Under recommendation of the Financial Action Task Force on International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation, members are urged to maintain adequate and timely information on the beneficial ownership and control of legal persons.
Following this recommendation, Kenya introduced section 93A of the Companies Act of 2015 in July 2019, through the Statute Law (Miscellaneous Amendments) Act. It provides that companies incorporated or registered in Kenya should keep a register of beneficial owners with the relevant information relating to such owners. Further, through a Legal Notice dated 18th February 2020, the Attorney-General published the Companies (Beneficial Ownership Information) Regulations, 2020 (the Regulations) which give effect to section 93A of the Companies Act.
The latest development in this area of the law is a public notice issued by the Registrar of Companies advising that the beneficial ownership e-register is operational as from 13th October 2020.
Definition of Beneficial Owner
The Companies Act defines a beneficial owner as “the natural person who ultimately owns or controls a legal person or arrangements or a natural person on whose behalf transactions are conducted, and include persons who exercise ultimate effective control over a legal person or arrangement.”
Under the Regulations, a beneficial owner is a natural person who directly or indirectly:
- holds at least ten percent (10%) of the issued shares of the company;
- exercises at least ten percent (10%) of the voting rights in the company;
- holds the right to appoint or remove a director of a company; or
- exercises significant influence or control over a company.
Significant influence or control under the regulations means participation in the finances or financial policies of the company.
Salient Features of the Regulations
Particulars of Information of Beneficial Owner
A company is required to enter the following particulars of the beneficial owner in the register – the full name; the birth certificate number; the national identity number and the passport number; the nationality; the date of birth; the postal address; the business address; the residential address; telephone number; the email address; the occupation or profession; the nature of ownership or control; the date the person became the beneficial owner; the date the person ceases to be a beneficial owner and any other information that may be required by the registrar from time to time.
Obligations of the Company
Duty to Investigate the Beneficial Owner
The Regulations provide that a company has a duty to investigate and obtain the particulars of a beneficial owner. The first step in the investigation is issuance of a notice to the person they believe to be the beneficial owner of the company. A person issued with this notice by the company is required to comply with the notice within twenty-one (21) days from the date that the notice was issued. In case a person fails to comply with the notice within time, the company shall issue them with a warning notice of fourteen (14) days.
Restriction of Persons Who Fail To Comply With the Warning Notice
If a person fails to comply with the warning notice within fourteen (14) days from the date of issuance, the company shall restrict the relevant interest of the person. Thereafter, the company files with the registrar a copy of the restriction issued fourteen (14) days after issuance of the restriction.
The effect of the restriction is that:
- any transfer of interest by the person shall be void;
- the person shall not exercise his rights in respect to the interest;
- no shares shall be issued to the person in an allotment; and
- no payment shall be made to the person in respect of the interest he holds in the company.
Restrictions on Sharing Beneficial Ownership Information
In an effort to ensure that the officers of the company comply with the provisions of the Data Protection Act, 2019, the regulations provide that the company should not disclose the information of the beneficial owner to the public, unless the beneficial owner has consented to the disclosure.
The beneficial owner information can only be disclosed for purposes of complying with the Regulations, for purposes of communicating with the beneficial owners or in compliance with a Court Order.
A person who discloses beneficial ownership information to the public risks a fine not exceeding Kenya Shillings Twenty Thousand (KES 20,000) or imprisonment for a term not exceeding six (6) months or to both.
Penalty In Case of Non-Disclosure by the Company
Under section 93A of the Companies Act, failure by a company to comply with the disclosure requirements is an offence which on conviction attracts a fine not exceeding Kenya Shillings Five Hundred Thousand (KES 500,000) payable by the company and each officer of the company in default. Further, if the non-compliance continues, the company and the officers shall be liable an additional fine not exceeding Kenya Shillings Fifty Thousand (KES 50,000) per day.
Operationalisation of Disclosure of Beneficial Ownership Information
The Registrar of Companies announced through a Public Notice that with effect from 13th October, 2020 the beneficial ownership e-register is operational. As such, companies are required to update their beneficial ownership e-register by 31st January 2021. Therefore, company officers are required to take attendant steps to ensure compliance with the provisions of the Act and the regulations. In summary some of the steps that company officers could take include:
- Issuance of notices to the persons that can be termed as beneficial owners as per the definition in the Act and the regulations;
- Adherence to timelines outlined in the regulations for example, timelines on issuance of notices;
- Updating the e-register in case of any new information of beneficial owners;
- Updating the registrar of companies in case of any restriction measures placed on beneficial owners; and
- Ensuring that the information of the beneficial owners is not disclosed to the public without their consent, contrary to the provisions of the Data Protection Act.
Nullification of the Statute Law (Miscellaneous Amendments) Act of 2019
On 29th October, 2020 the High Court of Kenya in Constitutional Petition Number 284 of 2019 (as consolidated with Petition No. 353 of 2019) declared amongst other laws that the Statute Law (Miscellaneous Amendments) Act of 2019 is unconstitutional thus null and void for failure to involve the Senate in their passage. As stated above, this particular Act introduced section 93A of the Companies Act; the main provision on disclosure of beneficial ownership information by companies in Kenya.
However, the Court in its Judgment suspended the nullification of the impugned Acts for a period of nine (9) months to enable the Respondents to comply with Article 110 of the Constitution and regularize the Acts. The suspension of the nullification of the affected statues means that companies still have an obligation to comply with the laws and the regulations on beneficial ownership information.
In absence of the above-mentioned laws and regulations, many individuals who are beneficial owners of companies remain legally anonymous. As such, money launderers and those involved in covert criminal activities and terrorism would invariable take advantage of hitherto opaque corporate structures to conceal their true ownership of assets and properties. Therefore, the disclosure of beneficial ownership information is expected to promote greater transparency within corporates in Kenya, by shedding light on true ownership structures within companies.
Source: Oraro . co . ke