Money Laundering and Terrorism Financing: Verify if Any Board Member Has Been Convicted on Your Own

The Ministry of Justice has proposed amendments to the Companies Act (ZTD) to prevent the abuse of legal entities for illegal purposes, which came into effect on February 16, 2023. The amendments stipulate that members of the company, members of the management and supervisory boards, and procurators cannot be individuals who have been definitively convicted of the criminal offense of financing terrorism or money laundering, and this applies while the legal consequences of the conviction are in effect, nor can those individuals against whom international measures restricting the disposal of assets are being enforced, while such measures are in force.

The Ministry of Justice has also adopted a Regulation on the content, manner of keeping, and conditions for using the register of persons who cannot be members of the management of a company, which came into effect on March 9 of this year.

Although it is not concluded from its title, the Regulation also applies to members of companies, management, supervisory boards, and procurators. Since it came into effect before the conditions for its application were established, Article 7 stipulates that, until the registration system is established, courts and public notaries are provided with direct access to data from the criminal record of definitively convicted persons for the purposes of registration in the court register, and for individuals who have been subjected to international measures restricting the disposal of assets, data will be obtained directly from the database maintained by the Ministry of Foreign and European Affairs.

Prohibition of Membership in the Company

Thus, individuals who have been definitively convicted of any of the aforementioned criminal offenses will be prohibited from establishing a company or acquiring shares. Public notaries will be obliged to review the register from Article 7 of the Regulation during the establishment of companies, and if they determine that the founder is listed in the register, they should suspend the establishment process. Individuals acquiring shares who have been convicted of the aforementioned criminal offenses will also not be allowed to register shares. In such cases, founders are obliged to request from the Ministry of Justice a notification on whether any of the share registrars are listed in the register. If the founders do not receive a response within five days, it is considered that the registrars are not listed in the register and that there is no obstacle to distributing shares to the registrars.

On the other hand, if international measures restricting the disposal of assets are imposed on a member of an existing company, or if a member of the company is definitively convicted of the criminal offense of financing terrorism or money laundering, their rights and powers in the company will be suspended from the moment the company receives notification from the Ministry of Justice until such restrictive measures are in effect.

Upon each registration in the register of a person who has been definitively convicted of the criminal offense of financing terrorism or money laundering and of a person who has been subjected to international measures restricting the disposal of assets, the Ministry of Justice will verify whether the person being registered is listed in the court register as a member of the company. In that case, the Ministry will promptly notify the company and the registration court of the registration in the register. That court will, ex officio, enter a note in the court register that the member’s rights and powers are suspended, and if known, the information on how long their rights and powers are suspended.

Prohibition of Function

Neither a person proposed for a member of the management, supervisory board, or procurator may be listed in the register established by the Regulation, therefore the court should reject the proposal for the registration of that person in the court register. Regarding existing members of the management or supervisory board, the ZTD stipulates that their membership ceases by operation of law if circumstances prescribed by law arise on the part of that member after the decision on their appointment, which would have prevented the appointment had they existed at the time of making that decision.

Other members of the management and the president of the supervisory board are obliged to promptly submit to the registration court a report for the registration of the termination of that person’s membership in the company’s management upon receiving information that such circumstances have arisen. If the registration court learns that any of those circumstances have occurred, it will, ex officio, enter in the court register that the person’s membership in the management or supervisory board has ceased. This also applies to procurators.

Many Questions Remain Open

The main consequence of the suspension of rights and obligations from the membership share is that such individuals will not be able to exercise their voting rights at the company meetings and will not have the right to profit distribution. It is questionable whether these individuals will have the right to challenge the decisions of the assembly. Another consequence will be the inability to conduct business in the company where that person is the sole member and responsible person, thus they will not be able to make decisions prescribed by law in their capacity as the assembly nor will they be able to act on behalf of the company towards third parties.

What about shares registered in custodial accounts? The question also arises as to how promptly the Ministry will maintain the register of offenders and update it due to, for example, the occurrence of rehabilitation. For starters, the main question is when this register will even be established.