LETTER | The Panama Papers, the world’s biggest leaked documents, highlighted the complex ways used by companies and individuals to conceal the actual beneficiaries of a certain company. It exposed a system that appeared to facilitate economic crime.

There were 142 politicians and their families from 12 countries that put their money into offshore accounts to hide their wealth.

The same modus operandi could also be taking place locally by securing huge government projects amounting to billions of ringgit.

One way to overcome corruption and money laundering is by introducing a central registry for ultimate beneficial ownership (UBO) of companies registered in Malaysia. It is now time for the government to unmask the corrupt and publicly reveal who actually benefits from every company registered in their jurisdictions.

Such a central business registry can be established for the purpose of improving the investment climate, making it easier to conduct business and increase transparency, which can spur the economy of the country.

This accountability will attract both local and foreign investors who will be able to access information and scrutinise the relevant data prior to making an investment decision.

Such moves hope to deter corrupt officials and crooked politicians from awarding any government contract to themselves or through their families or cronies. It also promotes good governance and prevents companies from being misused for illicit businesses and helps reporting institutions identify and report suspicious activities.

It makes it more difficult for financial criminals to hide their ill-gotten money and also helps to detect other acts of financial crime, such as corruption, tax evasion, organised crime and investments in high-value property in Malaysia, just to name a few.

The use of shell companies

Most financial criminals use shell companies to hide particulars of ownership, which allow corrupt criminals to hide, launder and avoid their ill-gotten wealth.

Identifying the ultimate UBO is key to determining whether the source of funds is legitimate or otherwise. This also benefits the financial institutions as it will help them determine the UBO of the company, trust or foundation prior to opening an account.

While financial institutions, especially banks, are required to identify their UBOs as part of their account opening due diligence process, the actual “customer” is often hidden behind shell companies and trusts.

At the moment, it is difficult to take any legal action against the nominees if they have been used to hide the real shareholders of the registered companies.

Azam Baki, the chief commissioner of the MACC, has been reported as having said that wrongdoing involving government procurement was at 42.8 percent and topped the list of sectors prone to corruption, based on complaints to the MACC between 2013 and 2019.

Ambrin Buang, the former auditor-general, predicted that 30 percent of Malaysia's publicly-funded projects' value was lost owing to mismanagement and corruption.

The United Kingdom introduced the first public register of UBOs for all UK private companies and limited liability partnerships (LLPs) - or known also as the People with Significant Control Register (PSC Register). The PSC Register splits UBOs into three different types, which are: 1) assets companies, 2) properties and land, and 3) trust. This register is publicly available.

As for property ownership owned by foreign companies and foreign legal entities, the UK government plans to launch this register in 2021. This means that anyone will be able to find out who owns and controls UK companies, even if they are owned by an offshore company or a trust.

The United States’ FinCEN introduced the Beneficial Ownership Rule in 2016 which became effective in 2018 and which requires financial institutions to collect information on significant UBOs of all legal entities.

Ultimately, public records are not the only solution. The public UBO register has to be constantly updated by the gatekeepers or Designated Non-Financial Businesses and Professionals (DNFBP) like lawyers, company secretaries, accountants and other parties. Most importantly, the DNFBPs have to have values of integrity and ensure that they do a thorough customer due diligence for the companies they are working with.

However, in December 2020, the Companies Commission Malaysia (CCM) intended to implement the new requirements and impose a new guideline starting this year, 2021, that requires all registered companies in the country to submit information on their UBOs and would have six months from the starting date to comply with all the requirements. 

After six months, it is a duty on the directors and shareholders of companies to provide and declare all information relating to beneficial ownership to CCM. Those who failed to disclose the information will be fined RM50,000.

However, the CCM admits that the real challenge would be whether the information given is accurate. CCM should be prepared to overcome this challenge by having the proper infrastructure and qualified and trained investigators.

It is yet to be seen, the effectiveness of this guideline as the implementation date has been postponed due to the Covid-19 pandemic. The biggest challenge will be to see how CCM is going to enforce the law without fear or favour in cases where the beneficial owners are politically linked.

The writer is director, Institute of Crime & Criminology, Help University.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.