State gets access to secret investors’ phones, homes

The Attorney-General has started collecting names, phone numbers and residential addresses of investors who own more than 10 percent stakes in companies through secret accounts in efforts to unmask illicit wealth.

The State Law Office has launched an online portal to host the beneficial ownership registers, which will show the ultimate significant owners of both private and public companies.

It is now a prerequisite for new firms to fill the beneficial ownership registers ahead of registration and existing firms will next month be offered a deadline when they will be expected to update their shareholder records.

The Registrar of Companies says electronic register for filling data on beneficial owners started work 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 —which tracks illicit wealth.

The new rules, 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 on the Nairobi Securities Exchange.

They are also aiming 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 taxman

Before the rules on secret company records took effect, firms were expected to file a register of members, 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 percent in the companies 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 a 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 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, 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 percent of investors’ wealth at the Nairobi bourse.

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

Bernard Kiragu, managing partner at corporate governance consultancy firm Scribe Services, 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.” 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 stakes in a firm make disclosures.

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 Financial Reporting Centre 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.

Kenya is one of the single easiest places 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.

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