Trends and Developments
Disclosure of Beneficial Ownership: Key Amendments to Azerbaijan’s Law on State Register
Asim Hashimov
On 15 May 2025, a new law (the “Law”) came into force, amending the Law On State Registration and State Register of Legal Entities dated 12 December 2003, No 560-IIQ (Law on State Register) as well as several other related laws. This reform introduces robust beneficial ownership disclosure requirements for legal entities and representative or branch offices of foreign legal entities, marking a crucial step toward enhanced corporate transparency and alignment with international anti-money laundering (AML) standards.
This article provides a comprehensive overview of the key amendments introduced by the Law, including the definition of beneficial ownership, the scope of disclosure obligations, verification procedures, and compliance timelines. In addition, it explores the practical implications for companies operating in Azerbaijan, particularly in managing complex ownership structures, meeting disclosure requirements, and safeguarding sensitive information. Finally, the article outlines practical steps that businesses should take to achieve timely compliance, mitigate risks, and integrate these new obligations into their governance, risk management, and compliance frameworks.
Background
It is known that one of the main factors facilitating money laundering of criminal proceeds generated by corruption-related crimes is the low level of transparency and corporate governance of legal persons, including their beneficial ownership. The amendments to the Law on State Register reflect a broader international trend toward increased transparency of legal entities’ ownership structures.
Globally, countries are increasingly strengthening corporate transparency frameworks to combat money laundering, corruption, and terrorist financing. The European Union Anti-Money Laundering Directives require Member States to maintain central, accurate, and up-to-date registers of beneficial owners for companies, trusts, and legal entities, ensuring access for authorities, financial intelligence units, and obligated entities. Similarly, the United Kingdom’s People with Significant Control (PSC) regime mandates companies to identify and report individuals with ultimate control. Such international practices demonstrate that transparency in ownership structures is a cornerstone of modern corporate governance and AML compliance.
Azerbaijan’s legislative reform aligns with international standards, particularly the Financial Action Task Force (FATF) recommendations, which are the basis on which all countries should meet the shared objective of tackling money laundering, terrorist financing and the financing of proliferation. While the concept of beneficial ownership is an important aspect of several international initiatives on transparency, its internationally and predominantly accepted definition was set up by the FATF.
Previously, state registration procedures required disclosure of certain corporate information, but there was no requirement to disclose the full ownership and control chain and the beneficial owner(s). As a result, complex ownership structures could obscure individuals who ultimately control or benefit from corporate activities. The Law aims to close this gap by imposing specific disclosure obligations on all legal entities, as well as branches and representative offices, thereby enhancing transparency and supporting regulatory authorities in monitoring and enforcing compliance.
Mandatory information for registration
Under the new Article 5-1 of the Law on State Register ("Identification of the beneficial owner”), the following persons shall be considered the beneficial owners of a legal entity:
- anyone who directly or indirectly owns 10% or more of shares or voting rights in an entity;
- anyone who has the ability significantly to influence the entity’s decisions through contractual arrangements; or
- if no such person can be identified, anyone who exercises effective control over the entity.
When it comes to identifying ultimate beneficial owners, control extends beyond mere shareholding, as individuals may exercise influence over a company without holding any shares directly. While the FATF often cites a 25% ownership stake as a threshold for identifying controlling shareholders, the core principle emphasises identifying the individuals who exercise ultimate effective control, regardless of the exact percentage. Therefore, the above-described definition captures both ownership-based and control-based influence, ensuring that complex corporate structures, including layered ownership through other legal entities, cannot conceal the true individuals in control.
Under the revised Article 5.3.2-3 of the Law on State Register, applications for the state registration of legal entities must now include (and, where requested, substantiate with documents) the full name, date of birth, personal identification or identity-document number, citizenship, place of residence, etc, of the beneficial owner(s). Furthermore, applications for the state registration of legal entities must now also include (and, where requested, substantiate with documents) the name of every legal entity in the chain of ownership and/or control up to the beneficial owner(s), together with the country of incorporation, registration number, shareholder composition, and the percentage of each shareholder’s interest in the charter capital. Practically, this means that applicants must not only provide the names of direct shareholders but also trace the ownership structure through any intermediary legal entities, effectively revealing who ultimately controls or benefits from the company.
Finally, according to new Article 14.1.6-1 of the Law on State Register, the state register must reflect the following information for each beneficial owner of a registered entity:
- full name (surname, given name, patronymic);
- date of birth;
- citizenship;
- place of residence;
- information on whether the beneficial owner is a politically exposed person (PEP), their close relative, or someone with a close relationship with a PEP.
