Background
On 17th October, 2024, the Business Registration Service (BRS), a state entity established under the BRS Act of 2015 issued a notice requiring companies to prepare and maintain a register of Beneficial owners by 30th November, 2024. This is in line with the Companies Act, 2015 and Companies (Beneficial Ownership Information) Regulations, 2020. The potential penalty if a company fails to provide the beneficial ownership information as required is a fine of up to KES. 500,000/=. Further, if a legal entity is convicted for non-compliance and continues to neglect this obligation, it will face an additional fine of up to KES. 50,000 for each day the violation continues.
In recent years, it has become a matter of significant global concern that allowing beneficial owners of companies to remain anonymous has enabled the concealment of questionable financial activity such as tax evasion, corruption, money laundering and financing of terrorism at a considerable scale. Research conducted in the 2016/2017, particularly in the wake of the Panama and Paradise Papers, revealed how anonymous companies and financial vehicles are used to facilitate fraud and illegal financial flows. Closer home, public funds are often lost through tenders procured to companies with opaque ownership identities.
In answer to this, Kenya amended the Companies Act in 2019 to include a special requirement for companies to maintain a register of its beneficial owners and to submit a copy of it to the Registrar of companies. Entities implementing this requirement must refer to section 93A of the Act and the Companies (Beneficial Ownership Information) Regulations of 2020, which encapsulate important guidelines on the criteria of identifying a beneficial owner and the particulars to be included in the register of Beneficial Owners.
A Beneficial Owner (BO) is the natural person who benefits or dominates the activities of a legal entity. The Companies Act defines a BO under section 3 to include a natural person who ultimately owns or controls a legal person or an individual person on whose behalf a transaction is conducted, including a person who exercises ultimate effective control over the legal person. It should be noted that individuals who provide advice or make recommendations or proposals in their professional capacity such as company directors, company secretaries, lawyers, or external auditors, aren’t for this sole fact considered as having the influence or ultimate control over a company as beneficial owners.
Steps to Compliance
A company is obliged to take steps to identify its BOs by incorporating BO disclosure requirements in its articles of association and annual compliance processes or by relying on regulation 4 of the BO regulations which requires the company to send out notifications to the persons identified as BOs to submit the BO information. A company and its officers such as directors and company secretaries on whom sanctions apply for non-compliance are therefore obliged to investigate nominee shareholding, legal arrangements such as trusts and complex ownership structures within a company.
Step 1
In identifying the BOs, reference should be given to regulation 3(2) of the BO Regulations which states that a person should be identified as a BO if he or she directly or indirectly:
a) holds at least 10% of the issued shares of the company;
b) exercises at least 10% of the voting rights in the company;
c) has a right to appoint or remove a director of the company; or
d) exercises significant influence or contribution over the company.
Step 2
Once the BOs have been successfully identified using the criteria outlined above, the company will notify the persons identified and require them to provide the information specified under Regulation 3(3) within 21 days from the date of the notice.
The information to be provided under Regulation 3(3) includes personal details such as the name, national identification or passport number, nationality, date of birth, business and residential addresses, contact information, occupation, nature of ownership, and the date the individual became a BO. Additionally, any other information that may be required by the registrar over time will also be collected.
Step 3
It is important to note that if an individual believed to be a Beneficial Owner (BO) fails to provide the required information, the company is obligated to issue a 14-day warning to that individual in accordance with Regulation 5 and to retain a copy of this warning. The consequences of the warning are significant and they include prohibiting the BO from transferring their interests, exercising any rights, including the issuance of shares, and receiving any payments due from the company. This measure is designed to compel the BO to provide the necessary information for the company to conduct due diligence and verify the information given before filing it with the Registrar of Companies.
Step 4
The company will then compile this information in the form similar to BOF1, which contains all the information about a BO as directed by Regulation 3(3) and lodge the same with the registrar of companies within 30 days. Any amendments made to the beneficial ownership register are to be submitted to the Registrar of Companies promptly, within 14 days for privately held companies and within 30 days for publicly listed companies.
Disclosure of Beneficial Ownership Information
he regulations provide essential guidelines for the disclosure of beneficial ownership (BO) information to third parties and the public. The overarching principle is that beneficial ownership information should remain confidential. Unauthorized disclosure or misuse can result in severe penalties, including fines of up to KES. 20,000 or imprisonment for a maximum of six months.
A pivotal ruling from the European Court of Justice in November 2022 underscored this confidentiality, stating that “the general public’s access to information on beneficial ownership constitutes a serious interference with the fundamental rights to respect for private life and to the protection of personal data.” This landmark decision reinforces the ability of beneficial owners to safeguard their privacy against invasive data retrieval practices, thereby challenging the 2018 amendment to the European Union’s Anti-Money Laundering Directive, which had permitted public access to the Beneficial Owners Registry in the name of promoting transparency and integrity.
Similarly, Kenya’s BO Regulations allow for specific exceptions to this general rule. For instance, BO information may be disclosed if the beneficial owner consents in writing, if an authority formally requests it from the registrar of companies, or in response to a court order. Additionally, disclosure may occur to fulfill regulatory requirements or facilitate communication with the beneficial owner. These exceptions effectively, balance the right to privacy and access to information contemplated under the Constitution of Kenya 2010.
Conclusion
As a general rule, a company has a duty to obtain the BO information and to keep the information together with the supporting documents relating to the BO information as well as ensure that the BO information is adequate, accurate and up-to-date. Further, in light of the notice from the BRS, companies are strongly encouraged to promptly file their beneficial ownership information.
If you or your company are looking to understand the beneficial ownership regime in Kenya or undertake beneficial ownership filings, please reach out to Divinah Ongaki (dso@smc-legal.com.com) or (info@smc-legal.com).