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Beneficial owner and legal owner of Bangladesh’s firms 

Published : Tuesday, 15 October, 2024 at 12:00 AM  Count : 662
Anybody goes to purchasing department of government entities like PBD, WDB, WASA, PWD and others and closely listen to whispering that this company belongs to son of this sir, that company belongs to brother-in-law of that sir etc. The beneficial owners (BO) of those companies despite legal owners are different. The BO definition will determine how many individuals will be subject to BO registration. For example, anyone holding "more than 25%" of the capital of an entity will be considered a BO. 

Recent ongoing action against corrupt persons discovered that different corrupt persons of all the professions have shell companies to hide the corrupt money or obtaining bank loan. The real owners are trying to hide themselves behind the screen and opened companies in the name of friends and relatives. Even some of the corrupt persons opened bank accounts in the name of maid servants. The legal owner and beneficial owners of those companies are different. 

The Organisation for Economic Co-operation and Development (OECD) is an international organisation that works to build better policies for better lives. It's Global Forumon Transparency and Exchange of Information (GF) require countries to ensure the availability of BO information of enterprises in their territories, accessible to authorities for their own use and for exchange with foreign authorities, with the purpose of tackling money laundering and tax evasion, among other things. The G20 has also endorsed the making of BO information available, by adopting the High-Level Principles on Beneficial Ownership Transparencyin 2014. 

Some countries, like the UK, have also used other conditions to determine the BO, such as individuals with a percentage of voting rights, or the right to appoint or remove the majority of the board of Directors. With regard to trusts, the FATF and the EU 4th AML Directive, consider that all the parties to the trust (e.g. the settlor, protector, trustee, beneficiary and any other person with effective control) should be considered a BO of the trust, regardless of the percentage of interest in the trust. 

The Financial Action Task Force (FATF), another organ of OECD has recommended on Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) issued Guidance on transparency and BO (2014). 

Following the FATF Recommendations, many countries have started to implement BO regulations, especially to ensure that their financial institutions will collect BO information from their customers when performing due diligence procedures, e.g. 'know your client' and AML compliance processes. 

The Tax Justice Network (TJN)'s Financial Secrecy Index (FSI) has been assessing countries' BO registration every two years since 2009. It was only in the 2015 FSI edition that identified the first countries (all from the European Union) to require BO registration, at least for companies. 

On May 20th, 2015, the European Union (EU) approved the 4th AML Directive requiring EU member countries to establish central BO registries for companies and for some trusts. In addition, countries that are members of the Extractive Industry Transparency Initiative (EITI), active in oil, gas and other sectors, have until 2020 to publicly disclose BO information of corporations involved in the extractive sector.
By this time a lot of incidences have happened. The information surfaced from Panama Papers in 2016 and the Paradise Papers in 2017, thereafter more countries have started to implement BO registration laws. In December of 2017, the EU Parliament and Council reached an agreement on a proposal by the EU Commission to amend the 4th AML Directive by increasing BO transparency that will lead to the 5th EU AML Directive. On May 1st, 2018 the UK Parliament approved an amendment to the sanctions and anti-money laundering bill which requires British Overseas Territories e.g. Cayman Islands, BVI, etc., popularly known as tax heaven, to establish public BO registries by 2020. 

The registration of BO is a difficult job and the effectiveness of BO registration in any country will depend on several factors.The registration requirement should be a prerequisite to the incorporation of all types of legal vehicles for them to legally exist. Countries should require legal vehicles (including foreign ones) to register their BOs if any of their residents are related to such a vehicle either as a shareholder, director, settlor, protector, trustee, beneficiary, etc. 

More importantly, BO registration should be a pre-condition for the legal validity of the legal vehicle and its rights to operate in the economy. If proper registration is missing the legal vehicle shouldn't be considered as existing, or able to hold assets or engage in business. 

The financial institutions to report any mismatches (e.g. if the person managing the bank account held by the legal vehicle is different from any registered BOs) and finally making information publicly available, as a deterrent effect and to allow civil society and journalists to investigate the accuracy of the information, as they have already proven themselves willing to do, very effectively. 

It has been observed that the beneficial owners of Bangladesh's company are always remain beyond the reach of law enforcers and rampant corruption is going on in the obtaining big contracts and other facilities extended to business houses.

The writer is Former Non-Government Adviser, Bangladesh Competition Commission, Legal Economist & CEO, Bangla Chemical



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