ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has proposed that all existing bearer shares or bearer share warrants, if any, shall either be registered or cancelled, in the specified manner and period.
According to the amendment proposed in the Companies Act, 2017, 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 SECP said.
The issuance of bearer securities by the 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, the SECP added.
The proposed amendment in the Companies Act said: 60A. Prohibition on issuance of bearer shares or bearer share warrants, etc. - (1) Notwithstanding anything contained in the National Investment (Unit) Trust Ordinance, 1965 (VII of 1965) or any other law for the time being in force, no company shall allot, issue, sell, transfer or assign any bearer shares, bearer share warrants or any other equity or debt security of a bearer nature, by whatever name called, and any allotment, issue, sale, transfer, assignment or other disposition of any such bearer shares or bearer share warrants or any other equity or debt security of a bearer nature, shall be void.
Explanation: - For the purpose of this section, the term bearer shares or bearer share warrants means a negotiable instrument that accords ownership or control in a company to the person who possesses such instrument and includes any other equity or debt security of a bearer nature.
(2) All existing bearer shares or bearer share warrants, if any, shall either be registered or cancelled, in such manner and within such period, as may be specified.
(3) No civil proceedings shall be instituted or maintainable in any court in respect of bearer share, share warrant or any other equity or debt security of a bearer nature, by whatever name called, allotted, issued, sold, transferred, assigned or disposed of by a company.
(4) Any contravention or default in complying with the requirements of this section shall be an offence liable in case of- (a) a director or officer of the company or any other person, to a fine which may extend to one million rupees; and (b) the company, to a fine which may extend to 10 million rupees."
Copyright Business Recorder, 2020