17 April 2018
Bulgaria has recently enacted legislation to transpose the 4th European Money Laundering Directive (MLD4). Although the new legislation came into effect on 31 March 2018, as we make clear below, further practical steps are required later in 2018 before the full scheme of the Directive is effectively applied.
Implementation involved a re-writing of the existing anti money-laundering statute. The new Prevention of Money Laundering Act (the Act) replaced in its entirety a previous statute of the same name, on the books since 1998.
In this update, we take the perspective of Regulated Entities (which we define below) although some of the information we provide will be of help to Obliged Entities (also defined below).
This note’s focus is on beneficial ownership and the obligations connected to identifying “beneficial owners” (for ease, we term these UBOs).
1. The obligations in respect of beneficial ownership information
One goal of MLD4 is to improve access to information on ultimate beneficial ownership and control as a way of helping prevent the use of the financial and legal systems in money laundering. Improving customer due diligence processes carried out by relevant Obliged Entities (mostly a now expanded list of public and private service providers including financial institutions, pension funds, investment brokers, accountants, auditors, certain government bodies and others) is expected to be a key part of this process.
Who must collect UBO information?
In the scheme of the Directive, enforcement is in the first place outsourced. Information on beneficial ownership is to be collected at the level of potential customers for such services (Regulated Entities) who must then supply the information to a “central register” (more than one such appears to be permissible and indeed - in the Bulgarian case - provided for), to be made accessible to Obliged Entities and law enforcement agencies.
Depending on the type of the Regulated Entity, the respective Central Register in Bulgaria may be:
The Act requires of Regulated Entities and of appointed contacts (see below) to obtain, hold and provide “appropriate, precise and current” information relating to their UBOs including as to the rights held and/or enjoyed by the UBOs over the Regulated Entity.
The State Agency for National Security and other Bulgarian government bodies (the competent agencies) are expressly empowered to demand specified information on UBOs from Regulated Entities and from the relevant contact persons.
2. Who is a UBO?
The definition of a “UBO” for the purposes of the Act is contained in §2(1) of the Additional Provisions of the Act. In this, a UBO is a person or persons who in the final account own or control a legal person or any other entity, or a person or persons on whose behalf a transaction, activity or operation is carried out, subject to certain applicable conditions in respect of the different classes of persons.
Undoubtedly, this definition was intended to transpose article 3(6)(a)(i) of MLD4 verbatim. Unfortunately, certain aspects of the definition are unclear in the Bulgarian text. One instance in the Bulgarian text (not present in, say, the English text) concerns the UBOs of companies, and specifically the Bulgarian subsidiaries of listed multinationals.
From the English version of MLD4, it would appear that a Regulated Entity would avoid the need to identify and enlist its UBO(s) where the UBO exercises control by way of an exempt listed entity. Such listed entities include entities whose shares are admitted to trading on EU regulated markets or certain equivalent international ones. However, in the Bulgarian version of the text of MLD4 and consequently in the definition of UBO in the Act, this interpretation competes with a different interpretation – that it is the Regulated Entity itself which would need to be admitted to trading on a relevant regulated market before it would be exempt from a requirement to provide the details of its UBO(s).
As a result, at least in certain situations in Bulgaria, both Obliged Entities and competent government agencies may require the disclosure of the details of UBOs from the relevant individuals of a Bulgarian Regulated Entity even if it should be exempt.
This likely unintentional divergence may suggest that there would be further areas of unexpected overregulation and the emerging practice of the authorities and Obliged Entities would need to be carefully observed.
Means of exercising control
The definition of “control” for the purposes of the Act incorporates § 1c(1) of the Additional Provisions of the Bulgarian Commerce Act.
This states that control is exercised by a person (legal or natural) (“a Controlling Party”), where the Controlling Party:
In addition, all opportunities for exerting a decisive influence over the key decisions of a Regulated Entity (§ 2(3)) are also treated as control.
What to do if no UBOs are identified?
Regulated Entities may well be aware of the identity of the person or persons who control them or they (or rather their directors and staff) may have no good means of knowing. Making enquiries with direct shareholders and in public sources would seem obvious approaches and they may prove sufficient. It may well be that such efforts are ultimately fruitless - or that there is simply no person or persons of whom it may be said that they exercise control and are therefore UBOs within the meaning of Act.
If, after having exhausted all possible means, no person is identified, or if there is any doubt that the person identified is the UBO, the natural person(s) who hold(s) the position(s) of senior manager(s) are deemed to be UBO(s).
The legislation leaves it unclear whether where there is one individual who has been positively identified as a UBO and a further individual or individuals for whom it is unclear if the definition applies, the substitute obligation of listing senior managers would apply, but an approach of maximal compliance would appear to require this.
3. Obligation to appoint nominated persons
Where the Regulated Entity has no locally-resident directors, it must appoint a registered permanent resident of Bulgaria or a Bulgarian citizen) to represent it for the purposes of its compliance obligations within the jurisdiction. As we set out below, there is an associated obligation to keep the details of such a local contact person updated with the Central Registers.
4. The information required to be filed
The beneficial ownership information that a Regulated Entity needs to procure, hold and file with the relevant central registry is as follows:
1. Data required to identify UBOs who are natural persons, namely:
2. Data of the legal persons or other legal entities through which direct or indirect control is exercised over the Bulgarian entity, including name, number in a national register, legal form in accordance with the national law, seat and address of management and the identification data under point 1 in the preceding paragraph of their “representatives”. Representation is a figure of Bulgarian law which is roughly equivalent to authority in common law traditions. Director(s) are automatically deemed representatives of companies in the Bulgarian legal context but the identity of such authorised individuals might vary depending on jurisdiction;
3. With respect to each Regulated Individual, the identifying data under point 1 above, except the information in 1 e).
4. The information required to be provided in accordance with 1-3 above must be kept updated.
5. As above, the information obligation includes the details of the beneficial interests and/or rights held. There is no express obligation for this information to be filed with the Central Registers, however such obligation might be introduced in future in implementing regulations.
6. Because of the objective of risk based regulation under MLD4 (and the Act), the information to be collected (and respectively supplied on enquiries, etc) may be wider in scope than that described in points 1-5 above. It would appear that the Regulated Entity and Regulated Individuals do not have a duty to proactively file such wider information but they may be asked to supply further information. We will be able to advise further in any such instances of requests.
5. Deadline for initial (and subsequent) compliance
The date on which the first filing is due is still not set as the Act remains to be further implemented and consequential amendments in other legislation and the adoption of regulations pursuant to the Act are outstanding. Subject to any further regulation, the Additional Provisions of the Act envisage Central Register facilities to be made available by 1 October 2018 for registration of beneficial owners. The implementing regulations are expected to be adopted by 31 August 2018.
The beneficial ownership information must be updated whenever it changes.
Contact us for assistance and more information on the new legislation.
Representation in London Court of International Arbitration for Kremikovtzi creditor
NBLO represented a creditor of Kremikovtzi, the failed Bulgarian steel producer in an arbitration at the London Court of International Arbitration ("LCIA") dealing also with the enforcement aspects of the Consent Order of the Court, in the context of the debtor’s insolvency proceedings in the Bulgarian courts.
© New Balkans Law Office 2018