Changes in the register of beneficial owners. Fines are ending, but obligations remain

Recent decisions by the Supreme Administrative Court and the Supreme Court of the Czech Republic have brought about fundamental changes to the registration of beneficial owners. Due to a conflict with current European legislation, domestic courts will no longer initiate proceedings against companies that fail to register their beneficial owners as of September. According to the decision, the state cannot force companies to register data or sanction them if they fail to comply with their legal obligation.

The change brings an end to proceedings for irregularities and fines of up to half a million crowns for the registering person who did not register the beneficial owner or registered them incompletely. However, the courts only dealt with the public law consequences of the irregularities; the private law consequences were not addressed. The obligation to register the beneficial owner thus remains in effect.

Development of public access to registered information under Czech law

Situation after the establishment of the ESM

The register of beneficial owners was established as part of the transposition of the IV. AML Directive into Czech law on January 1, 2018. The definition of beneficial owner was included in Section 4 of the AML Act, and the registration process was regulated in the Public Registers Act.

Access to information in the register was originally granted to public administration bodies, entities subject to the AML Act (with a record of their access remaining in the register), and individuals from the general public who obtained access on an ad hoc basis, based on a request submitted to the registry court of the relevant registering person, in which it was necessary to describe their legal interest in accessing the register and how it relates to AML issues.

During this period, the law did stipulate the obligation to identify and register the beneficial owner, but there were no direct sanctions (e.g., fines) for the registering entities for failure to comply with this obligation. However, the registering persons could be subject to indirect sanctions, such as prolonging the customer verification process for persons subject to the AML Act or classifying them as higher-risk customers.

Situation according to ZESM

ZESM came into force on February 3, 2021, and became effective on June 1, 2021. On this date, the register of beneficial owners was created in the form we know today (e.g., its visual and factual classification with other public registers).

ZESM is a transposition regulation of the V. AML Directive. As part of this transposition, among other things

\ the definition of beneficial owner was incorporated directly into ZESM and removed from the AML Act;

\ the definition of beneficial owner was amended;

\ the process of registration in the ZESM was incorporated;

\ penalties were introduced for failure to register or for incomplete registration in the ESM.

In connection with the above, it should be added that the ZESM introduces two types of penalties for inaccurate, incomplete, or non-registration in the ESM:

\ Public law sanctions

Public law sanctions mainly refer to the possibility of imposing a fine for failure to make an entry in the register or for failure to remove a so-called discrepancy. Fines are imposed by the general administrative authority, not the registry court.

\ Private law sanctions

Private law sanctions mainly refer to the suspension of shareholder rights in the companies concerned, where failure to register with the ESM by the partner of the registering entity is grounds for suspending their voting rights at the company's general meeting and suspending their right to a share in profits during the period when their beneficial owner is not registered with the ESM.

If the beneficial owner is not registered with the registering entity, the voting rights of the shareholder who is the beneficial owner or from whose ownership branch the beneficial owner originates are suspended at its general meeting (the same applies to the right to a share in profits).

In addition, in accordance with the then wording of the AML Directive, the ZESM stipulated that the data in the register of beneficial owners shall be publicly accessible without restriction to the following extent:

- all names and surnames of the beneficial owner;
- month and year of birth of the beneficial owner;
- country of permanent residence of the beneficial owner;
- the country of citizenship of the beneficial owner;
- a brief justification of the beneficial owner's status and, if based on ownership of property interests, the percentage share of the beneficial owner's participation.

Under certain, very narrowly defined circumstances, ZESM allows information about the beneficial owner not to be disclosed, namely

- if the beneficial owner is a minor ;
- if the status of beneficial owner arises from a position in a foundation or legal arrangement and these persons are not visibly registered in the foundation register or trust fund register.

Legal regulation under European law

IV. AML Directive

The IV. AML Directive did not provide for public access to the register of beneficial owners. According to Article 30(5) of the IV. AML Directive, access to the registers of beneficial owners at EU level was set as follows: "Member States shall ensure that information on beneficial ownership is always available to:

a) the competent authorities and financial intelligence units, without restriction;
b) obliged entities for the purposes of enhanced customer due diligence in accordance with Chapter II;
c) any person or organization that can demonstrate a legitimate interest.

The persons or organizations referred to in point (c) of the first subparagraph shall have access to information on at least the name, month and year of birth, nationality, and country of residence of the beneficial owner, and the nature and extent of the beneficial ownership held.

For the purposes of this paragraph, access to information on beneficial ownership must comply with data protection rules and may be subject to online registration and a fee. Fees for obtaining information shall not exceed the administrative costs involved.

