As from 1 November 2021, most corporations and other legal entities operating in Norway will be required to collect information on who actually owns or controls the legal entity. That information will also eventually be registered in a public register. This will imply a range of practical implications for many legal entities in Norway.
As a result of increased international focus on access to information on actual owners of companies and other legal entities, the Norwegian Parliament (Stortinget) resolved in 2015 that a public ownership register was to be established in order to ensure openness with regard to ownership of Norwegian companies and better combat tax crime, corruption and money laundering. The Norwegian Register of Beneficial Owners Act (Nw. lov om register over reelle rettighetshavere) was adopted on 1 March 2019, and parts of that act and an accompanying regulation containing more detailed rules on the collection of information will enter into force on 1 November 2021.
This will have a range of practical implications for legal entities engaged in operations in Norway. Chapter 1 of the Act and the regulation concern the scope of the Act, whilst Chapter 2 contains more detailed rules on procedures for identifying beneficial owners. Both of those chapters enter into force now, whilst the portion of the regulation governing specifically the obligation to register is not entering into force at the present time. The Act implements the fourth EU anti-money laundering directive, which requires the Member States to establish a central register of beneficial owners. At the current juncture, the work of developing the register is ongoing. According to information provided by the Ministry of Finance, that work is expected to be completed at some point in 2021.
Both Økrimforeningen, a Norwegian association focused on combating financial crime, and the Norwegian Press Association Committee (Nw. Pressens offentlighetsutvalg), an industry committee focused on public access to information, have warned that the last word has not been said politically on the scope and substance of the obligation to register, on the ground that the regulation does not meet the requirements of what has been resolved by the Parliament; indeed, certain changes have already been alluded to in the agreement entered into by the new government parties in Norway (Nw. Hurdalsplattformen) (see the more detailed discussion on this point below). Which changes – if any – will actually be implemented remains to be seen.
Who is obliged to register?
The Act lays down an obligation to register for most legal entities, including private limited liability companies, public limited liability companies, cooperatives, securities funds, etc. Administrators of non-Norwegian trusts and similar legal arrangements (for the sake of simplicity referred to herein as ‘trusts’) also come within the scope of the Act. The purview of the Act is based on the aforementioned anti-money laundering directive, under which it is required that ‘corporate and other legal entities’ are made subject to a requirement to collect information about beneficial owners, and that as many types of legal persons as possible are made subject to the rules, in order to ensure transparency.
Although a trust bears clear similarities to a Norwegian foundation, it is not the same thing and may not, for example, be established under Norwegian law. A non-Norwegian trust may nevertheless be administered from Norway. The assets of a trust may also be invested in Norway or be property in Norway. Administrators of non-Norwegian trusts will not usually be registered in the Norwegian Enterprise Register (Nw. Foretaksregisteret) and have not customarily been considered to be engaged in operations in Norway. Now, though, administrators of trusts will come within the purview of the legislation on beneficial owners, irrespective of whether the administrator or the trust is registered in the Norwegian Enterprise Register, if it is engaged in operations in Norway. The administrator will in any event be considered to be engaged in operations in Norway when it:
- in the trust’s name is made subject to obliged entities’ customer due diligence measures (see section 4 of the Act relating to Measures to Combat Money Laundering and Terrorist Financing (the Anti-Money Laundering Act) (hvitvaskingsloven), read in conjunction with section 10), such as when a Norwegian bank requests KYC information about the administrator or the trust;
- owns or acquires real property in Norway.
Point 2 entails a broadening of the term ‘operations’, given that owning Norwegian property was not previously necessarily sufficient to conclude that the owner was engaged in operations in Norway.
The Act provides exemptions for entities such as estates in bankruptcy, securities funds established pursuant to the Act on securities funds, State and municipality undertakings, health sector enterprises, as well as foundations and associations not engaged in business activity, so that these types of legal entities are not subject to registration. The regulation also provides for an exemption for publicly-listed companies. Instead, those companies are to register information including the company's name, country of origin and internet address of the company's website. There are good reasons for this, given that ownership of publicly-listed companies changes frequently and it would be challenging for those entities to comply with their obligation of identifying and registering beneficial owners at all times. The exemption applies only in respect of companies that are listed on a regulated marketplace, i.e., companies listed on Euronext Growth, which is a multilateral trading facility, do not fall within the scope of the exemption. The new government has, however, decided that it wishes to put in place a new register that also includes publicly-listed companies. It is unclear how this will work in relation to the current exemption provided for in the regulation and how this will play out in practice.
It should also be mentioned that the exemption from the obligation to register does not apply in respect of subsidiaries of publicly-listed legal entities, even wholly-owned ones. This is tempered somewhat, however, by the limitations on what is deemed to be indirect beneficial ownership: see the more detailed discussion below under ‘Which information is to be registered?’.
Who is to be registered?
It is the legal entity’s ‘beneficial owners’ who are to be identified and about whom information is to be registered. A beneficial owner is defined in the Act as a natural person (or more than one natural persons) who ultimately own or control the legal entity. Usually this will be an individual, say, Kari Nordmann who, through her wholly-owned holding company, Nordmann Holding AS, owns 75% of the shares in the company Green Wave AS. In this example, Green Wave AS must ensure that information about Kari, and her ownership interest in the company, are registered in the public register.
It is not just clear-cut cases like this that entail an obligation to register, however. Under the regulation, the obligation to register will also be triggered when natural persons directly or indirectly:
- own more than 25% of the ownership shares in the legal entity;
- may exercise more than 25% of the voting rights; or
- may appoint or relieve of their duties more than half of the legal entity’s Board members (or equivalent).
This reflects the requirements laid down in the anti-money laundering rules and KYC requirements for beneficial owners under the Anti-Money Laundering Act.
