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ISLAMABAD: The government has decided to promulgate an ordinance to amend the Companies Act, 2017 and the Limited Liability Partnership Act, 2017 to check misuse of bearer securities and prevent companies from money laundering or terrorist financing abuses in line with the recommendations of the Financial Action Task Force (FATF).

Sources told Business Recorder that proposed amendments in the Companies Act, 2017 and the Limited Liability Partnership Act, 2017 are approved by the federal cabinet and will be announced through a Presidential Ordinance.

The following are the proposed amendments in the Companies Act, 2017 to be introduced through a Presidential Ordinance:

Amendment in Section 60 through insertion of Section 60A and section 122 - Prohibition on Issuance of Bearer Shares and Securities: The provisions relating to the prohibition on issuance of bearer shares, bearer share warrants and similar equity or debt securities of bearer nature, as well as the manner of registration and cancellation in case any such bearer securities have been issued, are being introduced in order to prevent the misuse of companies from money laundering or terrorist financing abuses in line with the recommendations issued by the Financial Action Task Force. Recommendation no. 24 (Transparency and Beneficial Ownership of Legal Persons) is the relevant standard for the purpose. The proposed section 60A is being introduced to comply with this recommendation.

"Pakistan's Mutual Evaluation Report issued in October 2019 by the Asia Pacific Group on Money Laundering also highlighted certain deficiencies in the regulatory framework relating to the misuse of bearer shares and bearer share warrants, etc. An explicit prohibition is accordingly, being provided through the proposed amendment. Bearer securities are vulnerable to misuse because they can effectively obscure the ownership of a corporate entity, thereby providing maximum anonymity and making such corporate vehicles more susceptible to misuse for illicit purposes, including money laundering.

"The issuance of bearer securities by National Investment Trust Limited under the National Investment (Unit) Trust Ordinance, 1965 and the rules made thereunder has been addressed through sub-section (1) of the proposed section.

Consequential amendment arising from prohibition of bearer debt securities is also required through deletion of section 122(3) which provides for issuance of bearer debentures.

"Section 123A (New Provision) - Record of Ultimate Beneficial Owner: Introduction of the proposed regulatory framework for obtaining, maintaining and updating information about the ultimate beneficial owners, and providing a declaration for compliance to the Commission, is aimed to ensure compliance with the recommendations issued by the Financial Action Task Force to enhance transparency of companies. Recommendation no. 24 (Transparency and Beneficial Ownership of Legal Persons) is the relevant standard for the purpose. The proposed section 123A is being introduced to comply with the said recommendation.

Pakistan's Mutual Evaluation Report issued in October 2019 by the Asia Pacific Group on Money Laundering highlighted certain deficiencies in the regulatory framework relating to the lack of obligation on the part of companies to maintain beneficial ownership information beyond their original subscribers, shareholders and directors. An ultimate beneficial owner exercises ownership or control rights over a company directly or indirectly through such percentage or shares or controlling rights or by exercising effective control through such other means as may be specified.

"Amendments to Section 413 - Disposal of books and papers of a company that has been wound up: The Interpretive Note to FATF Recommendation 24 (Transparency and Beneficial Ownership of Legal Persons) specifies that for at least five years after the date on which the company is dissolved or otherwise ceases to exist, the company itself or its administrators, liquidators or other persons involved in the dissolution of the company, should maintain the information and records relating to its basic and available beneficial ownership information. The existing period provided in section 413 of the Companies Act, 2017 is three years.

"Therefore, the existing sub-section (3) of the said provision is being converted into an enabling provision to specify the period through regulations in line with the FATF recommendations. Consequential changes are being made in sub-sections (2) and (3)".

The following are the proposed amendments in the Limited Liability Partnership Act, 2017 to be introduced through a Presidential Ordinance:

"Amendment in Section 8 (Partners) - To require maintenance of Ultimate Beneficial Ownership information by LLPs: Introduction of the proposed regulatory framework for obtaining, maintaining and updating information about the ultimate beneficial owners, and providing a declaration of compliance to the Commission, is aimed to ensure compliance with the recommendations issued by the Financial Action Task Force to enhance transparency of legal persons.

"Recommendation No. 24 (Transparency and Beneficial Ownership of Legal Persons) is the relevant standard for the purpose. The proposed amendment to section 8 of the LLP Act 2017 is being introduced to comply with the aforesaid recommendation.

Pakistan's Mutual Evaluation Report issued in October 2019 by the Asia Pacific Group on Money Laundering highlighted certain deficiencies in the regulatory framework relating to the lack of obligation on the part of Limited Liability Partnerships (LLPs) to provide beneficial ownership information beyond their original partners.

"An ultimate beneficial owner exercises ownership or control rights over limited liability partnership through direct or indirect rights or controlling interest of such percentage as may be specified, or by exercising effective control through any other modes or as may be specified".

Copyright Business Recorder, 2020

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