The non-disclosure of beneficial shareholders in Corporate entities offers ample opportunity for the unscrupulous and the corrupt to go undetected because Corporate entities that are not transparent are undoubtedly, prone to be misused for certain illegal activities like money laundering, tax evasion, terrorist financing, insider dealings, etc which invariably cause havoc to the economy and the society as a whole.
The publication of the so called “Panama Papers” readily comes to mind in a discourse on beneficial ownership. It brought to public attention how politicians, celebrities, and elites use elaborate corporate structures and offshore tax havens to conceal their beneficial ownership of companies and obscure their personal assets for illegal purposes, including fraud, tax evasion, and evading international sanctions (Schmidt, et al., 2016).
Transparency of companies’ activities with respect to board, financial and management of a firm and the relationship that exist between them is crucial because information disclosure solves the problem of having relevant information accessible to the relevant stakeholders. The transparency and disclosure attributes is divided into three sub-sets which are “transparency in ownership structure and investments; financial transparency and information disclosure; and transparency in board, management structure and process. Our major focus is transparency in ownership structure and investments with particular reference to disclosure of beneficial ownership of shares.
A “Beneficial owner refers to the natural person(s) who ultimately owns or controls a customer and/ or the person on whose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement” (Financial Action Task Force on Money Laundering, 2012, P.G 15).
The availability of information has proven to be a determining factor in the efficiency of economic growth. The extent of information availability on the Corporation’s actions to outsiders can be described as Corporate Transparency. Corporate transparency can be defined simply as the perceived quality of intentionally shared information from the corporation. There are three primary dimensions of corporate transparency: information disclosure, clarity, and accuracy. The strategic management of transparency therefore involves intentional modifications in disclosure, clarity, and accuracy to accomplish the firm’s objectives (Schnackenberg and Tomlinson, 2014).
In a company limited by shares the shareholders, who can exercise the voting rights attached to their shares to make changes in how the company operates have ultimate control over the company. Transparency in ownership structure and investments involves full disclosure of the legal and beneficial owners of a company who have the ultimate control over the company.
Beneficial ownership of shares in Nigeria
Many of the names contained in the register of companies in Nigeria are not the real owners. A lot of them are just fronts who have chosen to represent the beneficial owners, whose identities are often concealed. The issue was still unclear to Nigerians until July 14, 2017 when 2 petitioners petitioned the Securities and Exchange Commission to investigate Oando PLC.
The first petitioner (Alhaji Dahiru Mangal) a 4 per cent shareholder in his petition indicated that he holds 17.9 per cent interest in Oando. He is yet to disclose his beneficial ownership of 13.9%. The second petitioner Gabriele Volpi, through his company, Ansbury Plc which is not a shareholder in Oando but a shareholder in a company domiciled outside the country which in turn holds shares in a Nigerian investment company that has shares in Oando. Volpi, via Ansbury, therefore indirectly, owned Oando Group (Ohwovoriole, 2017).
It will be difficult to use corporate entities for illegal activities if details of legal and beneficial owners of shares as well as all activities and source of assets are disclosed to regulatory agencies, the public and potential investors with the aim of balancing the right to privacy and the need to prevent financial crimes. The disclosure of information and details of legal and beneficial owners of shares in corporate entities will go a long way in assisting regulatory agencies trace juristic persons who may be participating in illegal activities.
Countries like Australia, USA, UK, Norway, Spain amongst others has developed their laws to regulate corporate transparency of beneficial ownership information by providing for a central register that contains the list of all beneficial owners of various companies in their respective Countries, and also ensured that the said register will be accessible to the public and relevant Governmental agencies.
The Nigerian Laws are not entirely silent on this issue, this is evident in the Securities and Exchange Commission (SEC) Rules which require registrars or security depositories to notify the SEC of any transaction that brings the beneficial ownership of shares in the company to 5% or more as well as to notify it of subsequent transactions by holders of such shares within a five day period of becoming aware of the change in ownership (Securities and Exchange Commission Rules, 2007). Under the old CAMA, only a member of a Public Company (PLC) was under obligation to disclose in writing when required, the capacity in which he holds any shares in the company; either as a beneficial owner or as a nominee of an interested person (Companies and Allied Matters Act, 1990). The new CAMA has extended such obligation (to disclose the particulars of shareholding by notifying the company) to persons with significant control in all companies (Companies and Allied Matters Act, 2020). The new CAMA also provides that a person who is a substantial shareholder in a public company and holding (either by himself or by his nominee/proxy) shares in the company which entitle him to exercise at least five per cent (5%) of the unrestricted voting rights at any general meeting of the company, is required to disclose such holding by notifying the company within a stipulated time (Companies and Allied Matters Act, 2020).
Although Nigeria is slowly paying attention to the menace, compared to steps taken by other countries to combat this issue, it is important to state that the lack of corporate transparency on beneficial ownership information had generated the country’s grievous corruption cases which has led to the decline in the integrity of the Nation. This problem is ironical to the fact that Nigeria is the highest advocate of international anti-corruption efforts amongst developing and African countries.
In order to aggressively combat the issues previously highlighted, it is recommended to establish a central register of beneficial ownership information and provision of access to same both for the public and all relevant regulatory agencies. The central register should contain all relevant beneficial ownership information and the authority should be obliged to conduct independent verification of the information provided by legal entities regarding ownership or control.
It is also recommended that Legal entities should be required by law to update information on beneficial ownership or information relevant to identifying the beneficial owner (directors/shareholders) immediately or within 24 hours after the change. There should also be a guideline on how foreign authorities and financial institutions can access the beneficial ownership register in the country. The outright prohibition of incorporation of companies using nominees is also recommended.
Onyemauche Ibezim is an Associate at Kenna Partners.