On 30th May 2020, this will be the deadline for companies to have identified all individuals holding beneficial ownership of shares as set out in new amendments to the Companies Act (by amendment Act No 6 of 2019) proclaimed on 30th May 2019 and to verify this in the filing of their *Annual Return. (* waiver of penalties for late filing of Annual Returns extended to 31st July 2020 due to Covid-19 by Act No.4 of 2020)
The premise behind this is to aid in the transparency of the actual ownership of shares/assets given that criminals will attempt to hide or disguise their assets behind complex corporate structures or other beneficial owners. This is a requirement according to international standards by which Trinidad and Tobago is bound to adhere as a member of the global community subject to the Financial Action Task Force (FATF) recommendations. Since 2012 the FATF has recommended that all jurisdictions should take steps to implement mechanisms to improve the transparency of legal persons and arrangements which would aid in the investigation of money laundering and terrorist financing. A register of beneficial ownership has been deemed as a crucial aid in doing so.
Given that Customer Due Diligence (CDD) measures have been an obligation under our domestic laws for some time the next practical step is to improve on the efficacy of such by requiring Companies to make inquiry to verify beneficial owners and to collect and maintain this information for filing purposes. This information would assist those in business in understanding ownership and the control structures of customers from a risk perspective.
Who is a beneficial owner?
In a common scenario this may usually be the natural person who holds both the legal and equitable benefit of the ownership of shares or an asset. When one such person is acting on their own behalf for any financial transaction, the CDD requirements will usually suffice. In complex arrangements however, where transactions are being carried out on behalf of another, that is, where shares and/or the ownership of assets may include a number of other legal persons or legal arrangements (including Trusts), who is the actual beneficial owner exercising control or is in receipt of the direct or indirect benefit, if not readily identifiable, may pose a risk that business or transactions are being conducted for an illicit purpose.
There may be several legal persons as beneficial owners, for example, where one company with shareholders is a subsidiary to another or where Company A (and its assets) is owned by Company B which in turn may be owned by Company C, and so on, and then the question may not be as straightforward. Hence the more complex the corporate structure the more opaque is the determination of the ultimate beneficial owner who will be a natural person behind such legal arrangements. And this is how money launderers may cleverly disguise or conceal their true control or ownership of assets. Notwithstanding that there may appear to be legitimate reasons for a variety of corporate structures and legal arrangements.
Beneficial owners which may comprise of a publicly listed company, a regulated financial institution, a government entity or a well-known private company as a majority shareholder may pose less or no risk for illicit activity. However, where there are complex multi-layered legal arrangements or where the ultimate natural person benefiting from a transaction is not readily identifiable, this will require enhanced scrutiny to determine as to who is the ultimate beneficial owner(s).
This is a necessary step to assess potential risk in carrying out transactions or conducting business with another which may have an illicit purpose or where such a natural person (being the ultimate beneficial owner) may be a sanctioned individual (when it comes to terrorism or by other reasons is a financially sanctioned individual or is an individual operating from a sanctioned regime).
What are some of the new requirements of the Companies Act as to beneficial ownership?
The new amendments include the abolition of the issue of bearer shares and the like which is designed to guard against the likely anonymity as to the holder of such bearer shares and its obvious attendant risks. Companies which have previously issued bearer shares or the like before the new amendments are required to maintain a Register of such.
Companies are required within 12 months of the new amendments in force, deadline 30th May 2020, to have identified and maintained a Register of all beneficial owners holding an interest in the company.
All companies are required to have their beneficial owners submit a declaration of beneficial ownership on a *prescribed form (FORM 42).
Companies are required to conduct this exercise thereafter on an annual basis and to verify this information in the filing of their Annual Returns to the Registrar.
Companies are also warranted to issue a *Notice (FORM 40) to shareholders to declare non-beneficial ownership and to identify any person who is the actual beneficial owner. Individuals who are non-beneficial owners holding an interest for another must declare so by a *prescribed form (FORM 41).
Any company which fails to take reasonable steps to ascertain and obtain information on its beneficial owners will be liable to a fine of $10,000 and 3 years imprisonment and a penalty of $300 per day for a continuing breach.
Any individual who acquires a beneficial interest or there is a change of beneficial interest after 30th May 2019 (when amendment in force) must submit a declaration within 30 days of doing so. Any person who fails to do this will be liable to a fine of $10,000 and imprisonment of 3 years and a penalty of $300 per day for a continuing breach.
Please note that this legal blog is not a substitute for dedicated legal advice which may be received from an Attorney-at-law by a legal consultation according to your particular circumstances.