V. AML Directive

The V. AML Directive amended public access to beneficial ownership registers as follows

"Member States shall ensure that information on beneficial ownership is always available to:

a) competent authorities and financial intelligence units, without restriction;
b) obliged entities for the purposes of customer due diligence in accordance with Chapter II;
c) any person from the general public.

The persons or organizations referred to in point (c) shall have access at least to information on the name, month and year of birth, country of residence and nationality of the beneficial owner, as well as the nature and extent of the beneficial owner's interest.

Member States may, under the conditions laid down by national law, make available additional information enabling the identification of the beneficial owner. Such additional information shall include at least the date of birth or contact details in accordance with data protection rules.

In addition, a new paragraph 5a has been inserted:

"Member States may decide to make the information stored in their national registers referred to in paragraph 3 available subject to online registration and the payment of a fee, which shall not exceed the administrative costs of providing access to that information, including the costs of managing and developing the register."

Court ruling on public access to beneficial ownership registers and its implications

Judgment of the Grand Chamber of the Court of Justice of the European Union in joined cases WM (C-37/20) and Sovim SA (C-601/20) of November 22, 2022

In this decision, the CJEU dealt with preliminary questions referred by the District Court of Luxembourg in connection with proposals to withhold certain data on WM as the beneficial owner and beneficial owners of Sovim SA.

The reasoning behind the decision provides an in-depth analysis of the provisions of the Fifth AML Directive and its relationship to the GDPR and Articles 7 and 8 of the Charter of Fundamental Rights of the European Union, as well as the relationship between transparency in public life and the right to privacy in private life.

The result of these proceedings was a declaration that the relevant provision of the AML Directive, which introduces general public access to certain data in the registers of beneficial owners, is invalid. The CJEU accepted this decision by declaring the amendment to the Fifth AML Directive invalid, as a result of which the wording of Article 30(5)(c) prior to the amendment introduced by the Fifth AML Directive was reinstated.

The Czech legislature did not respond to this decision in any way and did not restrict public access to the register of beneficial owners.

From November 22, 2022, the Czech ZESM was therefore in conflict with the wording of the AML Directive (as it set the scope of persons with access to the ESM more broadly than the text of the Directive) and also with primary EU law (as such public access violated the privacy rights of beneficial owners).

Decision of the Supreme Administrative Court of the Czech Republic 4 As 2019/2024 of March 12, 2025

A Czech limited liability company is challenging, in administrative proceedings, a decision by the Prague City Hall imposing a fine for failure to remedy an irregularity in the register of beneficial owners – the irregularity consisted in the company not registering any beneficial owners.

In its decision, the Supreme Administrative Court overturned both the contested decision of the Prague City Hall and the subsequent decision of the Municipal Court in Prague in proceedings in which the registering person is defending itself against the imposition of a penalty.

Decision of the Supreme Court of the Czech Republic 27 Cdo 1368/2024 of August 25, 2025

The same limited liability company is defending itself in the general courts against the obligation to register its beneficial owners, based on the CJEU's decision in the joined cases of WM and Sovim SA. The registering entity is defending itself against the decision of the Municipal Court in Prague and the subsequent decision of the High Court in Prague, which state that the situation where this registering entity does not have its beneficial owners registered is a so-called irregularity within the meaning of the ZESM.

The Supreme Court, referring to the CJEU's decision in the joined cases of WM and Sovim SA, overturns these decisions of the lower courts and discontinues the proceedings concerning the irregularity.

Consequences

As a result of this decision

\ registry courts will not conduct proceedings on discrepancies while maintaining the current legal regulation;

\ following a declaration of irregularity, it is not possible to impose a fine on the registering person who did not register the beneficial owner or registered them incompletely.

However, as is clear from the above, the courts only dealt with the public law consequences of irregularities and did not address the private law consequences. It follows from the above that if the registering person has not registered the beneficial owner,

\ private law sanctions still apply to them – i.e., the suspension of the rights of partners and shareholders;

\ the consequences of non-registration under the AML Act still apply, whereby an obligated person under the AML Act may refuse to enter into a transaction or business relationship with such a registering person, or may consider them a higher-risk client;

\ it is still the case that a Czech legal entity that is obliged to register its beneficial owner in the ESM and fails to do so will be excluded as a selected supplier pursuant to Section 122(5) and (8)(a) of the Public Procurement Act if it has not registered its beneficial owner in the ESM.

Author: Mgr. ALEXANDRA PARNAIOVÁ