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Messenger Interview with the management of the law firm «Nakaz»: how beneficial owners can ruin lawyers’ lives.
In early May the law firm «Nakaz» decided to help clients complete the changes required by the state: to enter the beneficial owners into the register by 25.05.15.
In early May the law firm «Nakaz» decided to help clients complete the changes required by the state: to enter the beneficial owners into the register by 25.05.15. At the beginning of May the firm sent out mailings, posted information on the website and social networks, and published several articles in online publications. No one expected and no one was prepared for more than 1,000 people to contact the firm in the last week, and for the state to cancel its own requirement on the last day.
What happened? We asked the leaders of the law firm «Nakaz» about the details: senior partner Filipp Orlov and managing partner Arseniy Salalayko.
J: Please explain who these beneficial owners are and why they need to be registered?
A.S.: To make it clearer, I’ll give an example. The beneficial owner in PJSC “Kyiv Confectionery Factory “Roshen” and in all enterprises related to the “Roshen” structure is Petro Poroshenko (as indicated in EDRPOU), although he is not formally the owner. But he is the one who benefits from their operations.
At present there is a worldwide trend toward more transparent business practices, namely identifying the ownership structure. The goal is to counteract money laundering of funds obtained illegally. Our government, by adopting the law, tried to take some steps in this direction. Ukraine is well known internationally as an active user of offshore companies and other methods of shadow business that help hide true income and avoid taxation.
After this law entered into force, all legal entities without exception are required to indicate their true owner, even if it is necessary to list many links in the chain.
J: Does that somehow solve the problem and help reveal real persons?
A.S.: Oh no, I don’t think so! Maybe partially. It’s no secret that the ultimate goal of this law was de-offshorization. But this way of doing business is so multifaceted and covers vast territories, practically the whole world, that ways to circumvent this provision can be found. Thus, those structures that do not want to disclose all information about themselves can still use the services of offshore companies. Yes, of course, it will be much harder and more expensive than before. Methods of operation and ownership schemes will have to be revised, the jurisdiction of the offshores might be changed to those that have no obligations to Ukraine on information exchange, that offer high-quality nominee management, and so on. Whoever wants to, will find a way.
J: So what happened in early May?
A.S.: The Law No. 1701 came into force on 25.11.2014. According to it, legal entities that were registered earlier, before the adoption of the law, that is before 14.10.2014, had to submit information to the registrar about all actual beneficial owners within 6 months.
Considering that every day, morning and afternoon, in each administration of Kyiv there are two of our lawyers present, we could not fail to notice that practically no one was submitting the required information about beneficial owners. We decided to take care of our clients and notify them that the time for submitting data to the registrar was soon expiring, and for failure to provide it the law established an administrative fine for the head of the legal entity in the amount of 300 – 500 n. m. d. g., i.e., from 5,100 UAH to 8,500 UAH.
We studied the provisions of this law in detail, asked registrars for their opinion about it, clarified some nuances to make it clear how exactly the submission of documents should take place, and started to act.
J: I understand that part of your story is a “case study.” Tell us in more detail how exactly you notified your clients?
F.O.: All communication channels available to us were used to notify our clients, namely:
- SMS mailings – more than 20,000 recipients;
- email mailings – more than 15,000 subscribers;
- posts on social networks FB, G+, Twitter, Linkedin;
- various press releases.
The largest response came from the SMS mailing, but we made some mistakes there. Because we did not filter the recipient list, messages were received not only by legal entities but also by individuals who do not have companies and who were misled by the text of our message. We also miscalculated the timing of the mailing. As a result, our firm, although it achieved the desired effect, received some negative feedback from some clients.
Email mailing was the second most effective, because those are the people who work with us and are in constant contact, and we also received a very lively and rapid response from them.
J: What was the response in numbers?
F.O.: Frankly, we were simply torn apart. We were not prepared for such a development. We are, after all, a law firm, albeit a multidisciplinary one, not a call center, and we were unable to process the flood of inquiries that came to us.
On the peak day more than 800 clients contacted us — that’s about 2,000 calls — after that the figures averaged around 350–450 inquiries, and so it continued until the last day.
J: You know exactly how many clients contacted you, how do you track that?
A.S.: We care a lot about the quality of our services, customer service and the level the company has achieved. Our CRM automatically records telephone and email inquiries so that we can monitor staff performance and build relationships with clients.
J: What was happening at your office during those days?
F.O.: As I already said, on the peak day we were simply overwhelmed; we were not prepared for it. Most of the inquiries we handled were about beneficial owners and Form 4, we were very concerned about missed calls, and more than 30% of calls remained unprocessed by the end of the day. That day we finished work at 21:00, and only because we considered it inappropriate to call clients back after 21:00.
J: What happened afterwards, did clients keep coming?
A.S.: There was a real pilgrimage to our office, stacks of documents piled up on employees’ desks.
J: What problems did you encounter during this period?
F.O.: At first everything was fine, then a situation arose when registrars simply could not accept that volume of documents and process them in a timely manner.
A.S.: In Kyiv there are more than 350,000 enterprises registered across 13 districts and about 5 registrars per district. That is effectively about 5,400 companies per registrar. In addition, the forms that allowed data entry were adopted in April, and May had 13 public holidays. All this meant that in 3 weeks one registrar had to enter information for 5,400 companies (in addition to their daily work) – this is simply impossible! Registrars are still entering the data that were submitted in May.
Then those who had been to the registrar but could not get served came to our office (just imagine — one of the clients had ticket number 1,450), we had queues of 10–20 people. Then registrars began to refuse to accept more than 3 packages from the same hands, and we started submitting papers in the regions up to 150 km from Kyiv (our lawyer practically lived in a village for a week), and implemented several other options.
J: How did your employees react to this situation?
F.O.: They came with new batches of documents 3–4 times a day to all administrations of Kyiv and the region, worked beyond their limits, prepared document packages late into the night. The team showed itself at its best, and we are very pleased that everyone took the situation very responsibly.
J: And what happened in the end?
F.O.: A day before the deadline the submission period was extended, the fine was canceled, and the requirements and the submission form were changed.
J: What is the situation now?
A.S.: Now we are returning some documents, some are being processed. Registrars still have problems; they have not yet processed the documents submitted in previous months because they physically cannot do it, not because they are lazy or unwilling.
F.O.: We have to understand all sides of the situation and excuse everyone.
J: What is your opinion of the situation that has developed?
A.S.: This was an extremely hasty decision by the legislator, especially since it was widely announced everywhere. But we in no way want to criticize the current authorities; the time is not right for that.
We are happy to offer not opinions, but specific proposals.
Our team has prepared a number of proposals that we plan to implement through our public organization. Since we work with both people and state bodies, this allows us to see the overall picture both from the side of the government and from the side of citizens, so we can model the implementation of a new law by state bodies and the citizens’ reaction to this innovation.
We act as a buffer zone between the client and the government body, so we try to protect people from the bureaucratic component, and we provide government organizations with properly prepared documents, which significantly saves their time.
One of our ideas is to transfer part of the powers and responsibilities of state bodies into private hands (of course, with preliminary certification, for example, as was planned with notaries, but on a more global scale). This will significantly unload and free administrative resources, allowing the state to devote more time to its direct functions, rather than entering data and checking standard documents. If our ideas receive support from both sides, I am sure we will be able to simplify the lives of many entrepreneurs.
J: Thank you for your story.
F.O.: Thank you for your questions. We know that this interview became a consequence of the chaos that arose. We greatly value our clients and thank them for their understanding in this situation. We promise on our part to continue doing everything possible to provide quality legal services in unstable times, times of change.