Lifting the Veil on Beneficial Ownership

In September 2023, Namibia enacted various laws and amendments to try to stave off being greylisted.

Parliament amended nine laws, repealed two laws and introduced two new laws.

These measures followed a second peer review and mutual evaluation exercise in 2022 by the Eastern and Southern African Anti-Money Laundering Group (ESAAMLG) as part of the Financial Action Task Force (FATF) framework. Shortcomings in both technical (laws) and effectiveness (implementation) compliance were identified.

Among others, the mutual evaluation report highlighted specific areas where Namibia needs to improve – notably in providing accurate and current information about beneficial owners of legal entities.

It also underlined the importance of imposing sanctions for non-compliance with beneficial ownership obligations.

Despite steady progress during a 12-month observation period, in February the Financial Action Task Force placed Namibia on the ‘greylist’ of countries under increased monitoring.

It identified serious deficiencies in our country’s regulatory systems and the effectiveness of its anti-money laundering and counter-terrorism regime.

It wants Namibia to institute laws that provide for transparent ownership and control structures.

The task force found that although publicly available beneficial ownership information exists, it is basic and often difficult to access.

The Financial Intelligence Act (2012), Companies Act (2004), Close Corporations Act (1988) and Trust Administration Act (2023) were identified as the most appropriate instruments for providing a legal basis for companies and legal arrangement ownership disclosure in Namibia.

CRIMINAL INTENT

The aim of beneficial ownership reporting is ultimately to help prevent the creation of anonymous shell companies. The Fishrot corruption case is testimony to this.

Among others, beneficial ownership reporting is intended to make it more difficult for criminals, crime rings, and other illicit actors to hide their identities and launder money through Namibia’s financial system.

FATF guidance on disclosing beneficial ownership is that it should go beyond mere legal ownership and control to consider actual/ultimate ownership/control.

It means those who actually own and take advantage of the assets, as well as those who factually or actually exert control over them.

Reporting beneficial ownership is a bid to help prevent money laundering and other financial crimes by requiring those with control over businesses or legal entities to provide identifying information.

Non-compliance with provisions related to beneficial ownership is an offence under the Companies Act, the Close Corporations Act and the Financial Intelligence Act.

A compliance notice may be issued in cases of non-compliance and an administrative penalty may be imposed.

In terms of the Companies Act, the registrar of companies is obliged by law to list a company on an inactive list for non-compliance, and has the power to deregister a company if it stays on the inactive list for six months.

PROBLEM AREAS

The challenge is that the registrar has no duty to investigate and verify the authenticity of beneficial owners’ information.

The lack of requirements under the Companies Act, Close Corporations Act, and Trust Administration Act, that the registrar, or master of the High Court conduct due diligence in respect of members, trustees and beneficial owners’ companies and trusts established for money laundering purposes is a problem.

It is already difficult for the authorities to identify people exercising management and control over these legal entities.

The anonymity of beneficial ownership makes it more attractive for criminals to hide their identities and the source and purpose of their funds.
Many companies will provide legal ownership, but not the full ownership chain.

A worrying loophole is that the registrar is not obliged to verify the personal details of the owners of the companies, beneficial owners, as well as other details required.

The registrar accepts the information provided to them in good faith.

Even if the registrar was obliged to verify ownership information, they do not have the capacity to implement beneficial ownership requirements.

In this regard, ESAAMLG’s mutual evaluation report concluded that Namibia has poor and weak institutional capacity at the registries responsible for maintaining beneficial ownership information.

RISKS AND RIGHTS

Another challenge the registrar might face is claims of a breach of fundamental rights to privacy.

In November 2022, the European Court of Justice struck down unrestricted public access to beneficial ownership registries in the EU on the basis that it violates the right to privacy.

Information required by the Business and Intellectual Property Authority (Bipa) in terms of the Companies Act includes names and surnames, date of birth, identification number, physical address, contact details, nationality and the nature and extent of beneficial ownership.

Information on beneficial owners and company details held by the registrar are public information.

Whether the information should be publicly accessible is a debate for our parliament.

Granting access to an unlimited number of people and a lack of control over the use of such information makes it difficult for those whose information is made available to defend themselves against risks of fraud, harassment, kidnapping, violence and intimidation.

Perhaps it’s time to consider what changes should be made to our national laws and practices to balance legitimate public interest and the state’s obligation to protect the right to privacy.

• * Eva Nangolo is a state lawyer, but writes in her personal capacity.