SECP proposes legal changes in corporate laws

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) on Tuesday proposed legal changes to improve anti-money laundering (AML) standards in the corporate sector as a report of the global financial system watchdog on the country’s AML compliance is about to be unveiled.

SECP disclosed a draft of certain amendments into the laws and regulations in an attempt to improve the standards of transparency and to prevent misuse of corporate entities for money laundering.

The SECP issued a set of notifications, soliciting public consultation on drafts of amendments to the Companies (Incorporation) Regulations 2017, Companies (General Provisions and Forms) Regulations 2018, Foreign Companies Regulations 2018, and Limited Liability Partnership (LLP) Regulations 2018.

“The proposed amendments collectively make disclosures regarding the ownership and

control structure of the companies and limited liability partnerships more transparent,”

it said.

“These amendments, issued in line with the recommendations on transparency of legal persons issued by the Financial Action Task Force (FATF), will help in identifying the real owners of such entities.”

FATF puts the country on its grey list of countries lacking standards to control money laundering and curb terrorism financing.

The FATF’s plenary meeting is expected to be held this month in Paris where Pakistan faces three possibilities: either exclusion from the grey list and placement on the white, or the grey-list status quo for up to June or September 2020, or blacklisting in the worst case scenario, which would have far-reaching negative impacts on foreign inflows.

The latest amendments propose to explicitly prohibit the issuance or transfer of equity and debt securities of a bearer nature as well as to increase the period for retention of records of dissolved companies.

“The amendments will address the deficiencies highlighted in the country’s mutual evaluation report published by the Asia Pacific Group on Money Laundering in October 2019,” the SECP said.

With the effect of propose amendments, companies and LLPs would have to provide additional information to SECP, if the ownership and control structure of such entities is obscured through a chain of multiple entities, whether registered in Pakistan or abroad.

The draft of regulations define an ultimate beneficial owner as an individual who exercises ownership or control rights over a company or LLP indirectly through multiple layers of corporate entities or other legal individuals or any other arrangements.

Amendments suggested specifying a threshold of a minimum of 25 percent of ownership or control rights of the ultimate beneficial owner in the reporting entity, which would be owned through multiple layers of intermediate corporate entities.

“In order to give effect to the proposed amendments, the commission has also publicised the substantive provisions being added to the enabling laws, i.e. the Companies Act 2017 and the Limited Liability Partnership Act 2017,” the commission said. The proposed amendments are placed on SECP’s website for public consultation.