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The lack of public information regarding companies is considered as one of the reasons why financial crimes such as money laundering, tax evasion, and terrorist financing are committed. The Financial Action Task Force (“FATF”), an inter-governmental body, made a recommendation for countries to impose a legal requirement on companies to keep a record of all their beneficial owners to increase transparency. Accordingly, Hong Kong proposed in the Company (Amendment) Bill 2017 the obligation for Hong Kong private limited companies to keep a mandatory and updated register of all its beneficial owners. This requirement came into effect on the 1st March 2018.
Which companies are targeted?
All private companies registered in Hong Kong that are not listed companies must keep a register. Registered Non-Hong Kong companies (including registered branches or representative offices) and companies exempted from the Financial Secretary of Hong Kong are not applicable.
Who are the beneficial owners of a company?
The beneficial owners or significant controllers of a company are all-natural persons or government entities or legal entities who have significant control over that company. You can be considered to have “significant control” if you meet at least one of the following conditions:
a. Holds, directly or indirectly:
- more than 25% of the issued shares in that company
- the right to share in more than 25% of the capital or profits of a company with no share capital
- more than 25% of the voting rights in that company
- the right to appoint or remove a majority of the board of directors
b. Or, has the right to exercise a considerable influence or control over:
- the company; or
- the activities of a trust firm, which is not a legal person provided its trustees, or members meet one or more of the conditions in paragraph a.
The company – What should be done?
According to the Bill requirements, a company must:
- Keep the name and address of each significant controller.
- Investigate and obtain information about its significant controllers. Within seven days after having identified a significant controller, the company must send a notice to request confirmation and information.
- Ensure that the register is up to date.
Failure to comply with the above obligations may expose a company and every responsible person of that company to a fine.
The significant controllers – What are their obligations?
A person who has received a notice from a company must reply and comply within one month from the date of the notice to avoid a penalty of up to 25,000 HKD. Any person who makes a false declaration could incur a fine of up to 300,000 HKD and face imprisonment of up to two years.
Who can have access to the register?
The register is not accessible to the public; it will be kept as an internal document of the company. Those who are allowed to ask to see it are persons who are entered in the register and government institutions like the Companies Registry, the Hong Kong Police Force, the Inland Revenue Department and the Independent Commission Against Corruption.
In practical terms, what is the impact for Orbis’ customers?
The Significant Controllers Registrar must be kept in Hong Kong. We as your registered office, will keep it in our office. If you want to maintain it yourself or in another location within Hong Kong, we must deliver the Form NR2 to the HK Company Registry. We will be contacting each of our customers gradually to clarify who are your significant controllers and obtain an additional information as needed for the purpose of creating this new register.
What are the consequences?
In Hong Kong, all the information regarding directors and shareholders of a limited company are already public. However, you can appoint a nominee director and shareholder to protect the identity of the directors and shareholders of the company. This solution makes information of beneficial owners less accessible, and some people use this method to protect themselves while they carry out criminal actions or simply do not want to appear in official records.
In recent years all banks ask for the ID and proof of address of all beneficial owners (even if they make use of nominee directors/shareholders). Today the government increases transparency through this mandatory register of beneficial ownership.
At last, it appears more and more obvious that anything that could be done to hide will be progressively eliminated. It is a worldwide trend that may put an end to the use of nominees. The register remains inaccessible to public but for how long? Furthermore, in addition to the Automatic Exchange of Information, it means that with time corporate information will become more transparent on a global scale.
You can check the full bill here.
By Francois Bernard, Orbis Consultant.