This aligns registration requirements with the new beneficial ownership disclosure obligations, ensuring transparency and compliance with anti-money laundering and counter-terrorist financing regulations.
Verification of beneficial ownership
New Article 14-1 of the Law on State Register establishes a detailed process for verifying beneficial ownership information submitted to the state register. Under this framework, the state registry authority submits beneficial owner data to the Financial Monitoring Service (which acts as the central state authority for Anti-Money Laundering and Counter-Terrorist Financing – AML/CFT) within five business days. The Financial Monitoring Service then verifies the information using open sources, requests to state bodies, and inquiries to auditors, NGOs, religious institutions, and foreign non-governmental organisations operating in Azerbaijan, ensuring comprehensive cross-checking of beneficial owner data.
If discrepancies or doubts arise regarding the accuracy of submitted data, the Financial Monitoring Service may request supporting documents from the legal entity through the state registry. The law sets timelines for submission of documents (five business days from the request) and for forwarding the data to the Financial Monitoring Service (three business days), ensuring prompt verification. Should the verification reveal that the beneficial owner differs from the submitted information, the state registry updates the register accordingly and notifies the entity within three business days.
Legal entities are obliged to respond with additional supporting documents within the specified timeframe. If they fail to do so, the state registry may update the register based on the information provided by the Financial Monitoring Service. Additionally, the entity must inform the individual identified as the beneficial owner about the change within three business days.
In practice, this strengthens the integrity and reliability of beneficial ownership data, provides clear procedures for resolving discrepancies, and formalises the role of the Financial Monitoring Service in monitoring compliance, thereby enhancing transparency and supporting anti-money laundering and counter-terrorism financing efforts.
Central register approach and trade secret considerations
The use of the central register approach is envisioned in FATF Recommendations 24 and 25. In particular, the Interpretive Note to Recommendation 24 indicates that countries can require company registers to obtain and hold up-to-date information on the companies’ beneficial ownership. The central register approach also facilitates access to beneficial ownership information by law enforcement authorities.
In accordance with Article 4 of the Law of the Republic of Azerbaijan “On Commercial Secrecy” dated 4 December 2001, No 224-IIQ, information on the founders (participants) of commercial legal entities and their shares in the charter capital, as well as on the beneficial owners is considered a trade secret. Thus, this information is confidential, and disclosure is strictly limited to authorised state authorities for registration and compliance purposes. Noticeably, the new Article 15.9-1 of the Law on State Register allows beneficial ownership information to be provided to the Financial Monitoring Service upon request, in line with AML/CFT obligations under the Law on Prevention of Legalisation of Criminally Obtained Assets and Financing of Terrorism, reflecting the integration of beneficial ownership verification into Azerbaijan’s broader AML framework.
All other corporate information submitted to the state register is not considered a trade secret and does not enjoy the same confidentiality protections. This ensures that sensitive ownership details are safeguarded, while enabling authorities to access necessary information for regulatory oversight and anti-money laundering compliance.
At the same time, it should be also noted that there is an emerging global trend toward broader public access to beneficial ownership information. For instance, in some jurisdictions, the general public can have access on request to beneficial ownership information if they demonstrate a legitimate interest (eg, establishing a business relationship or a contract). In other jurisdictions, the general public can have direct access to limited beneficial ownership information or even to all the information maintained.
Deadlines for existing entities
In addition, it should be mentioned that, as per Article 12 of the Law, already registered legal entities, including representative and branch offices of foreign legal entities, are required to submit information and supporting documents (in required cases) on their beneficial owners to the relevant state register authority by the following dates:
- for large enterprises (251 employees or more or an annual income of more than 30 million manats): by 31 December 2025;
- for medium-sized enterprises (51 – 250 employees or an annual income of between 3-30 million manats): by 30 June 2026;
- for small enterprises (11 – 50 employees or an annual income of up to 3 million manats): by 31 December 2026;
- for micro enterprises (up to ten employees or an annual income of up to 200,000 manats): by 31 December 2027.
According to the criteria for defining entrepreneurs as micro, small, medium or large entrepreneurs, the "average number of employees" and "annual income", whichever is higher, is taken as a basis.
Entities that do not provide accurate information on the beneficial owner and the ownership and control chain within the prescribed deadlines may face fines on officials, from AZN1,000 (approximately USD590) to AZN2,000 approximately USD1,180) and on legal entities, from AZN2,500 approximately USD1,475) to AZN3,000 (approximately USD1,770).
