Matters related to offshore investment, expats: SECP expresses its inability to take cognizance

There is no provision in Companies Act of 2017 conferring the power upon the Securities and Exchange Commission of Pakistan (SECP) to take cognizance of the matters related to offshore investments or overseas Pakistanis. This has been mentioned in the report of SECP submitted to the Supreme Court of Pakistan in a suo motu case regarding maintaining foreign accounts by Pakistani citizens without disclosure the same and paying taxes in Pakistan.
The SECP further disclosed that it still does not have the mandate to regulate local or foreign bank accounts of Pakistani citizens or shareholders of any company registered under the law of Pakistan.
The SECP said that the Securities and Exchange Commission of Pakistan is established under Section 3 of Securities and Exchange Commission of Pakistan Act, 1997 and is currently administering nine primary laws including Companies Ordinance, 1984 (since repealed) hereinafter referred as the "repealed Ordinance" substituted with Companies Act, 2017 and Securities Act, 2015. Prior to the promulgation of Companies Act, 2017, the SECP did not have any power to take cognizance and collect information regarding the investment in foreign countries by the Pakistani citizens. The repealed Ordinance, however, did not require any disclosure in relation to investments/interests of individuals ie directors or shareholders, in offshore companies/entities. It is further submitted that the Commission still does not have the mandate to regulate local or foreign bank accounts of Pakistani citizens or shareholders of any company registered under the law of Pakistan. The repealed Ordinance did not specifically restrict the companies from making investments in foreign jurisdictions. However, investing company had to comply with the relevant provisions of the repealed Ordinance and subsidiary rules/regulations at the time of making such investments. The approval from the board of directors and shareholders was required only in case of investments in associated companies. Hence, there was no other bar or restriction for making foreign investments as per provisions of repealed Ordinance.
Since the repealed Ordinance did not require any disclosures with regards to the foreign investments made by the directors and beneficial owners in their personal capacity; therefore, the SECP has taken initiative and introduced the special provisions relating to 'Companies Global Register of Beneficial Ownership' and 'Prevention of offences relating to Fraud and Money Laundering' in the newly promulgated Companies Act, 2017 ("Act of 2017"). These provisions have been incorporated with the aim to bring more effective mechanism to curb the investments in offshore/foreign companies in order to avoid tax evasions, money laundering and concealment of foreign assets in future. Moreover, enhanced disclosures by companies with regard to foreign investments, export sales, foreign shareholders and associated companies/subsidiaries/joint ventures or holding companies incorporated outside Pakistan have also been incorporated in the Fourth Schedule to the Companies Act, 2017.
However, there is no provision in Act of 2017 conferring the power upon the SECP to take cognizance of the matters related to offshore investments or overseas Pakistani nationals.
With the promulgation of Act of 2017, Sections 452 and 453 have been incorporated which extended additional jurisdiction to the SECP to require from the directors or substantial shareholders of the companies incorporated in Pakistan amid having any investment in foreign jurisdiction. The SECP on gaining the requisite information immediately informed the concerned institutions namely State Bank of Pakistan and Federal Board of Revenue for appropriate actions, the SECP report added.
Special provisions pertaining to maintenance of record of foreign investments in shape of Companies' Global Register of Beneficial Ownership has been specified in the Act of 2017. Furthermore, enhanced disclosures have been required in the financial statements in the Act of 2017 in respect of investments in foreign companies. The aforesaid provisions shall be highly effective in curbing the investments in offshore companies for tax evasions, money laundering, and hiding of assets in future.
Maintenance of record of foreign investment in shape of Companies' Global Register of Beneficial Ownership: Every shareholder, directors and officers of the companies, under this provision of law, has to report his/her beneficial ownership or any other interest outside Pakistan. The companies shall also be required to report its foreign equity investment to the SECP, the commission added.