The Attorney General, in the exercise of the powers conferred upon him under the Companies Act 2015, came up with the Companies (Beneficial Ownership Information) Regulations 2019, which requires companies to disclose their beneficial owners to any competent authority upon request.

The “competent authority” in this case refers to the Attorney General, any criminal investigation agency, law enforcement agencies, and authorities that regulate the financial sector like the Financial Reporting Centre and the Kenya Revenue Authority.

There are several reasons that prompted mandatory disclosure rules. The first rationale is to unmask shareholders who make secret profits through a chain of intermediaries, as well as those who use elaborate corporate structures to obscure their assets.

Secondly, it’s also meant to curb money laundering by ensuring that these corporate structures update “adequate, accurate, and current” information about a company’s beneficial owners with the final reason being to increase investor confidence in our financial markets.

This is now a globally held practice especially after the infamous ‘Panama Papers’ in 2016, which revealed how corporate structures and offshore tax havens have been used by wealthy individuals and politicians to conceal their beneficial ownership of companies.

Additionally, as a general practice in the observance of good corporate governance and transparency in a company’s shareholding structure, there appears to be a need for stricter disclosure and reporting rules.

Companies that communicate openly about corporate information, including ownership structures, seem better placed to flourish. This is because any potential investor will be able to make better investment decisions, which in turn enhances the financial markets.

However, inasmuch as the regulations are necessary, my reservations or possible challenges are threefold:

First, companies may comply, only meet the basic requirements of disclosure but fail to identify the ultimate owner, as it will be impossible to identify the ultimate owner with any degree of certainty.

Another reason is that the disclosure and reporting may be used by companies only as a statutory regulation to be fulfilled and not as an opportunity to add value in their corporate governance structure. To this end, the rules may not meet the intended purpose.

Finally, if firms disclose false or misleading ownership information on account of uncertainty, then that will have the effect of obscuring the reality or create a misplaced sense of confidence in particular companies.

The upshot is that the regulations are beneficial both to corporate governance, institutional investors, and the government.

However, facilitating the disclosure of the “ultimate” beneficial owner through a legislative framework is easier said than done, keeping in mind the various concealment strategies that companies use.

Therefore, regulators need to encourage, persuade, and empower companies to recognize and embrace the commercial and strategic benefits of upholding more open and transparent corporate communication.