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On imposing of obligation on legal entities to determine and disclose information on their beneficial owners in the Russian Federation.

Dear Colleagues, Clients, Friends.

Please be advised that on December 21, 2016, the Federal Law of June 23, 2016, No. 215-FZ “On Amendments to the Federal Law “On Countering Legalization (Money-Laundering) of Proceeds of Crime and the Financing of Terrorism” and to the Code of Administrative Offences of the Russian Federation” (hereinafter – the Law) has taken effect.
The Law amends the Federal Law of August 7, 2001, No. 115-FZ, and the Code of Administrative Offences of Russian Federation, and institutes new obligations for legal bodies acting in Russia: to possess information about their beneficial owners, to identify them, to obtain and keep information about beneficial ownership, as well as to provide this information upon requests of the FSFM of Russia (Federal Financial Monitoring Service), of the tax authorities, and of other federal executive authorities empowered by the Russian Government.
This legislative innovation applies to all legal entities operating in Russia, with the exception of:
- state corporations,
- corporations with the share of Russian Federation in their charter capital exceeding 50%,
- issuers of securities admitted to trading, that disclose information in accordance to the Russian legislation on securities,
- foreign legal entities, securities of which are listed on a foreign stock exchange that is included in the approved by Bank of Russia list.
The Law imposes the following obligations on legal entities:
- To possess the information about their beneficial owners and to undertake measures to obtain such information, that are reasonable and available in the circumstances;
- To update information about their beneficial owners regularly, but not less than once in a year, and to document such information;
- To keep the information about their beneficial owners and on the measures undertaken for obtaining such information, within 5 years;
- To provide the available documented information about their beneficial owners and about the measures, undertaken to obtain such information, upon requests of the FSFM of Russia and tax authorities, as well as other federal executive authorities empowered by the Government of the Russian Federation;
- To disclose the information about their beneficial owners in the accounting, in cases and in the order provided by the applicable legislation;
It should be noted that for the purposes of the considered provision a beneficial owner is defined as a “natural person that eventually, directly or indirectly (by means of third parties) owns (has a prevailing participation with a share greater than 25% of the charter capital) a legal entity, or has an opportunity exercise control over actions of this legal entity”.
In accordance with the Law the information about the beneficial owners includes:
- Surname, name, patronymic (if applicable),
- Nationality, date of birth,
- Requisites of the identity document,
- Information about migration card or other document stating the right of a foreign or a stateless person to stay (reside) in the Russian Federation,
- Place of residence (registration) or place of stay,
- INN (if any).
In order to fulfill the above-mentioned obligations the Law gives a legal entity the right to request information about beneficial owners from its incorporators, participators, and persons able to control this legal entity in any other way.
The Law also imposes on legal and natural persons, that are incorporators or participators of a legal entity, or are able to control this legal entity in any other way an obligation to provide it with any available to them information necessary to identify the beneficial owners of this legal entity. The Law states as well that transfer of such information does not violate the legislation on personal data.
As a practical matter it should be noted that the aforementioned provision will only act in relation to participators (incorporators) located in Russia. However, the question of what can be done in case of foreign participators (incorporators), to which the obligation to provide information on beneficial owners would not apply, leave the request of such information unanswered, apparently, will be resolved only by the upcoming judicial practice. Nonetheless, at present it seems appropriate to obtain a written confirmation of submission of such request to a shareholder, and of its contents.
One more question, that seems to be quite important in order to comply the new regulations, concerns the requirement of documentary evidence certifying the obtained information, as stated by the Law. The Law does not explain whether e.g. a written response from the shareholder would be sufficient evidence, or a certificate of incorporation should be obtained. Until judicial practice on this provision is formed it seems reasonable to arrange regular (at least once in a year) receiving and further storage of extracts from the Unified State Register of Legal Entities about the legal entity itself and its shareholders. Such extracts can be obtained in electronic form; this procedure is free of charge and does not require significant efforts.
Pursuant to the Law, the terms and conditions, according to which legal entities are obliged to provide upon requests of state authorities information about their beneficial owners and about the measures, undertaken to obtain such information, are to be determined by the Government of the Russian Federation. At this juncture such acts have not yet been adopted.
The Law has also amended the Code of Administrative Offences of the Russian Federation. These amendments established an administrative liability of legal entities for failure to fulfill the obligation to possess, update, and keep information about their beneficiary owners; to provide such information or information about the measures, undertaken to obtain such information, upon requests of the FSFM of Russia (Federal Financial Monitoring Service), of the tax authorities, and of other federal executive authorities empowered by the Government of the Russian Federation. The fines for these administrative violations are from 30 thousand to 40 thousand Rubles for executives, and from 100 thousand to 500 thousand Rubles for legal entities.

We are ready to provide you with more detailed legal advice on the issue, and be of assistance of yours on other queries pertaining business structuring in Russia.
Best regards,
Advocate’s cabinet of Mr. Andrey Konkov together with LLC DSL-Service, Russia.