Combating money laundering: SECP proposes tweaks in company laws

Changes suggested in attempt to improve standards of transparency

ISLAMABAD: In an attempt to improve standards of transparency and to prevent misuse of corporate entities for money laundering, the Securities and Exchange Commission of Pakistan (SECP) has proposed certain amendments to the laws and regulations.

In this regard, the SECP has issued a set of notifications, soliciting public consultation on drafts of amendments to the Companies (Incorporation) Regulations 2017, Companies (General Provisions and Forms) Regulations 2018, Foreign Companies Regulations 2018 and Limited Liability Partnership Regulations 2018.

The proposed amendments collectively make disclosures regarding the ownership and control structure of companies and limited liability partnerships more transparent. These amendments, issued in line with the recommendations on the transparency of legal persons issued by the Financial Action Task Force, will help in identifying the real owners of such entities.

According to the SECP, the amendments also propose to explicitly prohibit the issuance or transfer of equity and debt securities of a bearer nature as well as to increase the period for retention of records of dissolved companies.

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The amendments will address the deficiencies highlighted in the country’s mutual evaluation report published by the Asia Pacific Group on Money Laundering in October 2019.

In line with the proposed amendments, companies and limited liability partnerships would have to provide additional information to the SECP, if the ownership and control structure of such entities is obscured through a chain of multiple entities, whether registered in Pakistan or abroad.

The draft regulations define the ultimate beneficial owner as a person who exercises ownership or control rights over a company or limited liability partnership indirectly through multiple layers of corporate entities or other legal persons or any other arrangements.

The amendments suggested specifying a threshold of a minimum of 25% ownership or control rights of the ultimate beneficial owner in the reporting entity, which would be owned through multiple layers of intermediate corporate entities. The commission has also publicised the substantive provisions being added to the enabling laws, ie the Companies Act 2017 and the Limited Liability Partnership Act 2017.

Published in The Express Tribune, February 12^th, 2020.

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