Pakistan’s “Ultimate Beneficial Ownership” Regime

In recent months, the Securities and Exchange Commission of Pakistan (“SECP”), the principal regulator of companies in Pakistan, has issued notices and imposed fines on various companies for non-compliance with Section 123A of the Companies Act 2017 (“2017 Companies Act”), which is the main company law in force in Pakistan and Regulation 19A of the Companies (General Provisions and Forms) Regulations, 2018 (“2018 Regulations”).

Fines have been imposed after the SECP reminded companies of their obligation to comply with Pakistan’s ultimate beneficial ownership (“UBO”) (حقیقی ملکیت) regime (through print / social media and individual show-cause notices). A final notification in this regard was issued by the SECP through its official press release of 07 September 2021.

These measures are part of the SECP’s drive to fulfill Pakistan’s international commitments and improve compliance with the reporting requirements concerning UBOs and specifically, to meet the standards issued by the Financial Action Task Force (FATF) (a global money laundering and terrorist financing watchdog) to combat money laundering and terrorism financing.

WHAT IS A UBO?

Section 123A of the 2017 Companies Act defines a UBO as: “a natural person who ultimately owns or controls a company, whether directly or indirectly, through at least twenty five percent shares or voting rights or by exercising effective control in that company through such other means, as may be specified”.

This definition has been replicated in Regulation 19A of the 2018 Regulations and suggests that any natural person owning twenty-five percent (25%) or more shares in a company, either directly or indirectly (e.g. through a company) is a UBO.

REPORTING REQUIREMENTS

To comply with the applicable law, companies are required to issue notices to every member / shareholder who directly holds at least twenty five percent (25%) of shares or voting rights in the company, requesting relevant information in this respect. In response, each recipient of such a notice is required to submit a declaration to the company providing the details requested which include, inter alia, the name, nationality, address and date on which shareholding / control / interest in the company is acquired.

In case of indirect shareholding or control being exercised through intermediary companies or other legal persons, the company shall obtain the names and particulars of its UBOs. If there is no natural person, the particulars of the relevant natural person who holds the position of senior managing official shall be obtained. Once the relevant information has been received by the company it is required to then record the same in its UBO register and file a declaration with the SECP confirming compliance with the legal regime governing UBOs. The process mentioned above must be completed within timelines specified under the 2017 Companies Act and 2018 Regulations.

PENALTIES FOR NON-COMPLIANCE

Non-compliance of the reporting requirements described above may incur penalties up to one million rupees (for a director or officer of the company) and up to ten million rupees (for the company). As noted above, the SECP has already issued notices and imposed penalties for non-compliance on several companies in Pakistan. It is therefore imperative that companies seek timely legal advice in order to comply with the requirements of Pakistan’s UBO regime.

By Mian Tariq Hassan, Axis Law Chambers, Pakistan, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact pakistan@transatlanticlaw.com

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