Case studies

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No obligation of the shareholder to disclose beneficial owners

In a court case, our law firm represented a Liechtenstein Anstalt without founder’s rights as a defendant, which holds a share in the plaintiff (an Austrian stock corporation).

The plaintiff was of the opinion that our client was obliged to disclose its beneficial owner(s) or beneficiary(ies). The plaintiff claimed that it was legally obliged to enter this information in the register of beneficial owners and that, in addition to penalties, it would face a financing stop from various financial institutions if it did not disclose the beneficial owner(s) of its shareholder.

Our client was not prepared to disclose its beneficial owners to the plaintiff, as it is an Anstalt without founder’s rights and without significant control possibilities through its beneficial owners, and therefore its Board of Directors should be entered in the register of beneficial owners as part of a subsidiary notification. In addition, there were well-founded concerns that the applicant would not handle the requested information carefully.

No out-of-court settlement could be reached. Our client’s proposals for a solution were not accepted. Instead, our client was sued before the Princely District Court for disclosure of her beneficial owners. Instead, our client was sued before the Princely District Court for disclosure of her beneficial owners. The plaintiff based her claim on (i) the shareholder’s fiduciary duty, (ii) the Austrian Money Laundering Act (FM-GwG) and (iii) the Austrian Beneficial Owners Act (WiEReG).

Since the plaintiff is an Austrian stock corporation, the present case was to be judged substantively under Austrian law.

The Princely Court confirmed our client’s view and dismissed the complaint. The plaintiff appealed against the first judgment. In the course of the appeal proceedings, the Princely High Court referred various preliminary questions to the EFTA Court in connection with the interpretation of the relevant EU directives. After receiving the EFTA Court’s response, the Princely Supreme Court confirmed the decision of the court of first instance to dismiss the action brought against our client. The judgment is final and legally binding.

Both the Princely District Court and the Princely Supreme Court came to the conclusion that the disclosure of our client’s beneficial owners cannot be derived from the shareholder’s fiduciary duty, as there is no legitimate need for information on the part of the plaintiff vis-à-vis our client that is worth protecting.

Furthermore, the plaintiff could not invoke the Austrian AML legislation, as it only applies to the financial services sector, to which the plaintiff does not belong. In addition, the beneficial owners had already been disclosed by our client to those banking institutions with which the plaintiff maintains accounts with the condition that this information be treated confidentially.

With regard to the application of the WiEReG, the Liechtenstein courts stated that an extended notification obligation of our client cannot be derived from this either. The EFTA Court had stated that a legal entity which (like the Austrian plaintiff) is obliged to report under the WiEReG is required to obtain information on the beneficial owners also from its shareholders, but that there is no obligation to assert this information in court in case of refusal. This is all the less the case if information has been provided and there is no reasonable doubt as to the correctness of the information, according to which, in the absence of a control relationship, the organs of the Liechtenstein establishment are to be entered as subsidiary instead of the beneficial owners. In addition, the Austrian Federal Ministry of Finance, which is responsible for the implementation of the WiEReG in Austria, had already confirmed in writing to the plaintiff in the present case that the subsidiary notification of the organs of the Liechtenstein establishment was sufficient.

The ruling of the Princely Court of Appeal is landmark insofar as, based on the referral to the EFTA Court, it has been clarified that the bodies of a legal entity are to be entered in the registers of beneficial owners of the Member States on a subsidiary basis, provided that the beneficiaries cannot exert a controlling influence on the management of the legal entity. In addition, it is also established that the legal person in which a shareholding exists has no obligation to question the accuracy of the information provided to it by the shareholders and that in this context there is also no extended duty to investigate – in particular, no duty to sue for disclosure.