lang="en-US"> UBO understanding and compliance - AFAP
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Syed zamin RIZVI

All Companies to Obtain, Maintain and Timely Update Particulars of UBO (Ultimate Beneficial Owners) : SECP

On the Horizon

In order to capture a natural person who ultimately owns or control a legal entity or has direct/indirect influence over the company, the International Monetary Fund (IMF), World Bank Group, and United Nations (UN) start compelling countries to impose a rule of reporting Ultimate Beneficial Owners (UBO) of “Artificial Persons”, including companies, to their regulatory bodies. Pakistan being ignorant of the consequences, failed to impose the rule appropriately and require Public Interest Companies only to report their UBOs to SECP. It led Pakistan unable to identify natural persons all over the state, hence FATF’s recommendation remained un-complied.

Currently, it has been made mandatory for all companies (both Public and Private) to obtainmaintain and timely update particulars of their ultimate beneficial owners, including any changes therein.

Ultimate Beneficial Owner

Companies Act, 2017 says “ultimate beneficial owner” means a natural person who ultimately owns or controls a company, whether directly or indirectly, through at least 25% (twenty five percent) shares or voting rights or by exercising effective control in that company through such other means, as may be specified. Generally, it could be described as an individual who has significant control or influence over a business. Typically, these individuals can benefit from their association with the company, even if they are not a formal owner of the business and are not the face of the company. In most countries around the world, the threshold to be considered UBO is holding at least a 25% ownership stake in a company and/or has significant influence and so it is in Pakistan.

Reporting requirement

Consequently, every company is required to file a declaration of compliance with section 123A of the Act to the registrar concerned through the filing of Form 45 after ensuring compliance with provisions of regulation 19A of the Regulation. Compliance with the said amendment in section 123A of the Act was required within three months of coming into force i.e. by August 26, 2020.

There arose confusion about the origin, whether the individuals or companies are required to report to their regulatory bodies. The confusion demolished by stating “Each company shall report, identify and obtain the “Ultimate Beneficial Owner” (UBO) information within three months from the date of coming into force of section 123A of the Companies Act, 2017 i.e. commencing on August 26, 2020.

Justification

The requirement to maintain UBO information is aimed at determining the true owners of a company who can only be natural persons. Corporate wheels such as limited companies, limited liability partnerships, and trusts, etc. are at the stake of many tax evasion and money laundering schemes, as activities are not carried out in the name of real/natural persons, but by “legal persons” instead of behind whom real controlling persons are concealed by the “corporate veil”. UBO information is necessary to detect and prevent tax evasion, corruption, money laundering, terrorist financing, and other illicit behavior involving one or more companies or legal persons. Public trust in companies and markets largely depends on the existence of an accurate disclosure regime that provides transparency in the beneficial ownership and control structures of companies.

Prepared and Researched by

Syed zamin RIZVI

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