Practical challenges
Large multinational organisations frequently have multi-layered ownership chains that stretch across countries and legal systems. In such cases, shell companies and intermediary legal persons can obscure who truly controls the enterprise, making it time-intensive and resource-heavy to identify ultimate beneficial owners, especially when jurisdictions vary in their disclosure requirements, thresholds, or definitions of control. The new disclosure requirements may present practical challenges for tracing ownership through complex or cross-border corporate structures as well as ensuring confidentiality of sensitive personal information while meeting regulatory disclosure requirements.
Ultimately, while the reforms strengthen transparency and regulatory compliance, companies must pro-actively invest in systems, processes, and expertise to navigate the practical challenges of ultimate beneficial owner identification and reporting efficiently and accurately. Measures may include:
- Conducting a full check of ownership structures to identify direct and indirect shareholders.
- Implementing internal controls to track changes in ownership or control in real-time.
- Engaging external legal and compliance advisers for guidance on cross-border entities, document verification, and ultimate beneficial owner reporting.
- Maintaining data security and confidentiality to comply with trade secret protections while meeting disclosure obligations.
These steps will help entities reduce risks, streamline compliance processes, and strengthen corporate governance in line with international standards.
Conclusion
The amendments to the Law on State Register mark a new era of transparency and corporate accountability. By requiring detailed disclosure of beneficial ownership and ownership chains, the reform strengthens the integrity of the corporate sector, aligns national practices with international standards, and enhances the ability of authorities to combat financial crime.
For existing entities, timely compliance is critical to avoid legal penalties and operational disruptions. Multinational corporations, foreign branches and representative offices, and complex corporate groups should prioritise internal processes to identify beneficial owners, gather required documentation, and submit accurate information within the prescribed deadlines.
The reform also positions Azerbaijan among jurisdictions with corporate transparency regimes, enhancing its international reputation and signalling its commitment to combating financial crime. By improving access to reliable ownership data, the reform also strengthens investor confidence, facilitates cross-border transactions, and reduces the risk of corporate misuse for illicit purposes. The phased compliance deadlines, combined with the confidentiality protections for sensitive ownership data, provide a practical framework for businesses to implement the new requirements while ensuring regulatory compliance and operational continuity.
Supreme Court Decision on Foreign Arbitral Awards: Shaping Public Policy and Arbitration in Azerbaijan”
Laman Sadigli-Mirzayeva
Introduction
This article examines a recent decision of the Supreme Court of Azerbaijan, Decision No 10-2(102)-14/2025, dated 8 August 2025, regarding the recognition and enforcement of a foreign arbitral award. The decision addresses common issues in enforcement proceedings, including public policy, the scope of the arbitration agreement, and the statute of limitations. These issues are frequently raised by parties resisting enforcement, making the decision a significant reference point for both domestic and international practitioners.
The decision is especially noteworthy against the backdrop of Azerbaijan’s recent arbitration reforms. The country has actively modernised its arbitration framework through legislation and procedural amendments, signalling a strong policy commitment to arbitration as a reliable method for dispute resolution. By examining the Supreme Court’s reasoning, one can better understand how Azerbaijani courts approach arbitration today.
For investors, contractors, and commercial parties operating in Azerbaijan, the case provides valuable guidance. It illustrates how courts balance domestic legal principles with international arbitration standards, and it reinforces the country’s ambition to be an arbitration-friendly jurisdiction. The judgment, read alongside recent legislative reforms, demonstrates a clear alignment of Azerbaijani practice with international norms.
Background of the dispute
On 29 February 2024, a tribunal issued an arbitral award in a dispute between Ludwig Pfeiffer Hoch-Und Tiefbau GmbH & Co KG (the “Claimant”) and the Regional Water Melioration Service (the “Respondent”), a public legal entity of the Republic of Azerbaijan. The Claimant is an international construction and engineering company, while the Respondent is a state-related body responsible for water management infrastructure.
The dispute arose from a large-scale infrastructure contract involving the design, supply, installation, and commissioning of water supply and wastewater systems in the Yardımlı district of Azerbaijan. Such projects are typically complex and long-term, which often increases the risk of contractual disagreements. As is common in international construction contracts, the parties agreed in advance on a dispute resolution mechanism.
Under Clause 46.5 of the Special Conditions of the contract, all disputes arising out of or related to the contract were to be resolved by arbitration under the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules. This clause reflected the parties’ intention to resolve disputes outside national courts, relying instead on a neutral and internationally recognised arbitration framework.
After considering the parties’ written submissions and evidence, the arbitral tribunal accepted the Claimant’s claims and ordered the Respondent to make payment. Following the issuance of the award, the Claimant applied to the Supreme Court of Azerbaijan for recognition and enforcement of the foreign arbitral award. The Respondent opposed the application and requested that the Court refuse recognition.
