Mooting central registry to expose corrupt politicians and their accomplices

By Datuk Seri Akhbar Satar

 

THE Panama Papers, the world’s biggest leaked documents, highlighted the complex ways used by companies and individuals to conceal the actual beneficiaries of a certain company. It exposed 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 also 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.

It is now time for the Government to unmask the corrupt and publicly reveal who actually benefits from every company registered in their jurisdictions.

Such a central business registry can be established for the purpose of improving the investment climate, easier to conduct business and increases the transparency which can spur the economy of the country.

This accountability will attract both local and foreign investors who will be able to access information and scrutinise the relevant data prior to making an investment decision.

Such move will deter corrupt officials and crooked politicians from awarding any government contracts to themselves and through their families or cronies. It also promotes good governance by preventing companies from being misused for illicit business while helping Reporting Institutions identify and report suspicious activities.

No way out

The said registry also makes it more difficult for financial criminals to hide their ill-gotten money besides helping to detect other acts of financial crime like corruption, tax evasion, organised crime and investments in high-value property in Malaysia, just to name a few.

Most of the financial criminals use shell companies to hide particulars of ownership which allows corrupt criminals to hide, launder and avoid their ill-gotten wealth.

Identifying the ultimate UBO is key to determining whether the source of funds is legitimate or otherwise.  This also benefits the financial institutions as it will help them determine the UBO of the company, trust or foundation prior to opening an account.

While financial institutions especially banks 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 Sri Azam Baki, the Chief Commissioner of the Malaysian Anti-Corruption Commission (MACC), has been reported to say that at 42.8%, wrongdoing involving government procurement 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, predicted that 30% of Malaysia’s ‘publicly fund projects’ value was lost owing to mismanagement and corruption.

The UK Government has introduced the first public register of UBOs for all UK private companies and limited liability partnerships (LLPs) or the People with Significant Control Register (PSC Register).

The PSC register splits UBO to three different categories: (i) assets companies; (ii) properties and land; and (iii) trust. This register is publicly available.

Act without fear and favour

As for property ownership owned by foreign companies and foreign legal entities, the UK Government plans to launch this register in 2021.  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 US Financial Crimes Enforcement Network (FinCEN) introduced the Beneficial Ownership Rule in 2016 (it became effective in 2018) by requiring financial institutions to collect information on significant UBO of all legal entities. 

Ultimately, public records are not the only solution. 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 other parties. 

Most importantly, the DNFBPs has to have values of integrity to ensure that they do a thorough customer due diligence for the companies they are working with.

In December 2020, the Companies Commission Malaysia (CCM) said it intends to implement the new requirements by imposing a new guideline starting in 2021 that required all registered companies in the country to submit information on their UBO while given six months from the starting date to comply with all the requirements.

After six months, it is a duty on the directors and shareholders of companies to provide and declare all information relating to beneficial ownership to CCM. Those who failed to disclose the information would be fined RM50,000.

However, the CCM admits that the real challenge would be whether the information given is accurate. CCM should be prepared to overcome this challenges by having proper infrastructure and qualified and trained investigators.

The effectiveness of this guidelines has yet to be seen given the implementation date has been postponed due to the COVID-19 pandemic. The biggest challenge will be to see how CCM is going to enforce the law without fear and favour in cases where the beneficial owners are politically influence. – Feb 3, 2021

 

Datuk Seri Akhbar Satar is the Director of the Institute of Crime & Criminology, HELP University.

The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.

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