Early impacts of public beneficial ownership registers: Ukraine
Ukraine's pioneering approach
1. Commitment to a central and public register
The 2014 Law of Ukraine, “On State Registration of Legal Entities, Individual Entrepreneurs and Public Associations,” requires all companies to submit information about their beneficial owners to the Unified State Register of Legal Entities, Individual Entrepreneurs, and Civic Formations (the “USR”).[8] The USR was officially established in September 2015 after some delays in the initial reporting process. The Ukrainian Ministry of Justice is the designated body responsible for establishing, providing, and maintaining technical support for the register, along with enforcing compliance. Data is available online for bulk download and through an application programming interface (API) on a dedicated website hosted by the Ministry of Justice,[9] as well as on Ukraine’s Unified State Portal of Open Data[d] and the OO Register.[e]
2. Ongoing revisions to the register
Multiple updates to Ukraine’s BOT legislation have taken place since the USR was established. The most significant of these was a new requirement for all reporting entities to resubmit their BO information between July and October 2021 and to provide greater detail.[f] This followed the passing of new anti-money laundering (AML) legislation in April 2020 that broadened the definition of an ultimate beneficial owner to any individual exerting decisive influence or control over a company’s activities. It required the nature and extent of BO to be reported, including information about an owner’s benefits, interests, and influence.[10] Companies must provide a schematic representation of all persons who directly or indirectly own a legal entity, either independently or jointly with other persons.[11]
However, practical reporting challenges have caused a delay in implementation, and the deadline for submission was extended to July 2022.[12] The use of a paper form has led to long wait times in queues and has affected compliance. In light of these challenges, the government of Ukraine considered narrowing the scope of the register to exclude entities such as not-for-profit organisations. This narrowing of the scope of the legislation seems to have been avoided, in part thanks to organised resistance from civil society, though businesses continue to challenge the law on the grounds that the new requirements present an unreasonable burden and invasion of privacy.[13]
3. Strengthening verification and data structure
Despite being an early adopter of BOT reform, Ukraine’s BO platform and data suffer from significant quality issues. The register has been called “hard to access and poorly managed”,[14] and the data “of very poor quality”.[15] The new filing process aims to ameliorate these issues. It requires certified copies of beneficial owners’ passports, whether foreign or domestic,[16] which will introduce the possibility of the public register including unique identifiers. This will also strengthen authorities’ ability to verify the identity of individuals reporting information to the USR and of the reported beneficial owners. Previously, the Ukrainian legislation did not provide for the submission of documents confirming the beneficial owners’ identities, and lacked unique identifiers, which constrained its integration with other datasets.
In addition, information on the “ultimate beneficial owner” has been separated into its own data field. Previously, BO information was entered by registrars together with a company’s “founders” as free-text within a single field (here, “founders” refers to current and past shareholders in the business, including individuals who established the company), making them difficult to distinguish. Separating beneficial owners clearly from other types of stakeholders will improve usability, making it easier to identify beneficial owners within the data.[17]
4. Expanding coverage and detail
After the new reporting window closes in July 2022, the register should include more entities and better detail about their ownership structures. Publicly held companies will no longer be exempt from BO reporting, and all reporting entities will need to provide a diagram or table detailing their direct and indirect ownership structures. The ownership diagram must show connections between individuals, legal entities, and legal arrangements, such as trusts within a company’s ownership structure, as well as the nature of each actor’s influence.[18] BO information must be updated annually within a 14-day period, and any changes to the ownership structure or owner details must be reported within 30 days.[19] Compliance challenges notwithstanding, these recent revisions to Ukraine’s BO legislation together represent a continuation of the country’s iterative approach to BOT reform.
Footnotes
[d] See: “Unified State Register of Legal Entities, Individual Entrepreneurs and Public Associations”, Transparency and Accountability in Public Administration and Services Program, n.d., https://data.gov.ua/dataset/1c7f3815-3259-45e0-bdf1-64dca07ddc10.
[e] See: “Open Ownership Register”, Open Ownership, n.d., https://register.openownership.org/. Data for Ukraine is currently only available up to mid-2020, and up-to-date data will again be regularly imported into the register starting in the first quarter of 2021.
[f] The new guidelines are called the “Regulation on the Form and Content of an Ownership Structure”. See: “Ukraine issues new guidance on beneficial ownership reporting”, Wolters Kluwer, 3 August 2021, https://www.wolterskluwer.com/en/expert-insights/ukraine-issues-new-guidance-on-beneficial-ownership-reporting.
Endnotes
[8] Olyana Gordiyenko and Zoryana Matviychuk, “Ukraine: Upfront Disclosure of Beneficial Ownership Now Required”, Global Compliance News, 27 October 2014, https://www.globalcompliancenews.com/2014/10/27/ukraine-upfront-disclosure-of-beneficial-ownership-now-required/.
[9] See: “Unified State Register of Legal Entities, Individual Entrepreneurs and Public Associations”, Ministry of Justice Ukraine, n.d., https://usr.minjust.gov.ua/content/free-search.
[10] “Extractive Industries Transparency Initiative National Report of Ukraine 2019”, EY and Ukraine EITI, July 2021, https://eiti.org/files/documents/ukraine_report-eiti_en_2019_final.pdf.
[11] “Затверджено Положення про форму і зміст структури власності”, MeDoc, 10 June 2021, https://medoc.ua/blog/zatverdzheno-polozhennja-pro-formu-i-zmist-strukturi-vlasnosti.
[12] “Deadline for disclosure of UBOs and ownership structure postponed for nine months”, Sayenko Kharenko, 11 October 2021, https://sk.ua/news/deadline-for-disclosure-of-ubos-and-ownership-structure-postponed-for-nine-months/.
[13] Ibid.
[14] Bullough, 278.
[15] Anti-Corruption Action Centre, “Beneficial owner: What is inside Ukrainian business register”.
[16] “New requirements on disclosure of ultimate beneficial owners by Ukrainian companies”, Sayenko Kharenko, n.d., https://sk.ua/wp-content/uploads/2021/07/sk-disclosure-of-ultimate-beneficial-owners.pdf.
[17] Anti-Corruption Action Centre, “Beneficial owner: What is inside Ukrainian business register”.
[18] “Ukraine issues new guidance on beneficial ownership reporting”, Wolters Kluwer.
[19] Ibid.