On April 27, 2021, the government released the Companies (Beneficial Ownership) Regulations through Government Notice No. 391 of 2021. Though it is not expressly stated, the regulation intends to tackle illegal activities such as tax evasion, money laundering, fraud, bribery and corruption.
By these regulations, companies incorporated or registered under the Tanzanian laws are required to submit information regarding their beneficial owners by December 31, 2021.
So many questions have been asked on what these regulations mean to companies and businesses in Tanzania.
To answer that question, we must first understand the meaning of the term ‘beneficial owner.’ The regulations define a beneficial owner as a natural person who directly or indirectly owns or exercises substantial control over an entity or an arrangement.
Or a person who has a substantial economic interest in or receives substantial economic benefit from an entity or an arrangement directly or indirectly whether acting alone or together with other persons; or a person on whose behalf an arrangement is conducted.
Or a person who exercises significant control or influence over a person or arrangement through a formal or informal agreement. Simply put, ‘a beneficial owner’ is a natural person who effectively owns or substantially controls a company.
‘Substantial economic interest or benefit’
Though the regulations do not define substantial economic interests, legally this means:
Interest or benefit of at least 25 percent of the total shares held by a person in a company or voting rights exercised by a person in a company; rights to appoint or remove any member of the board of directors of the company.
‘Substantial control over an entity’
Substantial or significant control means participation in the finances and financial policies of a company without necessarily having direct control over them
Why disclosure of beneficial owners
Though the initiatives have been in place since 2013 when G8 leaders met in the UK and agreed to a set of principles on beneficial ownership transparency, the 2016 leak of more than 11.5 million financial and legal records from a Panamanian law firm, Mossack Fonseca, brought in the picture the issue of beneficial ownership disclosure for so many governments, institutions, and agencies.
The Panama Papers, as the leak would later be known, exposed strategies used by the rich, powerful, and famous people to conceal their personal assets beyond the reach of regulatory and public scrutiny, especially by using corporate vehicles.
How people conceal beneficial ownership
It must be noted that there are a number of lawful mechanisms in place that make it possible to conceal the true identity of the ultimate beneficial owner of a company’s shares. According to a study by International Financial Corporation, these are some of the strategies used by individuals to conceal their interests or control in companies:
Nominee shareholders where a company created for the purpose of holding shares and other securities on behalf of investors; omnibus accounts, which is a securities account that involves many investors. Although the account is opened in the name of the account provider, it can be viewed as an umbrella covering a large number of individual accounts.
Other strategies include pyramid structures, which are complex control and ownership arrangements designed to give investors voting/ control rights in excess of their cash-flow rights; multiple voting-rights shares that provide shareholders with control in excess of their share ownership. The separation of beneficial ownership from control rights (or voting rights) results in significant private benefits beyond the usual financial return on the shares.
Another strategy is known as chains of corporate vehicles whereby controlling beneficial owners can use chains of corporate vehicles to conceal their true identity and set up complex ownership structures and arrangements in listed companies.
Where to report
According to our released regulations above the Registrar of Companies through the Business Registration and Licensing Agency (BRELA) is mandated to administer, provide guidance, review and ensure that all information regarding beneficial owners is up to date and accurate. The registrar is further empowered to maintain a register of information supplied and share them with other Agencies.
According to these regulations, companies are required to submit the following; details of a registered company’s beneficial owners, notification when an individual ceases to be a beneficial owner of a company, notification of individuals who are company shareholders but who do not have a beneficial interest in those shares, notification of individuals who acquire a beneficial interest in shares that are not held in their name, or changes in the circumstances of a beneficial owner. All this information is to be supplied online using prescribed forms no 14 (b, C, D, and F) respectively.
The regulations go further to attract politically exposed persons (PEP). Companies are required to submit a report when it appears a beneficial owner is a politically exposed person. The requirement is in line with the definition of PEP on the Anti-Money Laundering Act [Cap. 423 R.E 2019].
This Act defines politically exposed Persons (PEP) to mean an individual entrusted with prominent public functions including heads of state or government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations or agencies
Confidentiality on information supplied
The good news for business owners is that by these regulations a registrar or other officers performing the duties under him are prohibited, even after the termination of their employment, neither to communicate confidential information obtained in their capacities pursuant to the provisions of these regulations to persons not entitled to receive it nor to disclose it to the public or make other use of it.
According to these regulations, companies that fail to meet reporting obligations may be liable to a fine not less than five million shillings, but not exceeding ten million shillings.
Emmanuel is experienced in commercial and corporate law transactions and advisory. He can be reached through email@example.com or follow him on Twitter at @EsquireMK. These are the writer’s own opinions and do not necessarily reflect the viewpoints of The Chanzo Initiative. Want to publish in this space? Contact our editors at firstname.lastname@example.org for further inquiries.