The implementation of the 4th anti-money laundering directive in France
Directive 2015/849/EU of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the "Fourth EU AML Directive") requires Member States to set up, in a central register, a system for identifying the beneficial owners of companies and legal entities incorporated in their jurisdiction.
The Fourth EU AML Directive was transposed into French domestic law by Ordinance 2016-1635 of 1 December 2016 which requires, among others, unlisted companies registered with the Trade and Companies Register and established on the French territory to obtain and keep accurate and up-to-date information on their beneficial owners and to file with the court registry a document identifying the latter as well as the procedures for the control they exercise within the company. This is the register of beneficial owners whose management has been entrusted in France to the clerks of the Commercial Courts.
This register has been set up by Decree 2017-1094 of 12 June 2017 entered into force on 1 August 2017. The Decree also provides details on the filing procedures and content of the beneficial owners document, as well as the conditions for communicating the document to the competent authorities fighting against money laundering and terrorist financing. However further details were expected in order to specify the criteria for identifying beneficial owners.
These criteria were defined by Article 5 of Decree 2018-284 of 18 April 2018, which amends Article R. 561-1 of the French Monetary and Financial Code. The Decree entered into force on 1 October 2018 with the exception of certain Articles, including the above-mentioned Article 5, which entered into force on 21 April 2018.
Definition of beneficial owners under French law
As for companies, according to Article R.561-1 of the French Monetary and Financial Code, beneficial owners are "the individual or individuals who either directly or indirectly hold more than 25% of the company's share capital or voting rights, or who exercise, by any other means, a power of control over the company within the meaning of 3° and 4° of I of Article L. 233-3 of the French Commercial Code". Thus the beneficial owners are determined according to two approaches:
- a mathematic approach, by analysing the direct and indirect holdings of each of the shareholders in the share capital and/or voting rights of the reporting company. As soon as a shareholder holds more than 25% of the share capital and/or voting rights of the company subject to declaration, he is automatically identified as the beneficial owner;
- an analytical approach that makes it possible to identify the beneficial owner(s) through different legal agreements such as a shareholder agreement, an indivision agreement, a voting agreement, a securities transfer agreement, etc.
With respect to the analytical approach, the Decree of 18 April 2018 clarified the notion of control by reference to Article L. 233-3 I 3° and 4° of the French Commercial Code, according to which:
- the beneficial owner is the person who effectively determines, through the voting rights it holds, the decisions taken at the company's general meetings;
- a beneficial owner is one who is a shareholder of a company and has the power to appoint or dismiss a majority of the members of the administrative, management or supervisory bodies of that company.
If the beneficial owner cannot be identified on the basis of the two previous criteria, and only in this situation, Article R. 561-1 of the French Monetary and Financial Code, as amended by the Decree of 18 April 2018, designates the legal representative(s) of the reporting company as the beneficial owner(s).
In the event that the legal representative is a legal person, the beneficial owner(s) will be in this case the individual representative or representatives of this legal person.
Entities concerned by the identification obligation
According to Article L.561-46 of the French Monetary and Financial Code, the entities concerned by the reporting obligation are, amongst others, the companies having their registered office in France and having legal personality (excluding companies whose shares are admitted to trading on a regulated market) but also the commercial (foreign) companies whose registered office is located outside France but which have an establishment on French territory.
The obligation to make the declaration is incumbent on the legal representatives of the company concerned.
Deadlines for filling the declaration of beneficial owners
A distinction must be made between companies or legal entities registered before 1 August 2017 and those registered after this date:
- companies or legal entities registered with the Trade and Companies Register before 1 August 2017 had to declare their beneficial owners before 1 April 2018 at the registry of the Commercial Court;
- companies registered since 1 August 2017 must declare their beneficial owners at the time of registration or no later than 15 days after registration.
Update of the declaration of beneficial owners
Companies must submit an updated declaration on their beneficial owners in case of:
- Events affecting the reporting company: change of company name, legal form, registered office, etc.
- Events affecting the beneficiary owners: an individual who becomes a beneficial owner or loses that status, change of legal representatives as soon as they had been declared as beneficial owners, modification of the conditions of control exercised by the beneficial owner over the reporting company, etc.
The amending declaration must be filed within 30 days of any fact or act that requires the correction or supplementing of the information mentioned therein.
Penalties incurred in the event of failure to report
According to Article L.561-49 of the French Monetary and Financial Code, failure to file the required beneficial owners document with the Trade and Companies Register or to file a document containing incorrect or incomplete information is punishable by 6 months' imprisonment and a fine of €7,500 (€37,500 for legal entities).
In addition to the complementary penalties that may be imposed to the criminal conviction, failure to comply with the disclosure requirement may also result in a refusal to register companies wishing to register in the Trade and Companies Register. Judges have recently considered that the application for registration of a company must be refused if the declaration of beneficial owners is incomplete in that it does not specify the percentages of direct and/or indirect ownership by the beneficial owner of the capital and/or voting rights in the reporting company (T. Com. Bobigny, 18 mai 2018, n°2018S07031).
Vincent Maire (White & Case, Paris) contributed to the development of this publication.
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