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Expose ill-gotten wealth via ultimate beneficial ownership mechanism By Datuk Seri Akhbar Satar

Publish date: Thu, 04 Feb 2021, 09:06 AM

THE Panama Papers, the world's biggest leaked documents in 2016, highlighted the complex ways used by companies and individuals to conceal actual beneficiaries of a certain company, exposing a system that appeared to facilitate economic crime.

There were 142 politicians and their families from 12 countries who put their money into offshore accounts to hide their wealth. The same modus operandi could be taking place locally by securing huge government projects amounting to billions of ringgit.

One way to overcome corruption and money laundering is by introducing a central registry for ultimate beneficial ownership (UBO) of companies registered in Malaysia. Such a registry can be established for the purpose of improving the investment climate, making it easier to conduct business and increasing transparency, which can spur the economy of the country. This will attract local and foreign investors, who will be able to access information and scrutinise the relevant data prior to making an investment decision.

Such a move can deter corrupt officials and crooked politicians from awarding any government contract to themselves and their families or cronies. It also promotes good governance and prevents companies from being misused for illicit business and helps reporting institutions identify and report suspicious activities.  

It makes it more difficult for financial criminals to hide their ill-gotten money, and also helps to detect other acts of financial crime like corruption, tax evasion, organised crime and investments in high-value property in Malaysia.

Most financial criminals use shell companies to hide particulars of ownership to launder ill-gotten wealth. Identifying the ultimate UBO is key to determining whether the source of funds is legitimate or otherwise and helps determine the UBO of the company, trust or foundation prior to opening an account.

While financial institutions are required to identify their UBOs as part of their account-opening due diligence process, the actual "customer" is often hidden behind the shell companies and trusts. At the moment, it is difficult to take any legal action against the nominees if they have been used to hide the real shareholders of the registered companies.

Datuk Seri Azam Baki, the chief commissioner of the Malaysian Anti-Corruption Commission, has been reported as saying wrongdoing involving government procurement at 42.8 per cent topped the list of sectors prone to corruption based on complaints to the MACC between 2013 and 2019.

Tan Sri Ambrin Buang, the former auditor general, stated that 30 per cent of Malaysia's "publicly funded projects" value was lost owing to mismanagement and corruption.

The United Kingdom government has introduced the first public register of UBOs for all UK private companies and limited liability partnerships, known also as the People with Significant Control Register (PSC Register). The PSC Register splits UBOs into three types: assets companies, properties and land, and trust. This register is publicly available.

As for property ownership by foreign companies and foreign legal entities, the UK government plans to launch this register this year. This means that anyone will be able to find out who owns and controls UK companies, even if they are owned by an offshore company or a trust.

The United States' FinCEN introduced the Beneficial Ownership Rule in 2016, which became effective in 2018, that requires financial institutions to collect information on significant UBO of all legal entities. The public UBO register has to be constantly updated by the gatekeepers or the Designated Non-Financial Businesses and Professionals (DNFBP) like lawyers, company secretaries, accountants and others. Most importantly, the DNFBPs ensure a thorough customer due diligence for the companies they are working with.

In December last year, the Companies Commission of Malaysia (CCM) decided to implement new requirements and guidelines starting this year. All registered companies must submit information on their UBO. They would have six months from the starting date to comply with all the requirements. After the six months, it is the duty of the directors and shareholders of companies to provide and declare all information relating to beneficial ownership to CCM. Those who fail to disclose this would be fined RM50,000.

CCM admits that the real challenge would be whether the information given is accurate. CCM should be prepared to overcome this challenge by having proper infrastructure, and qualified and trained investigators. The effectiveness of these guidelines is yet to be seen as the implementation date has been postponed due to Covid-19. The biggest challenge is how CCM is going to enforce the law without fear and favour in cases where the beneficial owners are politically influential.


The writer is director, Institute of Crime & Criminology, HELP University


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