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90pc of firms deny State investors’ phones, homes

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Economy

90pc of firms deny State investors’ phones, homes


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Summary

  • The Attorney-General’s office says 57,000 of Kenya’s registered 590,000 companies have so far met legal demands for both private and public firms to provide personal information of investors who own more than 10 per cent stake.
  • This represents a compliance rate of 9.6 per cent, which prompted the State to push forward the deadline for compliance to July from January.
  • It is now a prerequisite for new firms to fill the beneficial ownership registers ahead of registration and existing ones have less than five months to comply in a major shake-up of shareholder records.

Less than 10 per cent of registered companies have revealed the names, phones and residences of their secret owners in line with the law, reflecting resistance to efforts to unmask illicit wealth.

The Attorney-General’s office says 57,000 of Kenya’s registered 590,000 companies have so far met legal demands for both private and public firms to provide personal information of investors who own more than 10 per cent stake in the firms through secret accounts.

This represents a compliance rate of 9.6 per cent, which prompted the State to push forward the deadline for compliance to July from January.

It is now a prerequisite for new firms to fill the beneficial ownership registers ahead of registration and existing ones have less than five months to comply in a major shake-up of shareholder records.

The Registrar of Companies says the electronic register for filling data on beneficial owners opened 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 (FRC) —which tracks illicit wealth.

Analysts link the low compliance to the firms’ reluctance to provide information on secret shareholders and capacity challenges at the State registry.

“Some people are sceptical as to what the information will be used for despite the assurance that the data will be protected. Some companies are not responsive and others may no longer be active or their directors died while some have disputes,” said Benard Kiragu, managing partner at Scribes Services, a corporate governance consultancy firm.

“There are capacity challenges at the registry where some companies have not been linked with their director accounts hence they cannot file.”

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 FRC 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.

The new rules, which are aimed at curbing insider trading, will shed light on market activity and 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 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, 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 per cent 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 per cent of investors’ wealth at the Nairobi bourse.

The situation is worse in unlisted companies.



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