FATF-related concerns to be addressed


ISLAMABAD: The government is introducing a new bill to amend Companies Act, 2017, to address the Financial Action Taskforce (FATF)-related concerns specifically money laundering, countering terrorist financing, and information about beneficial ownership of companies.

Sources told Business Recorder Saturday that the draft bill had been prepared by the stakeholders including the Securities and Exchange Commission of Pakistan (SECP). 

Presently, the Ministry of Law and Justice is vetting the proposed provisions of the bill.

The Policy Board approved the proposed amendments to the Companies Act, 2017, and the Limited Liability Partnership Act, 2017, in respect of the FATF recommendation 24 on “Transparency of Legal Persons.” 

These are aimed to prevent misuse of companies and the LLPs for money laundering and terrorist financing for prohibiting the issuance of bearer shares and the obligation to trace ownership by 25 per cent shareholders to reach the original natural persons.

According to sources, the provisions relating to the prohibition on issuance of bearer shares, bearer share warrants and similar equity or debt securities of bearer nature and the manner of registration and cancellation in case any such bearer securities such as units issued by the AMCs are being introduced in order to prevent the misuse of companies from money laundering or terrorist financing abuses in line with the recommendations issued by the FATF. 

The term bearer shares or bearer share warrants means a negotiable instrument that accords ownership in a company to the person who possesses such instrument and includes any other equity or debt security of a bearer nature. 

Pakistan’s Mutual Evaluation Report issued in October 2019 by the Asia Pacific Group on Money Laundering also highlighted certain deficiencies in the regulatory framework relating to the misuse of bearer shares and bearer share warrants, etc. 

Although bearer securities do not exist, an explicit prohibition is being provided through the proposed amendment, they said.

Bearer securities are vulnerable to misuse because they can effectively obscure the ownership of a corporate entity, thereby providing maximum anonymity and making such corporate vehicles more susceptible to misuse for illicit purposes, including money laundering. 

The proposed amendment would entail corresponding amendments to the Companies (General Provisions and Forms) Regulations, 2018.

Sources said that the introduction of the proposed regulatory framework for obtaining, maintaining and updating information about the ultimate beneficial owners, and providing the same to the Commission, is aimed to ensure compliance with the recommendations issued by the FATF to enhance transparency of companies. 

Sources further stated that an ultimate beneficial owner exercises ownership or control rights over a company indirectly through multiple layers of corporate entities or other legal persons or arrangements. 

A threshold of a minimum of 25 percent of ownership or control rights of the ultimate beneficial owner in the reporting company through the multiple layers of intermediate holding companies has been proposed to be specified through the relevant regulations. 

Sources added that the “interpretative note” to the FATF Recommendation 24 (Transparency and Beneficial Ownership of Legal Persons) specifies that for at least five years after the date on which the company is dissolved or otherwise ceases to exist, the company itself or its administrators, liquidators or other persons involved in the dissolution of the company, should maintain the information and records relating to its basic and available beneficial ownership information. 

Therefore, the existing sub-section (3) is being converted into an enabling provision to specify the period through regulations. 

Consequent changes are being made in sub-sections (2) and (3). 

The proposed amendment would entail corresponding amendment to the Companies (General Provisions and Forms) Regulations, 2018.