BWIRE: How to tame graft through beneficial ownership transparency law
The registration of companies in Kenya, including access to information on directorship and beneficiaries of proceeds from businesses conducted by the entities still remains a major source of corruption in the country. While generally it has been held that public servants remain the biggest suspects in corruption, it’s increasingly becoming clear that the private sector is major player in the vice.
While corruption is a global phenomenon and largely associated with the government, the level of corruption within the private sector warrants that the legal framework relating to the beneficial ownership in Kenya is reviewed to make it more transparent.
Currently shadow companies, off-shore companies, trusts, companies owned through proxies and an opaque company registrar have made it hard for the government to firmly deal with the issues tax evasion, conflict of interest, and money laundering and related businesses.
Indeed, with the passing of the Public Private Partnership Act, if the Registrar of Company’s office is not facilitated to function well including establishing a public registry on ownership of companies and beneficiary ownership, we are going to see the worst.
While the private sector through the Kenya Private Sector Alliance recently signed an anti-corruption charter, little is there to show commitment.
Weaknesses in beneficial ownership law
In a study recently released by Transparency International Kenya entitled “Towards Beneficial Ownership Transparency in Kenya: An Assessment of the Legal Framework”, it has been identified that there are several weaknesses in the country’s current beneficial ownership transparency legal framework.
For example, the anti-money laundering law is not strong enough on issues of requiring legal entities to maintain information on all natural persons who exercise ownership or control of the legal entity including companies and trusts. Currently, access to information and data of company ownership held by the Register of Companies including private companies and trusts is very limited and no verification of the information is foreseen.
More worrying, especially within the demand for transparency, is the fact that the Kenyan law does not cover trust and company service providers and dealers in luxury goods. In addition, lawyers do not have any obligation to identify the beneficial owners of their clients to any authority or the public. Anglo Leasing and the Goldenberg Scandals are case studies in Kenya. Indeed, it is not prohibited to use nominee shareholders and directors although it is not in line with the relevant beneficial ownership principle.
The government will make serious strides if it can, according to the study, to conduct a national risk assessment, consult external stakeholders (e.g. financial institutions, designated non-financial businesses or professions (DNFPBs), non-governmental organisations), fast track the removal of Section 104 of the Companies Act and make explicit the obligation of shareholders to declare information on beneficial ownership and sanction the failure or delay of providing it, extend the scope of beneficial ownership information that has to be recorded in the register of members and in the Register of Companies to include identification or tax number, nationality, country of residence and description of how control is exercised.
Additionally, the reviewed law should mandate the Registrar to verify the beneficial ownership information or other relevant information such as shareholders/directors submitted by legal entities against independent and reliable sources, regulate the access to register of members of private companies to make it open for inspection by any person (as in the case of public companies), regulate electronic access to the central register in line with open data principles, require trustees to proactively disclose to financial institutions/DNFBPs or others information on the protector in a trust if the trust has a protector, introduce mandatory registration of trusts, make lawyers, trustees, dealers in luxury goods disclose information they hold on company ownership and regulate businesses of dealers in precious metals and stones.
It’s important that we make the Register of Companies a full functional unit so that foreign authorities too can have direct access to beneficial ownership information held by the register, improve the access of tax authorities to beneficial ownership information held by other domestic authorities by setting up a centralised database for sharing information and amend the Companies Act and prohibit the use of nominee shareholders and directors.
The Writer works at the Media Council of Kenya as the Programmes Manager and writes on topical issues email@example.com
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