The new register has already come into fruition

Slovakia has a new legislation tool to combat the murky businesses of shell companies

The Register of Public Sector PartnersThe Register of Public Sector Partners (Source: Jana Liptáková)

In mid-September the state-run rail operator Železnice Slovenskej Republiky (ŽSR) withdrew from a controversial contract with Transprojekt on renting out Bratislava’s main railway station to Transprojekt for 50 years. This was not because Transprojekt had not fulfilled its promise to refurbish the dilapidated station, but because Transprojekt failed to meet its new obligation. It did not register with the so-called anti-shell register and has not demonstrated who is its real owner. This enabled ŽSR to withdraw from the contract. Now there is a chance of the stalemated reconstruction of the Bratislava train station moving forward. This is one of new anti-shell law’s first fruits.

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“Along with central register of contracts, this register is currently the best tool for checking who is doing business with public institutions,” writes Gabriel Šípoš, head of the ethics watchdog Transparency International Slovakia (TIS), in his analysis of the new legislation’s impacts and benefits.

The Justice Ministry has prepared the Act on the Register of Public Sector Partners, also called the anti-shell law, with the aim of increasing transparency in the relations between the state and its business partners. Now anybody can simply monitor and check with whom the state is doing business and who is really benefiting from it. Companies publish their ownership structure in the register, up to the end beneficial owners, said Peter Bubla, spokesperson of the Justice Ministry.

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“We believe that the goals [of the law] are being fulfilled,” Bubla told The Slovak Spectator.

The new law became effective on February 1. The register replaced the Register of Beneficial Owners, which was limited only to public procurement. The new legislation obliges public sector partners to be registered in the Register of Public Sector Partners maintained by the District Court of Žilina. This obligation pertains to entities receiving one-time funding exceeding €100,000 or in the aggregate exceeding €250,000 per calendar year, in the case of repetitive performance. Companies obliged to enter the register had time until the end of July to re-register from the Register of Beneficial Owners.

Based on the new legislation, a public sector partner cannot register directly itself. The registration must be performed via an authorised person, i.e. a law attorney, notary or auditor. The authorised person is responsible and must verify, along with the public sector partner, the correctness and completeness of a public sector partner’s data registered in the register.

Currently there are 12,732 companies in the register.

Interesting revelations

Following the transition period the Slovak media started digging into available data and uncovering the intricate ownership structures of some companies. The Sme daily has disentangled the ownership structure of the business group belonging to Andrej Babiš, the Czech politician of Slovak origin. And the Trend daily looked at who actually owns the Hornonitrianske Bane Prievidza (HBP) private mine, which supplies brown coal to the dominant electricity producer Slovenské Eleketrárne, generating electricity under a governmental support scheme, Šípoš pointed out.

In some cases the new tool has confirmed rumours or “backstage” information about who really owns which company, while in some cases the register has provided new findings. In other cases the published information has raised doubts and questions, said Bubla.

“In the latter cases we expect the lodging of a qualified complaint with the District Court of Žilina in order to find out in a subsequent proceeding whether the information in the register is correct or not,” said Bubla.

On September 27 Transparency International lodged complaints pertaining to about 60 companies in which the public functionaries were not properly determined, Šípoš told The Slovak Spectator.

“Only the verdicts of the District Court of Žilina will reveal whether the register will contribute to the uncovering of big fish,” said Šípoš, asking whether, for example, the owner of the Medical Group involved in the Pieštany CT scandal is really the lawyer Juraj Koval and not somebody around Pavol Paška. The latter, of the ruling Smer party, resigned from the post of the speaker of parliament after the scandal broke out.

Šípoš points out the two main changes the new register has brought about: the extension of competence, since the original one was limited to public procurement, and external verification via authorised persons. So now it is possible to have a look at whether the improved register has created greater transparency.

“While the first one has been beneficial from the very beginning, the verification through an attorney raises questions instead,” said Šípoš.

The fees authorised persons are asking for the verification procedure are quite high, while companies will have to repeat the procedure next year in case they do business with the state. Šípoš believes that it may be worth thinking of changing the current scheme so that companies themselves enter data into the register under the threat of high fines. Then the control and checking of data would focus on questionable firms.

Technical imperfections

Experience has shown that the good intentions of the new legislation is being undermined by the shortcomings in the large and useless administrative burden, the system’s technical problems and the unpredictability of the registering court, according to the Ružička Csekes law firm.

Ján Azud, a partner at Ružička Csekes, also points out that entering the members of top management into the register, in cases where for objective reasons it is impossible to determine the end beneficial owner, does not offer any added value in terms of the law’s objective but a huge administrative burden for supranational corporations.

“In the case of such companies, dozens to hundreds of people commonly meet the definition of ‘top management’,” said Azud.

Azud further mentions the issue of personal data protection, since the register and verification documents must contain the permanent residence of registered people. But foreign companies and their management are worried about their privacy since in their countries such addresses are not available in publicly accessible registers.

The Justice Ministry points out that this is brand new legislation without an equivalent even in Europe and it is logical that it has raised some questions in practice. The Ministry admits to the need of analysing this legislation’s effects and maybe reassessing its impact so that it does not increase companies’ red tape and costs above a reasonable level.

“It’s coming out that there are transactions that don’t need to be followed,” said Bubla, adding that this may change in the future.

The ministry is collecting all the complaints and comments on the law, and if their analysis reveals that some legislative changes are necessary, the ministry will change the law.

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