24 November 2020
Search for beneficiaries in Cyprus became possible. It is enough to know the organizational structure of a company. The Head of YouControl Training Department Ihor Kurochka talks about the structure of Cyprian companies and how to find their beneficiaries.
Cyprus is one of the closest jurisdictions for Ukrainian business. Six thousand Ukrainian companies have founders in Cyprus, which is 30% of all legal entities with foreign founders in Ukraine. And it is also the most popular place of registration among other jurisdictions. Cyprus also occupies the second place in terms of the number of inquiries from financial intelligence units, according to data for 2019 from the State Financial Monitoring Service of Ukraine. In particular, 30 inquiries were sent (more only to Latvia – 50 inquiries). With the introduction by the National Bank of Ukraine of the requirement to identify beneficiaries of customers to determine the riskiness of transactions, under the law on money laundering and terrorist financing, information from the Cyprian register became even more popular, as it can sometimes help identify the real owner of a business. YouControl analysts understood the structure of businesses related to Cyprian companies.
Formally the offshore mode was in force in Cyprus from 1977 to 2003 – a year before joining the European Union at the request of the EU the reform of legislation was implemented here to strengthen control over enterprises. Cyprus, like European Malta, is not an offshore financial center in the full sense of the term, it partially discloses data on the owners of companies registered here.
In general, a typical Cyprian company looks as follows: in its structure there is the owner (either a legal entity or a natural person) – one or a few; it has the secretary, that is a person or a company that deals with office work and services, and the director – also either a person or a company. The company also has a registration address – usually an address in the office center or in the so-called secretarial company that serves it. Until 2019 firms in Cyprus could be registered directly in residential buildings, but after the new legislation had entered into force, this rule was repealed. Before that companies could be found in private mansions, apartments and even hotels. Sometimes the address of a company turned out to be just a mailbox.
Prior to shifting from the offshore legislation, these data were not disclosed in Cyprus. Now anyone who has access to the register of legal entities of this state can get information about a company. The main difficulty consists in the fact that even with all these data about a Cyprian company you may not know who its real owner is.
The easiest case is when a Cyprian company has only one beneficial owner, and this is a natural person with a non-Cyprian citizenship. Most likely, this person is the real owner of the company, and his/her name will appear in the Cyprian register. The situation is much more complicated if this person is a Cypriot. Lawyers of the international corporate practice Antoniou McCollum&Co LLC mention the so-called shadow owners and directors. In fact, the practice of proxies is common in Cyprus: a proxy can become the owner of any company, a Cypriot lawyer who, under the contract, will be the owner of some entrepreneur’s share in the company. There may be two or more such lawyers in the company, and the more such nominal owners are, the more real owners usually are. But keep in mind that two Cypriot owners do not mean two real owners – each of them can have several different trustees.
Another common practice of hiding the real owner of a company is “matryoshka doll” companies. Let’s say you detect the real owner of one firm, and it turns out to be another firm (and sometimes not one). And while identifying the beneficiaries of this owner company, they turn out to be another beneficiary company. Such a chain may not end for a long time, and it is often difficult to trace it to the real owner – at the end of such a rope there is often either a trusted Cypriot citizen or a company from the “real” offshore jurisdiction, for example, from the British Virgin Islands or Aruba, who do not open their registers.
One of the indirect ways is the analysis of directors and secretarial companies, as well as the registration address. It happens that one and the same owner uses the services of one and the same lawyer, so s/he appoints him/her the director or secretary of the company. And when the owner changes, the address of its registration and officials may change to those ones that are close to the real owner. But this is only an auxiliary tool.
Secretarial and director services in Cyprus are a well-established type of business; a lawyer may be a director of a number of companies. For example, the Cypriot George Lantas runs more than a hundred companies, so it is difficult to rely on the suggestion what he will lead to the real owner. In addition, in case of problems with competitors or the law it is much easier for the real owner in the country of his/her registration to save the business, because it is difficult even for specialists in pre-trial examination to establish ownership without a trust agreement or some insider information.
For Ukraine such an analytical approach is not always suitable, because 99% of the companies analyzed by YouControl have different directors who do not intersect in companies of one owner. Therefore, such managerial connections can only be recognized through a historical prism.
The same problem can occur with addresses. Indeed, while registering, entrepreneurs often use the services of the same lawyers, so companies are registered at the same address. But the same address is also an indirect indicator by which the owner can be identified; it is rather an auxiliary tool.
A new law is expected to be approved in Cyprus in the nearest future, it will oblige proxies and “matryoshka doll” companies to disclose the real beneficiaries of enterprises. “It is unlikely to have a strong impact on the popularity of the jurisdiction among Ukrainian businesses – real offshore financial centers still remain available to anonymize the owners, and Cyprus will preserve its position as the tax heaven and European protection of assets,” Olena Shcherban, a representative of the Anti-Corruption Action Center, comments.