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Law to prevent secrecy further slammed

feature george christou attorney general giorgos savvides
Attorney-general Giorgos Savvides

As new bill ping pongs between government departments, MPs threaten to pass their own version

By George Christou

The registration of ultimate beneficial owners (UBOs) of companies has turned into a fiasco with the government repeatedly forced to backtrack after deputies threatened to pass their own bill if the fines imposed for delayed submissions were not suspended. On Wednesday the Registrar of Companies issued a new announcement saying the deadline for the registration of UBOs had been extended by another month, to the end of March, after which non-compliant companies would be subject to penalties in accordance with the law on the prevention of money laundering.

This indicated that no company would be fined if it submitted the information by March 31, something that has created another problem. What happens to all the

companies that had paid the fines imposed on them for submitting the names of UBOs after the January 1 deadline, now that the deadline has been pushed back?

The House commerce committee had given Attorney-general Giorgos Savvides until last Friday to respond to the Registrar’s request for advice on whether the money paid in fines by some companies could be returned by the revoking of an executive decision, but by Friday afternoon there was no response. Some €2 million had already been collected in fines. It also wanted to know what would happen to trusts that were automatically fined from January 1 of this year, even though they could not register on the interim platform in 2023.

Savvides had told journalists on Friday, on his way to a conference that “staff of the legal service are working on the matter and as soon as we are ready, we will announce it.” He said that the service was working on finding a solution based on the arrangement agreed at the House committee.

Deputies, who were united on this, had warned that if the legal service could not provide a solution, they would pass legislation to tackle the matter. The chairman of the committee, Kyriakos Hadjiyiannis speaking on behalf of all deputies said, “unfortunately, they made a big mess.”

The problem was created by the Registrar, who changed the platform last year. A digital platform had hurriedly been set up for the registering of a company’s UBO in 2022 after Cyprus came under pressure from Brussels to implement a directive aimed at stopping lawyers and accountants all over Europe registering companies in the name of nominees, thus keeping the identity of the real owners a secret.

This, however, was a very basic platform, incapable of verifying any data, because it could not be connected with any other state platform. Why companies were obliged to post UBOs on such a rudimentary platform was never explained, although 190,000 had registered. This is about 50 per cent of the companies registered in Cyprus.

At the end of 2023, a new digital platform was developed but the data from the old platform could not be transferred to it, which meant all companies had to register again. Companies that were registered on the old platform were given until the end of February to register on the new one. But all companies that had not registered on the first platform or the new one that became operational in December 2023 were fined when they tried to post their UBOs after January 1 of this year.

A fine of €200 was imposed on every beneficial owner, who failed to post this information on the platform by 1 January 2024, and €100 for every day after that. A company with one UBO that had not registered on the platform by Friday 12 January, for example, would owe the state €1,300.

Until January 12, the system did not allow a company to post its UBOs if it had not first paid what it owed in fines. For a company with five UBOs (shareholders), the fines would be €5,500 from January 1 to January 12. And as the system would not allow posting of information before the fines were paid, it meant these kept rising.

On the 12th however, under pressure from professional groups, which had written to the registrar to complain about the situation, and deputies threatening to pass their own legislation, the registrar retreated. An announcement was issued saying companies would be able to register their UBOs on the new platform without prior payment of the fines.

The main gripe of professional groups was that the circular issued by the Registrar was confusing and had not made it clear what companies that had not registered on the old platform were obliged to do. The registrar’s office denied this, while Commerce Minister Giorgos Papanastasiou, condemning the reaction to the UBO fines during Tuesday’s House committee meeting, declared that “Cyprus has no credibility in any field.”

He could as well have been referring to the registrar of companies, which had made companies register UBOs on an amateurish digital platform, then demanded they register again on a new platform through instructions described as “incomprehensible,” imposed fines on companies that did not meet the deadline, made payment of fines necessary for a company to register, subsequently lifted this requirement and then extended the original deadline by a month. And now all the fines it collected may have to be returned as well.

A share of the blame for the mess was attributed to the EU by the head of a Nicosia auditing firm, who argued that the directive negated the concept of the company’s shareholders, who are the owner. “If a company registers it shareholders, they are the owners,” he said. “What is the need to post this information on the UBO registry as well?”

The registrar should only demand that companies, the ownership of which is held by nominees or trusts submit UBOs, he said explaining that insisting all 350,000 plus companies registered in Cyprus should comply with the directive was unnecessary and costly.

He asked: “Why should a small kiosk or garage with a single owner have to register its UBO? Why should a company that has been operating for decades and has provided all information about its shareholders have to do this? Has the existing system of company registration been deemed inadequate by the EU because it is abused by small percentage of companies?

“It is these companies the registrar should focus on instead of targeting all companies and fining those that do not comply with the new law,” he said.

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