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Cabinet approves amendments in Companies Act, 2017, to meet FATF’s demands

Cabinet approves amendments in Companies Act, 2017, to meet FATF’s demands

ISLAMABAD: The federal government has approved amendments in the Companies Act, 2017, to meet the demands of the Financial Action Task Force (FATF).

According to sources, the Finance Ministry had proposed amendments in the aforementioned act during the last meeting of the federal cabinet.

They also disclosed the details of the proposed amendments. Section 60 would be amended through the insertion of Section 60A and Section 122 – Prohibition on Issuance of Bearer Shares and Securities.

The stipulations relating to the ban on issuance of all financial bearer instruments, in addition to the method of registration and cancellation of any such bearer securities issued already, are being added to restrict the misuse of companies- coherent to the recommendations issued by the FATF.

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.

Sources said that an explicit prohibition is accordingly being provided through the proposed amendment. 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 issuance of bearer securities by National Investment Trust Limited under the National Investment (Unit) Trust Ordinance, 1965, and the rules made thereunder have been addressed through sub-section (1) of the proposed section, sources further said, adding that consequential amendment arising from prohibition of bearer debt securities is also required through deletion of Section 122(3) which provides for issuance of bearer debentures.

The Finance Ministry has also proposed that a new provision 123A with regard to record of ultimate beneficial owner has also been added.

Introduction of the proposed regulatory framework for obtaining, maintaining and updating information about the ultimate beneficial owners, and providing a declaration for compliance to the commission, is aimed to ensure compliance with the recommendations issued by the FATF to enhance transparency of companies.

Pakistan’s Mutual Evaluation Report also highlighted certain deficiencies relating to the lack of obligation on the part of companies to maintain beneficial ownership information beyond their original subscribers, shareholders and directors. An ultimate beneficial owner exercises ownership or control rights over a company directly or indirectly through such percentage or shares or controlling rights or by exercising effective control through such other means as may be specified.

Sources also told that an amendment to Section 413 (Disposal of books and papers of a company that has been closed) has also been proposed. The interpretive note to FATF (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. The existing period provided in Section 413 of the Companies Act, 2017, is three years, therefore, the existing Sub-section (3) of the said provision is being converted into an enabling provision to specify the period through regulations in line with the FATF recommendations. Consequential changes are being made in Sub-sections (2) and (3).

Similarly, the Finance Ministry has also proposed amendments in Limited Liability Partnership Act, 2017.

Sources said that an amendment in section 8 (Partners) – to require maintenance of ultimate beneficial ownership information by LLPs has also been made.

Introduction of the proposed regulatory framework for obtaining, maintaining and updating information about the ultimate beneficial owners, and providing a declaration of compliance to the commission, is aimed to ensure compliance with the recommendations issued by the FATF to enhance transparency of legal persons. Sources further said that the proposed amendment to section 8 of the LLP Act, 2017, is being introduced to comply with the aforesaid recommendation.

Pakistan’s Mutual Evaluation Report had further highlighted certain deficiencies relating to the lack of obligation on the part of LLPs to provide beneficial ownership information beyond their original partners. For this, sources said, the government has proposed that an ultimate beneficial owner exercises ownership or control rights over LLP through direct or indirect rights or controlling interest of such percentage as may be specified, or by exercising effective control through any other modes or as may be specified.