On October 8, 2021 the Parliament of Ukraine adopted amendments to the law that regulates legal entities disclosing their ultimate beneficial owner for anti-money laundering and counter-terrorism financing purposes. The Draft Law 5807 on the Indication and Submission of Information on the Ultimate Beneficiary Owner and Ownership Structure of a Legal Entity came into force on October, 10, 2021.
The main reason for the amendments is to postpone the deadline for CSOs to submit information on their Ultimate Beneficiary Owners and Ownership Structure for one year. The existing Law (Law of Ukraine 361-IX on regulating legal entities disclosing their ultimate beneficial owner for anti-money laundering / counter-terrorism financing purposes) originally gave a 3-month period for all legal entities to register this information in the state register (starting on July 11, 2021). The short deadline put pressure on over a million registered CSOs to submit information on their Ultimate Beneficiary Owners and Ownership Structure until October 11, 2021. The current amendments have now extended the 3-month deadline to one year (until July 11, 2022).
The adoption of an extended deadline for submitting information on CSOs' beneficial owners does not resolve the fundamental problems that the current regulation imposes on CSOs.
The existing Law requiring CSOs to provide information on beneficial owners in fact contradicts other laws such as the Law on Public Associations and Law on Charitable Activities and Charitable Organizations and has several shortcomings:
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Problematic Definition: The main issue is the definition of owners. Namely, the law provided a mixture of fundamental definitions for the owners in commercial and non-profit organizations and their ownership structure. However, the Ukrainian legislation does not recognize Ultimate Beneficiary Owners for public associations and charitable organizations, only for business structures.
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Lack of instructions and disproportionate fines: The fines for failure to provide such information are within UAH 17000 to 51000 (app. 550 – 1.100 EUR). In addition, the Ministry of Justice prepared a form to submit information on the Ultimate Beneficiary Owners and Ownership Structure of a Legal Entity, but without any instructions on how to fill it. This brought uncertainty and misunderstanding among CSOs and state institutions alike.
CSO advocacy to address the problem
As follow-up steps in the coming period, CSOs in Ukraine will engage in an advocacy campaign to call for exceptions for CSOs from submitting information on their Ultimate Beneficial Owners. Read their joint statement here. UCIPR has already supported CSOs to understand the registration process and forms, more information is available in the webinar on how to file the registration.
ECNL’s regional analysis confirms that anti-money laundering and counter-terrorism financing regulations have had a major impact on CSOs due to the
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lack of a risk-based approach,
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lack of involvement of NPOs in risk assessments,
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burdensome requirements,
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lack of clear guidance on implementation and disproportionate sanctions.
Our work has provided avenues for action, read more here in our latest regional briefer.