The Orders No. 2542/5 and No. 2513/5/378 establish a procedure for notifying relevant authorities about inconsistencies in ultimate beneficial owner (UBO) information or ownership structures. To facilitate this notification process, the Ministry of Justice will launch an online service on its website. However, the increased scrutiny of UBO details has created compliance and operational risks for CSOs, particularly under the pressures of wartime conditions.
The Orders No. 2542/5 and No. 2513/5/378 were adopted in July 2023 and came into effect on September 1, 2024. The Orders outline how discrepancies in information about UBO or the ownership structure of legal entities should be reported to the Unified State Register of Legal Entities and the State Financial Monitoring Service. The Ministry of Justice also introduced changes on August 27, refining terms like “incompleteness” and “inaccuracy” in UBO information and revising the list of recognised discrepancies. The absence of UBO information in the Unified State Register is no longer considered a discrepancy.
The provisions of these Orders should be considered in conjunction with other applicable regulations (Orders No. 2211/5, № 3265/5 and 3258/5), which are combined into a single logical chain of procedure. This begins with the notification of discrepancies in the information on the UBO and/or ownership structure of a legal entity and ends with bringing the guilty person to justice for violations in the field of state registration of legal entities.
The Orders introduce several risks for CSOs:
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The vague term “another person (if the information concerns such a person)” allows unrelated individuals to report discrepancies. This creates the opportunity for abuse and malicious targeting of CSOs by third parties.
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The absence of mandatory verification by the Ministry of Justice or state registrars could result in unjustified flags based on unsubstantiated or malicious claims. Without strict verification, third parties, including those connected to hostile states, could manipulate the reporting system to undermine CSOs.
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The lack of clear definitions for “other discrepancies” and distinguishment between technical errors (e.g., typos) and material inaccuracies increases the risk of penalties) for minor, unintentional mistakes (17,000 to 340,000 UAH).
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The option to mark information as “potentially inaccurate” in the Unified State Register could lead to banks unjustifiably blocking CSO accounts and halting essential operations, including humanitarian aid, recovery projects, and military support.
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The Order's requirements may unjustly apply to CSOs with a deferral for updating ownership structures and beneficial ownership information and thus may still be targeted for discrepancies.
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Broad reporting of discrepancies could lead Financial Monitoring Services to misclassify CSOs as high-risk for money laundering or terrorism financing, triggering stricter monitoring and limiting funding access.
Addressing these gaps through clearer definitions, verification processes, and regulatory safeguards is essential to protect CSOs and ensure fair implementation.
To address the risks the Orders pose, the Ministry of Justice is encouraged to postpone implementation by two months and revise the Orders with input from experts and CSOs. During this time, clear official explanations of vague provisions could be developed in collaboration with relevant authorities.
These efforts aim to reduce ambiguity, prevent unjustified targeting, and protect CSOs from disruptions, ensuring they can continue their vital work. The Orders can be implemented more fairly and effectively with constructive dialogue and necessary adjustments.