What you need to know:
- The need to find out about the human element at the helm of each company was birthed in 2016 after the Panama papers exposed widespread wealth concealment and tax avoidance. This global move was embraced by several countries such as Kenya and Ghana (2020), Tunisia (2018), and India (2019) and it has been enforced through several measures.
According to the Stolen Asset Recovery Initiative by World Bank, anonymous companies, in the sense of not knowing the human element behind the company, were used in majority of the corruption cases reviewed.
It, therefore, goes without saying that anonymity is the bedrock of several illegal activities such as money laundering and other illicit financial flows (IFFs).
The lack of beneficial ownership information feeds the habit and in Uganda, according to a publication: Corporate transparency: A guide for beneficial ownership laws in Uganda, the country loses Shs2m in IFFs.
Open learning campus by World Bank adds that linking the beneficial owner to the proceeds of corruption and other crimes is usually notoriously hard.
“With sizable wealth and resources on their side, they exploit transnational constructions that are hard to penetrate and stay aggressively ahead of the game and to conceal ownership and control of tainted assets.”
The dangers of lack of beneficial ownership data was seen when a group of seven Stanbic employees created a company in a bid to buy out a client, who was defaulting on a mortgage worth Shs4b.
Interestingly, the mortgage was bought by this same company at Shs1b. The Mortgage Act bars insider trading, so the people who registered the company, sought to sidestep this and if it wasn’t for the client to seek court action, perhaps, this would go unnoticed.
Other familiar incidents have happened elsewhere, perhaps in similar or totally different fashion.
However, if the beneficial owner information of the companies was known, such fraud would perghaps not have happened.
The need to find out about the human element at the helm of each company was birthed in 2016 after the Panama papers exposed widespread wealth concealment and tax avoidance. This global move was embraced by several countries such as Kenya and Ghana (2020), Tunisia (2018), and India (2019) and it has been enforced through several measures.
In the case of Uganda, Regina Navuga, the programme officer in charge of financing for development programme at Seatini, says the journey started in 2012 and was later re-enforced in March 2022 with amendments.
The same is emphasised under the Extractives Industries Transparency Initiative, which has provisions for beneficial ownership.
According to the Uganda Extractive Industries Transparency Initiative report of 2020, it was recommended that Ugandan authorities put in place a roadmap relating to the disclosure of information on beneficial ownership.
The roadmap, the report noted, should focus on a reporting process to collect data on beneficial ownership, an assurance of due diligence to ensure reliability of data, developing a database that would be accessible by relevant government agencies and a process for agreeing on information to be made publicly available.
As such Uganda has had several law amendments that include amendments on the Company’s Act, Trustees Act, Partnership Act, Trustees Act, Cooperation Act, Income Tax, and Anti Money laundering Act.
“These provide for collection, processing, management and publication of beneficial ownership information of trustees, and partnerships that conduct business in Uganda,” Phoebe Ankunda, a research fellow at Acode, says.
Definition of a beneficial owner
According to the current Income Tax Act, beneficial ownership has been modified to mean a person who controls a customer or the natural person on whose behalf a transaction is conducted and that this includes a natural person who exercises ultimate control over a legal person or arrangement.
According to www.mmaks.co.ug, the amendment further clarifies who a natural person is in this instance to include one who holds 10 percent shareholding or voting rights in the entity in question.
While several amendments have been made, the Corporate Transparency report notes several disparities in the definition of a beneficial owner. For instance, the Anti-Money Laundering Act requires certain ‘accountable persons’ such as lawyers and accountants to collect beneficial owner data.
Similarly, the Mining and Minerals Act (2022) requires companies applying for a mineral rights license to disclose their beneficial owner data in a publicly available database.
However, companies in every other sector will not be covered by this law.
The Income Tax Amendment Act, 2021 also provides a definition of beneficial owner for tax purposes.
An over view of the Mineral and Mining Act by African Centre for Media Excellence also notes one qualifies to be a beneficial owner if they have a 5 percent share in the company. This is different from the 10 percent the Income Tax law states.
The Mining and Minerals Act requires the Minister for Minerals to establish a public registry for companies operating in extractives.
The review also shares that failure to share the information may lead to someone paying a fine of up to Shs36m as well as Shs36m for each day when failure to comply continues.
However, the other laws do not specify penalties for failure to declare data.
There is also debate on the share percentage that must be considered before one is considered to be a beneficial owner.
While Uganda is looking at around 5 percent, other countries are looking at 25 percent.
Need for beneficial owner data
There is need to clarify the definition of beneficial ownership to ensure clarity about the scope.
According to Global Financial Integrity, the Anti-money laundering Act lists 15 different people as accountable people to collect beneficial ownership data, among which include accountants, NGOs, churches, investment brokers, real estate agents and financial institutions, dealers in precious metals and gems, casinos.
The disparity of not specifying the exact information to be collected by the accountable information, the time frame within which updated data must be given as well as the exact penalty one is subjected to in case they do not give the beneficial ownership data are a glaring gap.
However, Mr Micheal Tukei, the Financial Intelligence Authority deputy executive director, says the regulations to operationalise the Company (Amendment) Act and Partnership (Amendment) Act will clearly spell these out. “These are ready and only await being accented to,” he says.