Respondent’s objections to recognition
The Respondent’s objections focused mainly on two grounds: public policy and the statute of limitations. The core of the Respondent’s argument was that enforcing the arbitral award in Azerbaijan would violate public policy of the State. According to the Respondent, this was not a minor procedural issue but a matter of public importance.
First, the Respondent argued that the arbitral tribunal should not have continued the proceedings because the Claimant’s claims were allegedly time-barred. In simple terms, the Respondent claimed that the statute of limitations had been violated by the Claimant to bring its claims. If this argument had been accepted, the claims would have been dismissed, regardless of their substantive merits.
Because Azerbaijani law governed the contract, the Respondent argued that the arbitral tribunal should have applied Azerbaijani limitation periods. In the Respondent’s view, the tribunal’s failure to apply these limitation rules correctly constituted a serious legal error. Since the statute of limitations is one of the mandatory legal norms under Azerbaijani legislation, this failure also amounted to a breach of public policy. The Respondent further contended that such an error reached the threshold of a public policy violation. Alternatively, it was argued that a breach of the statute of limitations effectively extends the underlying agreement and, consequently, the scope of the arbitration agreement, which would also constitute a violation of Article 476.1.1.3 of the Civil Procedural Code.
The Respondent also challenged the manner in which the arbitration had been initiated. The arbitration clause referred only to arbitration under the UNCITRAL Arbitration Rules and did not name a specific arbitral institution. On this basis, the Respondent argued that the parties intended an ad hoc arbitration and not one administered by the Permanent Court of Arbitration, thereby rendering the arbitral process defective.
The court’s approach to public policy
One of the most striking aspects of the Court’s decision was its decision to seek an expert opinion from the Azerbaijani Arbitration Association. The Court asked for guidance on how public policy is generally understood in international arbitration practice. This step demonstrated the Court’s willingness to look beyond domestic law and consider international standards.
The Court confirmed that public policy must be interpreted narrowly in recognition and enforcement proceedings. According to the Court, refusal to recognise an arbitral award should occur only in exceptional circumstances. This approach reflects a widely accepted international principle that favours enforcement of arbitral awards, which is in line with the requirements of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958).
The Court explained that, when recognising arbitral awards, the public policy rule is interpreted narrowly, and its application is limited to exceptional cases. Recognition or enforcement of an arbitral award is refused not where it contradicts any legal grounds related to the state’s political, economic, or legal system in general, but only when it violates the fundamental legal foundations (principles) that form the basis of those systems.
Referring to approaches taken in foreign jurisdictions, the Court aligned Azerbaijani practice with international trends. On this basis, it concluded that the arbitral tribunal’s approach to calculating the limitation period, even if different from Azerbaijani court practice, could not be regarded as a violation of public policy. Thus, the court refused the grounds raised by the respondent and granted recognition and enforcement of arbitral award.
Scope of the arbitration agreement
The Court also addressed the Respondent’s objections relating to the scope of the arbitration agreement on Article 476.1.1.3 of Civil Procedural Code. As per the Article, where the award has been rendered in respect of a dispute not contemplated by or not falling within the terms of the arbitration agreement, or where the award contains decisions on matters beyond the scope of the arbitration agreement or the claims submitted (provided that, if the decisions on matters covered by the arbitration agreement or the claims submitted can be separated from those not so covered, the parts of the award containing decisions on matters covered by the arbitration agreement or the claims submitted may be recognised and enforced), the court can refuse its recognition and enforcement.
The Court noted that the arbitral tribunal had already confirmed its competence and jurisdiction in a preliminary ruling. Importantly, the Respondent did not challenge that ruling during the arbitral proceedings themselves. As a result, the Court held that these objections could not be raised again at the recognition and enforcement stage.
Unclear definition of public policy
Although the Court strongly endorsed a restrictive interpretation of public policy, it did not provide a detailed explanation of the concept under Azerbaijani procedural law. This lack of detailed guidance leaves room for future debate. Public policy remains a flexible but uncertain concept.
As per Article 476.1.2.2 of Civil Procedural Code, the Court can refuse the recognition of the award if the recognition and enforcement of the arbitral award that are contrary to the Constitution of the Republic of Azerbaijan or to public policy, that is, to legal norms which, by their nature, are imperative, universal, and of special public importance, and which constitute the fundamental legal foundations (principles) of the political, economic, and legal system of the Republic of Azerbaijan.
This wording raises several unresolved questions. First, the separate reference to the Constitution alongside public policy creates uncertainty as to whether constitutional compliance will be treated as part of public policy or as an independent ground for refusal. Treating it as an independent ground could potentially conflict with Article V of the New York Convention, which gives limited grounds to states to refuse recognition and enforcement.
