The Pakistan Tehreek-e-Insaf (PTI) government has allowed Pakistani and dual nationals to keep secret their less than 10% shareholding in offshore companies - a move that is contrary to the political ideology of the ruling party and Prime Minister Imran Khan.
Under the Companies Act 2017, it was legally binding for people who have substantial shares in local companies or officers of local companies to disclose their stakes in offshore companies. However, the government promulgated a presidential ordinance on May 4 to make the disclosure condition less stringent.
In yet another questionable move, the PTI government has allowed companies to launch real estate projects without first securing no-objection certificate to launch a residential or commercial project. It has also allowed companies to take advances from people without first securing necessary approvals.
The Pakistan Muslim League-Nawaz (PML-N) government had made it binding for substantial shareholders of domestic companies to disclose their offshore stakes in the aftermath of Panama Papers leaks.
However, PM Imran’s government that came to power on the promise of ensuring accountability of all and recovering the plundered money has surprisingly relaxed the condition. It has introduced amendments to Section 452 of the Companies Act 2017. The original 2017 Act stated, “Companies’ Global Register of Beneficial Ownership, substantial shareholder or officer of a company incorporated under the Company law, who is citizen of Pakistan within the meaning of the Citizenship Act 1951 (II of 1951), including dual citizenship holder whether residing in Pakistan or not having shareholding in a foreign company or body corporate, shall report to the company his shareholding or any other interest as may be notified by the Commission.”
But in the Companies Ordinance 2020, the government has made the condition less stringent. The amended Section 452 states, “Substantial shareholder or officer of a company incorporated under the Company law, who is citizen of Pakistan within the meaning of the Citizenship Act 1951 (II of 1951), including dual citizenship holder whether residing in Pakistan or not having shareholding [of 10% or more] in a foreign company or body corporate shall report to the company his shareholding or any other interest [or any change thereof] as may be notified by the Commission”.
Earlier, if a person had even one share in an offshore company and he was also a shareholder in a Pakistani company, he would have to disclose it. But now every significant shareholder has been effectively exempted from the disclosure requirement.
Now, the beneficial ownership of Pakistani citizens would remain buried in layers of secrecy. The Securities and Exchange Commission of Pakistan (SECP) had proposed these legal amendments, which may also carry implications for Pakistan in the Financial Action Task Force (FATF).
The government has also cleared those people who have entered into plea bargain with the National Accountability Bureau (NAB) for appointment as directors of private as well as government companies.
In the 2017 Act, Section 172 had been inserted to include disqualification conditions for a person from holding the office of a director of a company for a period of up to five years beginning from the date of order. Sub-section M of Section 172 stated, “The person has entered a plea bargain arrangement with NAB or any other regulatory body”, which the PTI government deleted last week.
Through the presidential ordinance, the PTI government deleted Section 456 from the Companies Act 2017. Section 456 had laid parameters for real estate companies.
These moves are highly suspicious that have raised serious questions over the credibility of the ruling party. It also goes against the principles of merit, transparency and accountability that were once cherished by PM Imran.
Earlier, the real estate company was barred from announcing any real estate project, unless it obtained approval of the commission and all necessary approvals, permissions, NOCs, etc from the authorities concerned. Now, the companies can launch real estate projects without NOCs. Now, this condition has also been waived by the PTI government.
Thousands of people have been defrauded by real estate investors and many cases have ended up in NAB.
When the PML-N government introduced these changes, it had to face stiff resistance from the PPP. The PML-N government initially promulgated the Companies Ordinance 2017, which the Senate rejected by using its constitutional powers.
Subsequently, the PML-N government enacted the Companies Act.
Published in The Express Tribune, May 15th, 2020.
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