Attorney-General demands phones, homes of secret investors in firms

The State is now demanding details such as names, phone numbers and residential addresses of investors who own more than 10 percent stakes in companies through secret accounts.

The new regulations, 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 at the Nairobi Securities Exchange.

They are also targeting 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 Kenya Revenue Authority (KRA).

Under the new regulations, which were published last Friday and took effect on February 18, firms will now be compelled to reveal the identities of secret shareholders who control more than 10 percent in firms to the Attorney-General through the Registrar of Companies.

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

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

“A company shall take reasonable steps to identify the beneficial owners,” says Attorney-General Kihara Kariuki through the regulations. “It is the companies’ duty to investigate and obtain beneficial owner particulars.”

The regulations now give effect to the changes in the Companies Act, promising to unmask rich and influential businessmen who choose to hide their identities behind trusts, foundations and law firms to avoid scrutiny.

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.

BAT for example has nine nominee accounts in its roll of top 10 shareholders, Kenya Power and Safaricom have eight each, Britam has three, while Equity Bank has five.

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

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 for forwarding to the State.

Third party companies

Bernard Kiragu, Managing Partner at Scribe Services—a corporate governance consultancy firm-- said the new regulations will curb insider dealings where directors and owners of substantial stakes trade with their own companies.

“It will help address the issue of conflict of interest and corporate governance where a conflicted director does not sit when a decision is made to deal with a company they have interest in,” Mr Kiragu said.

“It will also shine light on related party disclosures and maintain a register that may be used when an investigation comes up,” he added.

Some individuals have in the past used third party companies to breach the law including ownership limits imposed on shareholding.

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 stake 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 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 tap money launderers, corrupt individuals and tax cheats via the data.

The KRA enforcement unit has been using various databases to pursue suspected tax cheats, including bank statements, import records, motor vehicle registration details, Kenya Power records, water bills and data from the Kenya Civil Aviation Authority (KCCA), which reveals individuals who own aircraft.

Motor vehicle registration details are also being used to smoke out individuals who are driving high-end models but have little to show in terms of taxes remitted.

Kenya Power meter registrations are helping the taxman to identify landlords, some of who have been slapped with huge tax demands.

The taxman is racing to bring more people into the tax bracket and curb tax cheats and evasion in the quest to meet revenue targets that it has persistently missed in recent years.

KRA has hinged this aggressive pursuit of tax cheats on the Tax Procedures Act, which empowers the authority to seek taxes and information directly from third parties like banks, employers and suppliers as well as seize and auction property to recover unpaid tax.

Kenya was fingered as one pf the single easiest place 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.

In 2012, a Global Financial Integrity (GFI) report found that more than $13.5 billion had flowed illegally into or out of Kenya from 2002 through 2010 through secret share purchases, misinvoicing of trade transactions, fueling crime and costing the Kenyan government at least $3.92 billion in lost tax revenue.