Continued due diligence with respect to beneficial owners

The year 2022 started with three important news regarding the due diligence that legal entities and unincorporated structures must perform with respect to their beneficial owners and the beneficial owners of the companies with which they contract.

The first news is that the DIAN issued, on December 27, 2021, Resolution Number 000164, which develops and regulates the provisions of Articles 16 and 17 of Law 2155 of 2021 (last tax reform) on the definition of Beneficial Owner ("BF") and the Sole Registry of Beneficial Owners ("RUB"). This Resolution imposes on the subjects obliged to provide information in the RUB (national companies and entities, permanent establishments, structures without legal personality and foreign entities and legal persons that meet certain special characteristics) a duty to identify, obtain, preserve, provide and update the information on the BFs. This detailed information must be provided to the DIAN, through its computer systems, no later than September 30, 2022 or, in the case of legal entities or unincorporated structures ("ESPJ") created or incorporated as of January 15, 2022, this information must be provided within two (2) months following the registration in the RUT or in the Unincorporated Structures Identification System -SIESPJ-. The Resolution also establishes that this information must be updated "upon any modification thereof", notifying such changes on the first of January, April, July and October of each year.

The duty of continuous due diligence corresponds to the performance of all acts necessary for the identification of the beneficial owners, as well as "the chain of ownership and control of the legal person, unincorporated structure or similar". It is an obligation of the legal entities and the PFEs to identify, obtain, preserve, provide and update in the RUB the information requested in the aforementioned Resolution. If this is not possible, or if it is not possible to detect who the beneficial owner is, the responsible parties must indicate such situation in the RUB and "state the reasons that support such situation". The result of the continued due diligence, and the documentary supports that sustain the same, must be kept for a term of five (5) years from January 1st of the following year in which the information is provided or updated in the RUB. The liquidator shall keep such information for the same term when the entity or ESPJ is liquidated or terminated.

The penalties for failure to comply with the provisions herein shall be as follows: i) 1 UVT (equivalent to COP$38,004) for each day of delay in providing the information, ii) 1 UVT per day for each day of delay in updating the information and iii) 100 UVTs (COP$3,800,400) for reporting false, incomplete or erroneous data, by the person registered or obliged to register in the RUT (article 658-3 of the Tax Statute). In the event that the information related to the due diligence is requested by the DIAN and it is not provided, or is provided late or does not correspond to what was requested, the penalty will be equivalent to a fine not exceeding 15,000 UVT's (COP$570,060,000) which will be assessed depending on several criteria. In addition to the above, the abuse in the obligations to provide the information will imply that there is a "tax advantage" which, in light of the provisions of Article 8 of Resolution 000004 of January 7, 2020, will imply that the DIAN may lift the corporate veil and make the shareholders liable. Finally, if the information sent is false, those obliged to provide it (generally the administrators) "may be subject to civil and/or criminal sanctions in accordance with national legislation".

The second piece of news is that the Transparency Law has been finalized in the Congress, pending its approval by the President. This law, whose purpose is to adopt provisions aimed at preventing acts of corruption and promoting a culture of legality, among others, also contains a special rule to implement the system of continued due diligence in state entities, and in companies and structures without legal personality that contract with the State. The rule indicates that this type of entities, whenever they are obliged to implement a system for the prevention, management or administration of the risk of money laundering or financing of terrorism ("ML/FT") or have the obligation to deliver information to the RUB, must carry out measures that allow, among other purposes, to identify the final beneficiaries taking into account, at least, the following criteria: (i) identify the natural person, legal entity or unincorporated or similar structure with which the state contract is entered into, (ii) identify the final beneficiaries with which the legal business or state contract is entered into, (iii) request and obtain the information that allows knowing the objective pursued with the business and understanding the corporate purpose of the contractor, iv) perform ongoing due diligence of the legal business or state contract, examining the transactions carried out throughout that relationship, to ensure that they are consistent with the knowledge of the natural person, legal entity or the ESPJ, with its business activity, its risk profile and the source of its funds. The content, as well as the terms, conditions and sanctions (for non-compliance), of the ongoing due diligence will be established - during the 6 months following the issuance of this law - by the entities that exercise oversight and control over the parties subject to this obligation. Finally, the obligation to keep the documents will be for the term of the state contract and, at least, for a period of not less than five years after such term.

The third piece of news is that the Latin American Financial Action Task Force -GAFILAT- updated, as of December 2020, its International Standards on Combating Money Laundering, Terrorist Financing and the Financing of the Proliferation of Weapons of Mass Destruction ("the Standards"). In section 24 of these Standards, GAFILAT calls on countries to take measures to prevent the misuse of legal persons for ML/FT. To this end, it indicates that entities should, through a due diligence process, know and obtain accurate and timely information regarding their beneficial owners and transmit it in a timely manner to the appropriate authorities. It also makes a special call to countries where bearer shares (or share certificates) may exist, or that allow nominee shareholders or nominee directors, to strengthen their due diligence systems, in order to prevent the use of these structures for ML/FT activities.

Therefore, as a good corporate practice, which also shields the entity and its administrators from liability, companies must implement a continuous due diligence system focused on knowing their beneficial owners and keeping such information updated.

In turn, the companies must structure a system of effective reporting of such information in the RUB that allows, for the second half of this year, to comply faithfully with the provisions of the law and the Resolution analyzed herein. This ongoing due diligence system must be operationally integrated with the Integral Risk Management and Self-Control System for Money Laundering and Financing of Terrorism (SAGRILAFT) in order to prevent unintentional ML/FT operations. Likewise, the Compliance Officer of the companies that have implemented the SAGRILAFT must know the results of the continuous due diligence and analyze if these generate a risk that must be mitigated with special actions or policies.