Slovakia: Disclose Your Beneficial Owner - or Forget about Doing Business with the State

New Anti-Letterbox Act in Slovakia

The new Act No. 315/2016 Coll., on Registry for Partners of the Public Sector and amending and supplementing certain acts (the "Anti-Letterbox Act") entered into force earlier this year.

Its main purpose is to combat "shell" or "letterbox" companies that receive public funds and do business or enter into contracts with public authorities. The legislator sought to address the sadly common practice of politicians or persons connected with them (typically the anonymous sponsors of political parties) using companies with unclear ownership to do business with the state and thus receive cash in return for support.

Although the Anti-Letterbox Act aims to put an end to such practices, it in fact affects almost all private entities doing business with the Slovak state and authorities. It will even impact those that are not necessarily involved in dealings with public authorities but are active in certain regulated industries.

Registry and affected entrepreneurs

The Anti-Letterbox Act requires certain entities to register in the so-called registry of partners of the public sector (the "Registry").
This obligation applies among others to:

1.    entities providing services or goods to state authorities or state companies through public procurement;
 

2.    health care providers and entities supplying them (such as wholesale pharmaceutical distributors);
 

3.    companies leasing premises from the state or a municipality;
 

4.    any person holding an energy licence, who must register by 31 July 2017;
 

5.    every person claiming more than EUR 1,000,000 in bankruptcy or restructuring proceedings of an entity registered in the Registry – this was aimed at "hidden" related party creditors, but will also apply to banks;
 

6.    operators of the toll system in Slovakia;
 

7.    entities applying for investment aid from the Slovak state; or
 

8.    contractors for geological works.

In some of these cases a threshold of EUR 100,000 one-time or EUR 250,000 per year applies (eg in cases of lower valued public procurements the obligation to register will not apply).

Data to be entered in the Registry mainly consists of the identification data of the ultimate beneficial owners. The ultimate beneficial owner of a legal entity is defined as the natural person actually controlling it, in particular a natural person who directly or indirectly holds at least 25 % of shares or votes in the legal entity or has other controlling rights over it. There are specific rules for publicly traded companies.

The Registry will be accessible online to everyone free of charge. In practice, therefore, everyone will be able to see identification data on the beneficial owners of companies registered in the Registry.

Registration process

The Anti-Letterbox Act also provides a new (and for Slovakia very specific) system of registration in the Registry. The application cannot be filed by the legal entity itself, but only by an authorised person (the "Authorised Person"), who under the Anti-Letterbox Act must be one of the following: (i) attorney at law; (ii) notary; (iii) bank; (iv) auditor; or (v) tax advisor, in each case with registered seat in Slovakia.
Before submitting the application, the Authorised Person must duly verify the information on the ultimate beneficial owners provided to it. This information must also be reviewed regularly for its accuracy, always by the end of each calendar year and in certain specific cases (such as change of the contract with the public authority).

Sanctions

The Anti-Letterbox Act introduces strict sanctions for non-compliance that can be imposed on a company registered in the Registry, its statutory body, the Authorised Person and even the ultimate owners.

For instance, if inaccurate information is entered in the Registry, the following sanctions may apply:

• a fine on the registered legal entity corresponding to the amount of economic benefits received from the public sector or up to EUR 1,000,000 if the amount cannot be determined;
   
• a fine of EUR 10,000 – 100,000 for each managing director of the registered entity, who are strictly liable regardless of culpability and without possibility of release. The Authorised Person guarantees the payment of the fine;
   
• exclusion of the managing directors of the registered entity from holding the position of a managing director, head of branch office or proxyholder in any Slovak company for a period of three years;
   
• termination of agreements entered into by the public authority with this entity;
   
• loss of licence in specific cases (eg energy licence).

Applicability in practice

To sum up, the Anti-Letterbox Act is strict, with broad application to many legal entities in Slovakia and an almost draconian system of sanctions. It may also cause problems for foreign private owners of Slovak entities who want to retain their privacy or for Authorised Persons, as they will be burdened by strict liability. It is also hard to predict whether the Anti-Letterbox Act will in fact achieve its main goal of fighting shell companies, as despite its stringent nature, the effect of the law on business relationships will largely depend on its enforcement in practice.