The government has gotten the Companies Bill 2016 passed by the National Assembly after its earlier failure of getting it promulgated through a presidential ordinance. This column had highlighted controversial clauses of the Bill which should have been deliberated upon by parliament. These include, but not limited to, provisions to sack and appoint public sector enterprise heads without board consent.
Following the Panama leaks issue, another clause titled Companies Global Register of Beneficial Ownership (under clause 452) had also been included in the Bill. This would have allowed the SECP to demand global shareholding information from foreign shareholders of a company operating in Pakistan. It also mandated officers and substantial shareholder (10% or more shareholding) of a local company to report their investments in any foreign company, which the Commission shall record.
The sub-clause (1) of clause 452 had read: Every substantial shareholder or officer of a company incorporated under this Ordinance, having ten percent or more shares in a foreign company or body corporate shall report to the company, regarding his beneficial ownership or any other percentage or interest as may be notified by the Commission, on a specified form within thirty days of holding such position or interest. (Here a foreign company means a company or body corporate incorporated or registered in any form, outside Pakistan regardless of the fact that it has a place of business or conducts any business activity or has a liaison office in Pakistan or not.)
If seen from a global perspective, the only country that has adopted a global register of beneficial ownership, and is also its biggest proponent, is the United Kingdom. Other countries that have showed inclination towards adopting the concept include Ukraine, Denmark, Austria, and France. The aim is to find about the ultimate owners of a specific entity which is unavailable in emerging and developed economies alike.
The London School of Economics (LSE) in its Global Political and Corporate Governance Initiative highlights When ultimate owners are not known, accountability is more difficult to exercise and corruption easier to hide. This is still a serious issue in advanced economies, and even more so in emerging and developing economies.
As the world is moving towards transparency, a global beneficial register of ownership seemed to be a step in the right direction and the regulator seems to have been ahead of the curve in this regard.
However, documents of recent amendments available with BR Research shows that the said sub-clause (under clause 452) has exempted foreign shareholders from disclosure requirements under the amended Bill passed by the assembly. This has been done by inserting an emphasis on Pakistani citizens in the said sub-clause.
The revised sub-clause reads as follows: Every substantial shareholder or officer of a company incorporated under this Ordinance, who is citizen of Pakistan within the meaning of the Citizenship Act, 1951 (II of 1951), having shareholding in a foreign company or body corporate shall report to the company his shareholding or any other interest as may be notified by the Commission, on a specified form within thirty days of holding such position or interest.
This amendment stems from the notion that while the disclosure requirements for foreign shareholders were indeed line with emerging trends, it had immediately caused apprehension amongst many foreign investors in Pakistan. Therefore, considering that Pakistan can ill afford to shoo away foreign capital in the country, the said sub-clause has now been revised (and confined only to local shareholders) to prevent the negative consequences of a possible capital flight.
The move to revise the sub-clause seems to be prudent as of this point it time, given Pakistans dire need for foreign capital. However, sooner or later, as the post Panama headwinds gather strength in the ensuing decade, the disclosure requirements for foreign shareholders may eventually become a reality.
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