News: Beneficial owners of enterprises and new rules of reporting

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Now a new bill is being prepared, which will be another tool in the fight against offshore companies. The purpose of it is to oblige Russian enterprises to file reporting about their beneficial owners with the tax authorities.

The Rosfinmonitoring can be considered as the author responsible for this draft law, that stipulated that Russian enterprises must now submit reporting about the number of their beneficial owners to the tax authorities at least once a year.

Almost immediately the corresponding legal institute made a positive decision on this document and the next step will be its consideration in the government, after which it will be submitted for adoption to the State Duma.

Although it is naive to expect that the information on the actual owners and beneficial owners of private enterprises will be disclosed with the entry into force of this law. Since fines of up to half a million rubles will not become a great obstacle for unscrupulous entrepreneurs. And the norm relating to possible and available measures to find beneficial owners generally provides for the exclusion of any liability.

The Rosfinmonitoring also proposes amendments to the law on combating money laundering, which purpose is financing of terrorist activities, where a completely new article is being introduced on the requirements for firms to disclose data on their own beneficial owners. Here, the beneficial owner should be considered as an individual that as a result directly or indirectly owns more than a quarter of the total capital of the company or can dispose of it.

It is worth noting that not only the beneficial owners of companies with multimillion-dollar income, but also the owners of smaller enterprises, do not want to disclose their positions. This behavior comes out of the banal desire to protect the data of own company from possible raider seizures of enterprises and dishonest officials. After all, if you do not know who actually controls the company, then there is no one to be blackmailed.

Now, at least once a year, companies should provide information about their owners and update this information, while recording everything in the relevant documents and keep up to five years. The foregoing will be implemented in the form of certain supplement to the basic financial statements similar to audit findings.

The Rosfinmonitoring first wanted to create a special administrative register, where it would be necessary to enter information about the beneficial owners of firms, but fortunately, this idea was not implemented. At the moment, the disclosure process is provided only for the reporting, without unnecessary red tape. Now all enterprises, without taking into account their form of establishment, will have to send copies of accounting documents to the Rosstat in parallel with audit decisions. In the end, within the framework of the Rosstat, each person without limitations can obtain this information for a fee for the purpose of checking its counterparty or other motives.

The very information about the beneficial owners will be located at the enterprises themselves, but it will not be regularly disclosed.

Enterprises will be able to request a list of data required from their founders and shareholders for the search of own beneficial owners. And legal entities and individuals will be forced to provide such data in response. The authors of the bill state that this norm is not a violation of the protection of personal data, although in practice it looks different.

The government will be subject to the obligation to determine the terms and official bodies for which the enterprises will provide data on the beneficial owners. As stated above, for non-compliance with these requirements, the fine of up to half a million rubles will be imposed on the company, and the fine of 50,000 rubles will be imposed on the company's top executives. To normalize these provisions, the Code of Administrative Offenses will also be amended and a new article will be added.

Next, let’s consider the popular examples, where the beneficial owners are not known to us. If we analyze the first hundred lines of the Forbes rating, even there we will see a whole list of companies which beneficial owners remain secret for us.

The "Surgutneftegaz" is one of the largest oil and gas companies in oil and gas production in Russia. In 2014, the revenue of this company was 890.57 billion rubles, but nevertheless, despite such fabulous profits, the company has the status of "shadow" one, and its beneficial owners are hidden behind the powerful structure of frontline legal entities.

The Merlion can be attributed to one of the most important distributors of electronic equipment in Russia. There are several retail networks and service centers in the possession of this company, and among other things the enterprise engaged in the production of computer equipment. When nine years ago the last owner of the company sold it to investors, the data on the beneficial owners turned out to be hidden to the public.

The "VIP-service" is an enterprise that has a whole commercial structure for the sale of air tickets, as well as hotel and tourist enterprises, the railway sector and transportation in general. Two years ago, their profit was 76 billion rubles, and information about their owners is not available until now.

As for the organization Transyuzhstroy, it is formed on the basis of the trust, which is responsible for 525 km of the Baikal-Amur Mainline. It is also responsible for transport infrastructure including Russian Railways facilities and numerous buildings for the Universiade, the Olympics and the World Cup. In 2014, their profit amounted to 43.3 billion rubles. As for the owners, there is even an inconsiderable scandal when Roman Putin, a relative of the President of the Russian Federation, charged the company with corruption, and pointed out that the actual owner is a Cypriot company, and its owners are behind-the-scenes.

As for the practical difficulties that arise with the new deoffshorization provisions, the bill itself received a portion of criticism from the Ministry of Economic Development. It emphasizes the fact that, in practice, the beneficial owner often owns a Russian firm through a number of front companies that are registered in jurisdictions of different states. Based on this, a local legal entity has problems with obtaining real data about its owners, which are bound by the rules and norms of other states, as well as the inability to influence its shareholders and founders. Also it should be taken into account in the bill that this fact, registration of the beneficial owner in the territory of another country, is the main obstacle for obtaining information about the owner. Another issue worth mentioning is the inability to identify the criteria for measures that legal entities should carry out to find their beneficiaries. There is no clear process or sequence of measures, which leaves many ways for abuse. For example, it is not prescribed whether it is necessary to obtain information through the judicial system or simply send a request. This leaves another wide gap implying the corruption component.

Experienced businessmen declare that the Russian mental order is stretching to the opportunity to take someone else's, and these changes in the law just give such an excellent chance for profit. "The weak eats the stronger, the business is the jungle, and in the jungle it's better to remain in the shadows," says one of our interlocutors.

It follows from the explanatory note to the bill that the authors have started to promote it in order to contribute to the national plan to combat tax evasion and non-disclosure of the actual owners of enterprises. Wishing to strengthen the transparency and honesty of the companies, they have achieved an ambiguous effect.

It is clear that the state wants to collect as much data on beneficial owners as possible in order to regulate business processes and raise the level of the country's income that results from taxation. But the problem is that the company does not always have information about its owners. In addition, it is quite problematic to prove that the owner carries out management through offshores. After all, it is necessary to make inquiries to foreign state institutions and organize trips abroad to conduct investigations, and this is an extra-cost business and a very long one. In addition, it costs more than half a million fine.