Second, the definition appears to limit public policy to legal norms only. This raises the question of whether public policy should remain flexible enough to develop beyond strictly defined legal rules. Since the former Law “on International Arbitration” (No 757-IQ dated 18 November 1999) has been repealed, Azerbaijani courts now play a central role in shaping public policy through case law.
Previously, Article 36.1(b)(ii) of the former Law “on International Arbitration” referred to the “legislation of the Republic of Azerbaijan” as the relevant standard for refusing recognition of a foreign arbitral award, rather than explicitly mentioning public policy. This formulation created ambiguity, as it was unclear whether courts should base their decisions on general legislation or fundamental principles of public policy when deciding whether to refuse enforcement. In 2005, the reference in the Law was amended to the “Constitution of the Republic of Azerbaijan,” (Law “on Amendment to Law “on International Arbitration”” No 915-IIQD dated 10 May 2005) which, while providing a clearer benchmark, also introduced a new source of potential uncertainty. The shift highlighted an ongoing tension between statutory rules, constitutional compliance, and the broader concept of public policy in international arbitration. To address these challenges and provide more practical guidance, the recent legislative reforms introduced a detailed and explicit public policy ground for refusing recognition. The aim of this is to assist courts in interpreting public policy consistently, clarifying the circumstances in which recognition of a foreign arbitral award may legitimately be denied, and ensuring that the application of this ground is aligned with international standards. This development is particularly important for international parties and investors, as it strengthens predictability and reduces the risk of arbitrary refusal, contributing to a more arbitration-friendly environment in Azerbaijan.
Statute of limitations: an open question
The Court acknowledged that the statute of limitations was central to the Respondent’s objections. However, it did not clarify which limitation rules apply in arbitration proceedings, nor did it explain how the applicable law governing limitation periods should be determined.
Most importantly, the Court did not address whether an incorrect application of limitation rules could, by itself, amount to a public policy violation. This omission limits the practical guidance offered by the decision. Parties may therefore continue to raise limitation arguments without clear judicial direction.
Under Azerbaijani law, limitation periods are regulated by the Civil Code and are generally regarded as part of substantive law rather than procedural law. Further judicial clarification would help determine how these substantive rules interact with arbitration proceedings governed by international standards.
The current trends in the market
The decision should be viewed within the broader context of significant reforms in Azerbaijani arbitration law. In late 2023, Azerbaijan adopted a new Law “on Arbitration” (No 1077-VIQ dated 23 December 2023), fundamentally modernising its arbitration framework. For the first time, the law created a unified regime for both domestic and international arbitration.
The new law clarified the validity of arbitration agreements and strengthened the role of courts in supporting arbitration. These changes were designed to align Azerbaijani law with international standards, particularly the UNCITRAL Model Law with the amendments adopted in 2006. As a result, parties now enjoy greater legal certainty when choosing arbitration.
The reform package was further reinforced by amendments to the Civil Procedural Code (Law “on Changes to Civil Procedural Code of the Republic of Azerbaijan” No 1078-VIQD, dated 26 December 2023), which expressly regulate court involvement in arbitration-related matters. Courts are now empowered to assist arbitral tribunals and apply clearer procedures for recognition and enforcement. This reduces procedural uncertainty and increases predictability for parties.
The adoption of the Law “on Private Enforcement Officers” (No 248-VIIQ, dated 14 July 2025) further strengthens the post-award phase of arbitration. By introducing private enforcement mechanisms alongside state enforcement, Azerbaijan has increased the practical enforceability of arbitral awards.
Another important development is the establishment of the Baku Arbitration Centre. In October 2024, the Centre introduced its institutional arbitration rules, a model arbitration clause, and an official website. The Centre reported its first case submission in February 2026, demonstrating growing confidence in institutional arbitration.
Together, these reforms and institutional developments confirm Azerbaijan’s intention to position itself as an arbitration-friendly jurisdiction. The Supreme Court’s decision reinforces this objective by emphasising that refusal of recognition must remain exceptional.
Conclusion
Overall, the Supreme Court’s decision sends a positive signal to the arbitration community. By confirming a high threshold for refusing recognition of foreign arbitral awards, the Court aligns Azerbaijani practice with international standards. This approach promotes legal certainty and predictability.
At the same time, important questions remain unresolved, particularly concerning the statute of limitations and its relationship with public policy. Future case law will be necessary to clarify these issues.
Nevertheless, when viewed together with recent legislative reforms and institutional developments, the decision reflects Azerbaijan’s ongoing shift toward greater acceptance of arbitration and alternative dispute resolution mechanisms.