Companies

Deadline set for firms to reveal secret investors

AG

Attorney General Kihara Kariuki. FILE PHOTO | NMG

Companies have until January to provide the State with the identity of secret shareholders including names, phone numbers and residential addresses in efforts to unmask illicit wealth.

The Attorney General has ordered both private and public companies to provide personal information of investors who own more than 10 percent stake in the firms through secret accounts.

It is now a prerequisite for new firms to fill the beneficial ownership registers ahead of registration and existing firms have three months to comply in a major shakeup of shareholder records.

The Registrar of Companies says electronic register for filling data on beneficial owners started on October 13 under plans that will see the records made available to the Kenya Revenue Authority (KRA), security agencies and the Financial Reporting Centre —which tracks illicit wealth.

“Every company should update their beneficial ownership (BO) register before 31, January 2021 to ensure compliance with the Companies Act, 2015,” said a notice from the Business Registration Services under the Attorney-General’s office.

“The Registrar of Companies hereby notifies all Officers of Companies and authorised persons that the BO E-Register has been operationalised with effect from 13th October, 2020.”

The new rules, which are aimed at curbing insider trading, will shed light on market activity by curbing the use of nominee accounts that investors have been using to side-step ownership limits in firms listed on the Nairobi Securities Exchange.

They are also aiming to curb money laundering by revealing the true identify of investors owning large blocks of shares in both private and listed companies, who will also be of interest to the taxman.

Before the rules on secret company records, firms were expected to file a register of members or its owners, containing date of share acquisition, share ownership and shareholder names, including nominees.

This allowed companies not to name controlling shareholders in the quest to conceal their true ownership.

The new regulations compel firms to reveal the identities of secret shareholders who control more than 10 percent in the companies to the Attorney-General through the Registrar of Companies.

The details required for filing include names of the substantial shareholders, KRA PIN, national ID or passport copies, postal address, residential address, occupation, telephone number and the date when the investor became a beneficial owner.

This promises to unmask rich and influential businessmen who choose to hide their identities behind trusts, foundations and law firms to escape scrutiny.

The burden of providing the details rests with companies, who risk a fine of Sh500,000 and a penalty of Sh50,000 for every day in breach.

Firms have been empowered by the regulations to stop paying dividends, block share transfers and end right for board appointments as well as voting power to substantial investors who fail to provide their particulars to the State.

Most high-net-worth shareholders at the NSE hold shares through nominee accounts, with the list of top 10 shareholders in a majority of blue chip firms dominated by anonymous investors.

Safaricom, for example, has eight nominee accounts on its roll of top 10 shareholders, while East Africa Breweries Limited (EABL) and KCB Group have seven each. Cooperative Bank has five and Equity Bank four. The five companies account for 77 percent of investors’ wealth at the Nairobi bourse.

The situation is worse in private companies, which is the target of the government.

The Capital Markets Authority (CMA) slapped former Kenol Kobil boss Jacob Segman with a Sh500 million fine for creating a nominee account that owned an additional stake in the oil marketer and pocketed perks in secret.

Mr Segman owned a 5.9 percent stake in the firm, but failed to disclose in line with rules that demand directors owning more than three percent stakes in a firm to make disclosures.

The fresh regulations bar companies from making public the personal details of the beneficial owners, but opens the window for the KRA, security agencies and the Financial Reporting Centre to tap the information. This is a pointer that the State is keen to use the information to unmask money launderers, corrupt individuals and tax cheats via the data.

Kenya is one of the single easiest places in the world to open an anonymous shell company to launder illicit proceeds for criminals and terrorists, according to researchers at the University of Texas-Austin, Brigham Young University, and Griffith University.