Prevention of money laundering - obligations imposed on business service providers

The operation of business services centres, especially those serving a single corporate group, is not typically associated with duties in the area of anti-money laundering or countering the financing of terrorism (AML/CFT). However, if only the centre provides bookkeeping services or certain corporate services, it is sufficient for it to obtain the status of "obliged entity" which is subject to several AML regulatory obligations. Failure to comply with such requirements creates exposure to heavy financial penalties.

The April amendment to Polish AML regulations expands the range of situations when business services centres may be subject to the Anti-Money Laundering and Countering the Financing of Terrorism Act (the so-called AML Act). In addition to the existing obligations to make disclosures in the Central Register of Beneficial Owners (CRBO), the list of activities that can only be performed after additional AML procedures have been put in place has been extended.

BENEFICIAL OWNERSHIP REGISTER

The Central Register of Beneficial Owners is a publicly accessible database of companies' beneficial owners. The deadline to make initial disclosures in this register was 14 July 2020, and all new companies should make a filing within 7 business days of their registration with the National Court Register. Failure to make a filing creates exposure to a financial penalty of up to PLN 1 million.

Short deadline and high penalties for out-of-date data

Although the vast majority of professionally managed companies have already made their disclosures to the CRBO, not all of them remember to update their data on time. Any change to the management board, personal details of a management board member (e.g., country of residence or surname), address, company name or details of the beneficial owner must be filed to CRBO within 7 business days.

The April amendment to the AML Act specifies that a financial penalty of up to PLN 1 million also applies in the case of delays in updating data and filing incorrect data. The amended AML Act also makes it mandatory to disclose all nationalities of beneficial owners. Until now, only one nationality could be filed. The new obligation will come into force at the end of October and may create the need to update data in the CRBO.

Senior executives as beneficial owners

Many shared services centres establish beneficial owners based on the criterion of holding a 'senior executive position'. It is worth noting two main difficulties associated with such a filing:

(i) Senior executives are often not just directors (management board members). In many cases, directorship is held by group officers not actively involved in the day-to-day management of the entity running the business services centre. Companies that limit disclosure of senior executives to management board members may face charges of false (incomplete) disclosures if the company has non-director level individuals who manage the operation at the local level − often these individuals include the local general manager or chief financial officer. On the other hand, there are times when key operational decisions concerning a company are made by individuals who are neither employed by the company nor serve on its management board − but carry out their functions within regional or global structures. Failure to disclose such persons, if they perform duties appropriate to senior executives of the company, will expose the company to financial penalties, the person signing CRBO filing to criminal liability, and the undisclosed beneficial owners − to personal financial liability.

(ii) The filing of senior executives as beneficial owners requires gathering documentary evidence of the impossibility of identifying beneficial owners based on other criteria. We have noted from practice that this requirement is often not met, which can expose those signing the filing form to liability.

Banks, accountants, and lawyers will report irregularities

As early as 31 October, regulations will come into force requiring "obliged entities" (banks, insurers, accountants, tax advisers, transactional lawyers, among others) to record discrepancies between the information they have established about a customer's beneficial owner and the data filed to CRBO. Once it is confirmed that the discrepancies are not the result of a mistake (e.g., personal changes have been filed to CRBO but are not yet visible in the National Court Register), the obliged entities will have to notify the discrepancies to the Minister of Finance. The notification may result in an enquiry being launched, and a note about this will be recorded in CRBO. Such note will be a public warning of the increased risk of concealment of beneficial owners, which may have reputational consequences.

To prevent the obliged entities from coming to a conclusion that may be at odds with the information filed with CRBO, it is advisable to prepare a professional documentation package demonstrating that beneficial ownership has been correctly determined.

SERVICE CENTRE WITH RESPONSIBILITIES AS A BANK: SERVICES RESULTING IN "OBLIGED ENTITY" STATUS

The carrying out of certain activities triggers the status of "obliged entity". Some of these activities can be found in business services centres. For example, these include:

• bookkeeping services
• providing a registered office, business address, mailing address, or other related services to companies and certain other entities
• preparation of tax returns (to be an obliged entity, an activity consisting in preparing tax returns, keeping tax books, giving advice, opinions or explanations on tax or customs legislation must be the core business activity of the entity)
• accepting or making payments for goods in cash with a value of EUR 10,000 or more (rare in services centres).

Obtaining the status of "obliged entity" (OE) is automatically triggered by the performance of certain activities. Obligations of obliged entities relate to several areas of activity.

OBLIGATIONS OF OBLIGED ENTITIES

OEs are required to assess the risk of money laundering and terrorist financing, and to document the risks identified, as well as to apply to their clients (e.g., service recipients) financial security measures adequate to the risk assessment conducted. Financial security measures include identifying the customer and verifying its identity, identifying the customer's beneficial owner, and taking reasonable steps to verify its identity and establish ownership and control structure, assessing the business relationship (including the purpose of individual transactions) and monitoring the customer's business relationship on an ongoing basis. The application of financial security measures must be documented and presented to the audit authorities in case of an inspection.

In addition, OEs must put in place an internal procedure for all AML processes. The institution should have a procedure in place for anonymous reporting of breaches, appoint an AML officer, and provide training for AML staff. Failure by an obliged entity to comply with its obligations exposes it to administrative penalties − financial (for natural persons − up to PLN 20.8 million, for legal persons − up to EUR 5 million or 10% of turnover), reputational (publication of information on breaches) and personal (ban on holding positions, withdrawal of licences or permits, order to cease certain types of activity).

Author: Piotr Jaśkiewicz, Counsel, Baker McKenzie