The State will start making public the names, residential addresses and occupation of secret shareholders in companies that clinch tenders in ministries and parastatals.
Attorney-General Kihara Kariuki has unveiled fresh regulations that will compel the Public Procurement Regulatory Authority (PPRA) to reveal information on beneficial owners of firms that have secured tenders in State-backed entities.
This will for the first time unmask shareholders of companies who secretly benefit from State deals through nominee accounts in efforts to boost transparency in public sector procurement.
The International Monetary Fund (IMF) has in the past also demanded disclosure of secret owners in companies awarded procurement contracts as a tool for fighting graft.
Mr Kariuki made amendments to the previous regulations required that information on beneficial owners--investors who own more than 10 percent stakes in companies through secret accounts—be made available to the Kenya Revenue Authority (KRA), security agencies and the Financial Reporting Centre, which tracks illicit wealth.
Kenya in October 2020 started collecting personal data on beneficial owners, including their names, KRA PIN, national ID or passport copies, postal address, residential address, occupation and telephone numbers.
This information will now be made public through a portal manned by PPRA— the State procurement regulator —for firms that have secured tenders in government and parastatals.
“Beneficial ownership information maintained by the Public Procurement Regulatory Authority in the government portal in relation to entities that have been awarded a tender by the procurement entity as part of contract award shall be published and made publicly available,” says the Beneficial Ownership Information (amendment) Regulations, 2022.
The IMF says the disclosure of owners of companies that are awarded procurement contracts will help reduce the loss of public funds to graft.
The 2020 regulations barred companies from making public the personal details of the beneficial owners but opened the window for the KRA, security agencies and the Financial Reporting Centre to tap the information.
This was a pointer that the State was keen to use the information to unmask money launderers, corrupt individuals and tax cheats via the data.
But the latest amendments mean ministries and State-owned firms are now free to reveal the personal details of the beneficial owners who have secured tenders funded by taxpayers.
The unprecedented move is designed to expose insider dealings and other potential conflicts of interest.
It could also expose external parties who have been caught in fraudulent transactions in the past.
Kenya Power #ticker:KPLC in November became the first State-backed firm to require companies supplying it with goods and services worth millions of shillings to declare their ultimate beneficial owners as part of the electricity distributor’s crackdown on graft.
Any supplier paid more than Sh1 million per month or Sh12 million per annum is expected to file its true owners with Kenya Power and expressly authorise the Nairobi Securities Exchange-listed firm to disclose the same to its shareholders and regulators.
Besides fighting graft and conflict of interest, the disclosures on beneficial owners 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 (NSE) #ticker:NSE .
These are aimed at curbing insider trading.
They are also aimed at curbing money laundering by revealing the true identity 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 took effect, firms were expected to file a register of members, containing the 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 burden of providing the details to the State rests with companies, who risk a fine of Sh500,000 and a penalty of Sh50,000 for every day in breach.
The regulations and the beneficial owners’ registry now gives 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.
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.
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 #ticker:SCOM, for example, has eight nominee accounts on its roll of top 10 shareholders, while East Africa Breweries Limited (EABL) #ticker:EABL and KCB Group #ticker:KCB have seven each. Cooperative Bank #ticker:COOP has five and Equity Bank #ticker:EQTY four. The five companies account for about 80 percent of investors’ wealth at the Nairobi bourse.
The situation is worse in private companies, which are the target of the government.