ownership structures

New Swedish law adds pressure to challenges

A new Swedish law implemented the nation’s 4th anti–money laundering directive. Considering complex ownership structures in our globalized world, it presents great challenges for traders.

A new Swedish law that took effect in August implements the nation’s fourth anti–money laundering directive. The aim is greater transparency of the ownership and control of companies, associations, and other legal entities to prevent money laundering and terrorist financing. The law prescribes that legal entities report their beneficial owners to the Swedish Companies Registration Office. 

In our globalized world, ownership structures of companies can become quite complex and change rapidly, leading to a lack of transparency. Do you know your trading partners? Both the EU and the US apply 50% rules on ownership that can result in restrictive measures beyond the borders of an organization. It’s a great challenge for businesses to ensure compliance.

The obligation to register beneficial ownership extends to Swedish legal entities, foreign legal entities operating in Sweden, and individuals domiciled in Sweden who administer trusts or similar legal constructions. Exempted from the obligation are the government, county councils, and municipalities as well as legal entities over which they have a significant control. Also exempt are limited companies with voting shares admitted to trading on a regulated market within the EEA or an equivalent market outside the EEA, and the estates of deceased and bankrupt persons. 

A beneficial owner is an individual who, alone or with others, ultimately owns or controls a legal entity, or an individual who benefits from someone acting on his or her behalf. The definition of “control” varies by country, and global traders must ensure compliance with both national and regional regulations. 

Key provisions of the new law in force since August 2017 require that legal entities obtain reliable information on the identity of their beneficial owners and the nature and extent of the beneficial owner’s interest in the legal entity. 

Pre-existing legal entities must submit their first notification no later than January 31, 2018. Legal entities founded after August 1, 2017, have four weeks to submit the notification of beneficial ownership. A legal entity must notify the Swedish Companies Registration Office as soon as the legal entity becomes aware of a new beneficial owner. 

In practice, this means within a few days. If the information on beneficial ownership is missing or reliable information cannot be obtained, the legal entity must nonetheless provide information about the lack of information. 

And if the notification is incomplete, is not submitted, or contains incorrect information, the Swedish Companies Registration Office may impose a conditional fine on the legal entity, the managing director, a board member, or other equivalent executives to submit a notification. The same applies to a refusal of disclosure to an authority. 

The ownership structures of global businesses today can be quite complex. Identifying ownership structures requires serious and repeated research, especially considering that they can change quite quickly. This is a common topic of conversation in markets around the world. 

Given the complexity of the task, can companies really be required to manage such background checks in their day-to-day operations? Is this reasonable or even feasible? The fact is, unless courts rule differently, it’s the law – and compliance is required. 

Many companies are unaware of this gap in their compliance programs, but ignorance is no excuse. Fortunately, there are providers and IT solutions in the marketplace today that help companies manage global trade compliance in line with applicable ownership structures. 

To learn more, download AEB’s white paper on efficiently managing bans and restrictions.