidance document, the MBR always recommends that companies seek the guidance of specialised local practitioners, especially when there are complex structures involved. Meanwhile, it is important to note that the MBR requires a Certified True Copy of the identification document of all beneficial owners and senior managing officials, signed by a warranted practitioner. To this end, companies do typically seek legal advice from lawyers, auditors, or accountants when it comes to issuing these certifications and, therefore, the MBR encourages companies to ask their certifiers to look at the disclosures they have made. In reality this is what happening.
Beyond that, it is important that any changes in the Register of Beneficial Owners held by the company in question are reported to the Registrar of Companies within 14 days (although there are a few instances that allow for a slightly longer period). Companies must also bear in mind that, in addition to the changes happening in the Register, all the details of the beneficial owners must be confirmed to be correct by means of an annual confirmation form. For instance, if a passport document has expired, the company will need to disclose the new passport number in the annual confirmation and attach a Certified True Copy of the same document. The annual confirmation must be submitted within 42 days of the company’s anniversary date.
Finally, the company’s officers must ensure that the company holds up-to-date information on its beneficial owners, and that it discloses this information to the Registrar of Companies. In addition to this, liquidators are obliged to retain the information on beneficial owners for the period of ten years.
What are the implications for companies that fail to disclose their beneficial owners?
Nowadays, the transparency of legal persons is crucial, and, therefore, there are various implications on both the company and involvement of a company.
Administrative penalties are imposed on company officers, shareholders or beneficial owners that submit beneficial owner information late or not at all. Penalties are hefty and based on the scale of business, and, yes, they are substantial. In fact, administrative penalties are €5,000 upon default and a €100 daily penalty until the beneficial owners are disclosed.
For companies that were incorporated before these Regulations came into force, penalties are even higher, with a fixed penalty of €10,000 and a daily penalty of €500. Then, a further €5,000 penalty is imposed on those officers, shareholders or beneficial owners of a company that knowingly provide a false declaration to the Registrar of Companies.
On-site inspections are also being conducted, and if during an on-site inspection there is found to be a discrepancy between the information submitted to the Registrar and that of the company, a penalty of up to €100,000 will also be imposed.
And it doesn’t stop there. Beyond all of those penalties, if an officer fails to disclose the beneficial ownership information of existing companies, they will be precluded from getting involved in other existing companies or new companies. This restriction is over and above the restrictions found in the Companies Act that dictate that a proposed director will not be able to be appointed on another company if they have breached the Companies Act three times over a period of two years. The Registrar will not register any documents delivered for registration unless the beneficial ownership information is disclosed. Finally, the Registrar also has the power to strike companies off the Register if they fail to disclose their beneficial owners and, to this end, processes have already started on approximately 3,000 companies.
Does the MBR just proceed with registering the beneficial ownership information or is the information verified?
A rigorous verification takes place.
As a first step, the actual statutory form delivered to the Registrar for registration is vetted by both the Registry Unit and the Compliance Unit. The Registry Unit will then carry out prima facie vetting to ensure that it is filled in correctly, that the data matches the Government-issued document, that the certification was made by a warranted professional, and that the form was signed by a director or secretary. The Registry Unit also checks whether that company is a subsidiary or parent company, and check the beneficial owners disclosed in companies involved in those structures to see whether they match. In addition, they will also check with foreign registries (when these are available) to ensure that reporting is consistent.
The Registrar has the power to conduct on-site inspections
Once that is done, the relevant documentation is passed on to the MBR’s Compliance Unit for them to screen all involvements. Beneficial owners are screened against several variables, namely PEP, sanctions (previous and current), law enforcement (including financial crime, money laundering and/or financing of terrorism), information from financial regulators, insolvency, disqualified directors, adverse media, and linked businesses.
Finally, the last verification step includes finding patterns of legal vehicles’ structures and their owners for red-flagging purposes. This will confirm the reasonableness of the declared data, even if it looks valid because it matches government records. Any issues will then be escalated to the Money Laundering Reporting Officer (“MLRO”) for further investigation.
Throughout the process of verification, the Registrar may ask for any additional documents that they deem necessary in order to further investigate whether the information given is correct, up-to-date and current.
Are there any ongoing verification systems in place?
The process mentioned above is not only applied upon incorporation of a company, but with every beneficial ownership form that is filed and with every change that is reported by the company.
In addition, the Registrar has the power to conduct on-site inspections to verify whether the information submitted to the Registrar matches the information held at company level. On-site inspections are carried out on a risk-based basis in accordance with the red flags identified in the National Risk Assessment, as well as when there is a report from third parties that the information found on the Register is not accurate or up-to-date. Thus, it’s important to bear in mind that competent authorities and subject persons are obliged to report any discrepancies found between information they have in their possession in relation to beneficial owners, and information disclosed to the Registrar of Companies.
Beyond that, it is also critical to note that, locally, we adopt the multi-pronged approach, namely the verification and accuracy of beneficial ownership information that is then confirmed by cross-checking it across the different sources. In fact, various measures were taken by the MBR and other Maltese authorities (such as the FIAU and MFSA) to ensure the strengthening of this multi-pronged approach which uses the registry approach (i.e. beneficial ownership information accessible in a central register), the company approach (i.e. obtaining beneficial ownership information from the company itself) and the existing information approach (i.e. obtaining beneficial ownership information from subject persons [such as financial institutions, TCSPs as so on], as well as other competent authorities).
What about the Register of Beneficial Owners that applies to other legal organisations?
Recently, specifically on 11 August 2020, the MBR also became legally responsible for all other legal organisations, and their registers are also available on the MBR’s portal. This means that Malta now has one central Register of Beneficial Owners for legal persons.
On top of register of beneficial owners of commercial partnerships, the MBR is also responsible for the Register of Beneficial Owners of foundations, associations, voluntary organisations, co-operatives and sports organisations, and the screenings and verification processes are very similar to those carried out for companies. All beneficial ownership information disclosed to the previous administration (Identity Malta) was screen and verified by MBR officials. We can further confirm that the MBR saw a drastic increase in submissions of beneficial ownership information in relation to these organisations.
Penalties apply to these organisations as well. The administrative penalties amount to €500 fixed penalty and €5 daily until the information is filed. It is noteworthy that, when it comes to foundations and associations, numbers are much lower than companies and therefore make risk management more feasible and, in such contexts, relying on the measures put in place to mitigate and manage risks can be considered proportionate and sufficient.