News on Ultimate Beneficial Owners: European Regulation 1,624/2024 and Its Impact on Companies and Other Legal Entities
Introduction
In the context of combating money laundering and terrorist financing, the European Union has adopted Regulation 1,624/2024, which introduces significant changes concerning the identification and transparency of the ultimate beneficial owners of legal entities. This regulation will come into force on July 10, 2027, giving member states a transition period to adapt their national laws. The new provisions aim to strengthen control and transparency mechanisms, increasing the accountability of legal entities concerning their ultimate beneficial owners.
What are Ultimate Beneficial Owners?
An ultimate beneficial owner is the natural person who ultimately owns or controls a legal entity, whether it is a company, a trust, or another legal structure. Identifying these individuals is essential to prevent the use of legal entities for illicit purposes, such as money laundering or financing terrorist activities.
Main Changes Introduced by Regulation 1,624/2024
- Expansion of the Definition of Ultimate Beneficial Owner: Regulation 1,624/2024 broadens the definition of an ultimate beneficial owner to include not only natural persons who directly or indirectly hold a majority stake in an entity but also those who exercise significant control through other means, such as special rights or agreements. Additionally, individuals who economically benefit from the entity’s activities, even if they do not formally hold a share of the capital, are included in the definition.
- Stricter Reporting Obligations: Legal entities will be required to report extended details about their ultimate beneficial owners, including the control structure and the relationships that allow for the exercise of this control. This reporting will be mandatory at the time of establishment and regularly whenever changes occur in the ownership or control structure. Among other changes, the European regulation introduces an obligation to file a declaration with the authorities, even in situations where the reporting entities cannot identify the ultimate beneficial owners.
- Creation of a European Register of Ultimate Beneficial Owners: Another key element of the regulation is the creation of a centralized European register of ultimate beneficial owners, accessible to the competent authorities of all member states. This register will be interconnected with national registers, ensuring greater transparency and facilitating information exchange between member states.
- Severe Penalties for Non-Compliance: The regulation provides severe penalties for entities that fail to meet reporting obligations or provide false or incomplete information. These penalties include substantial fines and, in severe cases, even the dissolution of the legal entity.
- Personal Data Protection: Although the regulation requires increased transparency, it also includes strict measures to protect the personal data of ultimate beneficial owners. Access to information will be restricted to competent authorities and other authorized entities, thus limiting the risk of abuse or unauthorized use of data.
Impact on Companies and Other Legal Entities
Starting July 10, 2027, companies and other legal entities will have to comply with the new requirements, which will involve a series of operational and administrative changes. They will need to review their governance structures and implement internal mechanisms to ensure continuous compliance with the new reporting obligations. Additionally, they must work closely with legal and tax consultants to navigate the new requirements and avoid the severe penalties provided by the regulation.
Conclusion
European Regulation 1,624/2024 marks a significant step in strengthening the European Union’s efforts to combat money laundering and terrorist financing by increasing transparency regarding ultimate beneficial owners. Its implementation will bring significant changes in how legal entities are required to report their ownership and control structures, imposing greater responsibility in this regard. While the challenges for companies may be significant, these measures are essential to ensure the integrity of the internal market and prevent financial abuse.
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Lavinia Anghel – Attorney at Law
