Mandatory registration of a UBO versus privacy in the Netherlands
As from the 1ste of January 2020, companies and other legal entities will be required to register their beneficial owner(s) with the Chamber of Commerce.
Who is an ultimate beneficial owner (UBO)?
UBO means ‘Ultimate Beneficial Owner’. This is the person who ultimately owns or controls the company, foundation or association. There can be more than one UBO. Amongst others, the following individuals are considered a UBO:
· persons owning more than 25% of the shares in a private company with limited liability (BV) or public company (NV);
· persons holding more than 25% of the ownership interest in a partnership (e.g. VOF or CV);
· persons capable of exercising more than 25% of the votes in a decision to amend the articles of association of a foundation;
· persons effectively controlling a corporation.
On 4 April 2019, a legislative proposal was submitted to the Dutch Parliament to give effect to the required registration of beneficial owners. The proposal is based on the amended European Anti-Money Laundering Directive, that aims at preventing the misuse of the financial system for the purpose of money laundering and terrorism financing. Newly incorporated entities will be required to provide the relevant UBO information with the Trade Register of the Chamber of Commerce immediately as of January 2020. Existing companies and legal entities will have 18 months to register their UBO’s, so until mid-2021.
As the information in the register is (partly) public, it provides persons and organizations with more transparency before entering into a business relationship. However, this may also have an adverse effect. How is the privacy of the beneficial owner or majority shareholder safeguarded?
Doesn’t the UBO /major shareholder have a right to protection of its privacy?
The discussion with respect to the protection of personal data was one of the reasons the introduction of the beneficial owner register in the Netherlands got postponed last year. Following the public registration of high-net-worth UBO’s including addresses and identification information, risks of kidnapping, extortion and identity theft are lurking. In order to mitigate these risks, only the following personal data details will be publicly available in the UBO register:
· first and last name;
· month and year of birth;
· country of residence;
· nature and extent of the UBO’s economic interest.
Information, such as social security number (BSN), copy passport, residential address etcetera will not be made public. This information will only be accessible to certain official authorities (more specifically, the Public Prosecution Service, the Tax Authority, police and the Dutch Financial Intelligence Unit).
Also, in individual, exceptional circumstances, a UBO may request that access to the mandatory public information will be restricted. For example, in the event the UBO is underage and/or the publication of such information exposes the UBO to a disproportionate risk of fraud, kidnapping, blackmail, extortion, violence or intimidation.
Additional privacy protection thresholds are that access to the register will not be free of charge, and that the applicant will need to register and identify itself in order to obtain access.
The non- or untimely UBO-registration may be punished by the Dutch Bureau Economische Handhaving (a department of the Tax Authority) with an administrative or criminal penalty.
From a criminal law perspective, non-compliance with the UBO-registration obligation will be considered an economic offence, that can be punished with imprisonment of not more than six months, community service or a fine of the fourth category (2019: € 20,750). The legislative proposal adds two administrative sanctions, i.e. the authority to impose an incremental penalty, or an administrative fine of the fourth category.
Notwithstanding these new powers, the Dutch Tax Authority has already raised that the effective enforcement of the registration requirements will probably be ‘limited’, due to the expectation that UBO’s will try to shield behind non-transparent legal structures. For example, by providing false or incomplete information. Or by using legal structures that are excluded from the beneficial owner registration obligation, such as listed companies, self-employed persons, public-law entities and Owner’s Associations.
An important consequence of the introduction of the UBO-register in the Netherlands is that foreign UBO’s of Dutch legal entities can more easily be drawn into litigation in the Netherlands. For this, please see here the blog of our colleague Hans Klaver.