By Lenkidi Mpapa
Proxies, secret investors, and cartels are now on the run but no longer hiding. Thanks to the requirement for business owners to disclose the beneficial owners in their organizations. The new regulations are making their blood run south faster than the Community Development Fund (CDF) projects.
Organizations, which have been their best field of operation, have less than 6 months to disclose to the state the identity of secret shareholders including but not limited to names, phone numbers, and residential addresses in efforts to unmask illicit wealth. The launch of Beneficial Ownership Registers will show the ultimate significant owners of both private, and public companies.
This move has caught the cartels and secret investors (at least for now) by surprise owing to their proactive nature of accessing highly privileged information from state agencies as they devise their means of mutating into another field.
The Business Registration Service (BRS), a state agency in the Attorney General’s office overseeing the process recently announced that there has been a “significantly high” number of applications to file the data as firms rush to comply with Section 93 A of the Companies Act 2015.
Filing of data on beneficial owners started in October 2020 and these plans will see records made available to the Kenya Revenue Authority, Security Agencies, and Financial Reporting Centre which tracks illegally acquired wealth.
These rules, if implemented, are directed at curbing insider trading. It will shed light on market activities tackling the common tactics, and the modus operandi by the investors of using nominee accounts to sidestep ownership limits in firms listed on the Nairobi Securities Exchange.
Before the rules on secret company records took effect, firms were only expected to file a register of members containing the date they acquired the shares, share ownership, and shareholders’ names as well as nominees.
With this loophole, the companies took advantage of the grey areas of the law, forgetting it was not one of the colors of their memoranda and were allowed to keep in the dark this vital information by not naming controlling shareholders in the quest to disavow their true ownership.
Anonymous shell companies are the number one tool used by criminals to launder their money, according to Lanny Breuer, the former Assistant U.S. Attorney General. This is the number one tool for laundering illicit money, and Kenya is the easiest place to establish one of these “phantom firms”
The new regulations, which share the same attributes with democracy, (works better in theory than in real life) give effect to changes in the Companies Act promising to unmask rich, and influential businessmen (yes unmasking!!) who hide identities behind trusts, foundations, and law firms to avoid scrutiny. It might sound easy as cracking coconut with your teeth, but who knows? They might actually work this round.
Kenya still remains the single easiest place in the world for a criminal or terrorist to open an anonymous shell company to launder their illicit proceeds, according to researchers at the University of Texas-Austin, Brigham Young University, and Griffith University. Moreover, though Kenya has allegedly set up better regulations to monitor suspicious financial activity, there still remain substantial loopholes that allow companies to conduct illicit transactions.
The office of the Attorney General has, however, given them (cartels) grace period. The deadline for filing the beneficial owners’ register has been extended to July 31st, 2021 from the earlier timeline which lapsed on 31st January 2021. Now that they have nowhere to hide, soon they will have nowhere to run to.
Lenkidi Mpapa is a Lawyer at Kimani Mwangi Advocates LLP. He holds a Bachelor of Laws degree (LL. B) from the University of Nairobi. He is a Legal Assistant to the partners and has a comprehensive understanding of legal research and a great understanding of Criminal Law, Commercial Law as well as Conveyancing Law. Get in touch with him via firstname.lastname@example.org