However, formal ownership or voting rights are not the only things considered when beneficial owners are to be identified, although that is the starting point for the determination. Note that persons who otherwise exercise control over the legal entity, but who do not necessarily fulfil any of the requirements under points 1 to 3 above, must also be registered. This will, for example, be the case where Kari has entered into an agreement with her brother, Ola Nordmann, on how Nordmann Holding AS is to vote at the general meeting of Green Wave AS. Where that is the case, Ola will also have to be registered as a beneficial owner of Green Wave AS.
The fact that the regulation – in respect of indirect ownership – excludes persons who control less than 50% of the votes (or influence) in the parent company is of practical importance. It means that persons entitled to cast, say, 25%, 40% or 49% of the votes in the company must not and are not to be registered as beneficial owners in that company’s subsidiary. The exclusion is general in scope and also applies in respect of subsidiaries of publicly-listed companies.
Another aspect that the legal entities must bear in mind is that, in the calculation of ownership shares, etc., rights that may not be exercised, such as the company’s own shares, or shares which for some other reason do not confer voting rights, shall be excluded. Thus, depending on the circumstances, ownership of well under 25% (or 50% of the parent company) may entail an obligation to register the relevant shareholder.
Which information is to be registered?
The legal entity must collect the following information about the beneficial owner: name, Norwegian personal identification number, D-number (Norwegian identification number for non-Norwegian citizens) or date of birth, country of residence and citizenship.
The legal entity must also provide documentation for:
- the basis for why the persons referred to are beneficial owners, including whether the position is held directly, indirectly or through an agreement with, say, other owners; and
- the ownership shares or voting rights held by the beneficial owners, expressed as a percentage.
If the legal entity considers that there are no beneficial owners, or that it is not possible to identify them, reasons and documentation are to be provided for that determination.
In the event of changes to any relevant aspects, the legal entity must identify new beneficial owners and otherwise update collected information about beneficial owners. These kinds of changes are to be registered ‘without delay’ and within 14 days at the latest. The 14-day time-limit also applies with respect to newly-established legal entities.
Where can the legal entity find the relevant information?
In order to identify the beneficial owners, the legal entity must collect information from inter alia incorporation documents, Articles of Association, shareholder registers, etc. Where relevant, the legal entity must also collect information about agreements (or understandings) – both formal and informal – governing the exercise of ownership rights and/or the right to cast votes in the legal entity, as well as information from any intermediate legal entities or associations.
The point is that the documentation should make it possible to understand and examine why the relevant natural persons are being identified by the legal entity as beneficial owners.
Everyone who may be reasonably expected to have information of significance for the legal entity’s identification of beneficial owners, including the person about whom information is to be registered, is under an obligation to disclose that information. The duty to provide information is, however, limited by the statutory duty of confidentiality, since the rules on the duty to provide information have been adopted only in regulation form, and provisions in an act take precedence over provisions in a regulation. This means that persons who are subject to a statutory duty of confidentiality, such as lawyers, are not subject to the duty to provide information, even though they may be in possession of information that is relevant to the determination of who are beneficial owners.
Specific remarks about foundations and trusts
Since the structure and method of operation of a business foundation and a trust differ on essential points from those of, for example, a private limited liability company (AS) or a public limited liability company (ASA), there are separate rules for the collection of information for those entities. Detailed rules are set out in section 2-2 of the regulation. The main point here is that foundations must register information about persons who exercise influence in the foundation, whilst the administrator of a trust must register information about the settlor, administrator, trustee and beneficiaries, as well as any others who, directly or indirectly, exercise control over the trust.
Storage of information
The legal entity must store information and determinations about beneficial owners for 10 years after natural persons cease to so be.
The obligation to register ceases when the legal entity (with the exception of an administrator of a non-Norwegian trust) is dissolved. In such cases, the Board (or equivalent body) is to ensure that all documentation relating to the identification of the beneficial owners is stored for five years. For administrators of a non-Norwegian trust, a similar storage obligation applies as from the time the obligation to register lapses.
Other obligations for the legal entity
At the request of the public authorities, the legal entity must disclose all information collected and determinations made in connection with the identification of beneficial owners. The legal entity must also disclose information to persons who are obliged entities pursuant to section 2 of the Anti-Money Laundering Act in connection with their customer due diligence measures and ongoing follow-up under the Anti-Money Laundering Act.
The legal entity is responsible for notifying beneficial owners that the information has been registered in the Register of beneficial owners. That notification may be given in connection with the collection of the information.
What about sanctions?
Legal entities who fail to comply with the rules on registration of beneficial owners when they enter into force may initially expect to receive an order from the register with a time-limit for rectification. Note that the order may be addressed directly to persons having a right to represent the legal entity externally, such as the Board or the CEO. If the order is not complied with by the time-limit, a fine may be imposed until the matter is rectified. The amount of the fine is not fixed.
Legal entities, or persons acting on behalf of a legal entity, who intentionally fail to collect, store or register information pursuant to the new Act, or who intentionally register incorrect information, are subject to punishment in the form of a fine or imprisonment of up to one year. It is emphasised that that provision (section 15 of the Act) does enter into force on 1 November 2021. The entry into force of the provisions on sanctions (orders and fines) are not entering into force immediately but it is assumed that, in all likelihood, the rest of the Act, including those provisions, will enter into force as soon as the register is established and functional.
What should legal entities do now?
When the Act enters into force on 1 November 2021, legal entities subject to registration will be required to collect information on their beneficial owners, but for the moment there is nowhere to register that information. For some legal entities, the work of collecting that information will be extensive and time-consuming, hence we advise getting that effort under way immediately. The information will likely have to be registered on an ongoing basis in the new register once it is in place.