Disclosure of beneficial ownership in Malaysia companies

Disclosure of beneficial ownership in Malaysia companies

There has been increasing focus on issues related to beneficial ownership by several international bodies and organisation especially with media coverage surrounding data leaks in recent years.  Data leaks had shown that companies and trusts were used to hide beneficial owners of assets to disguise broad set of illegal activities including money laundering and corruption via layers of legal structures spanning multiple jurisdictions. More focus also has been made by regulators on “know-your-customer” (KYC) for financial institutions and designated non-financial businesses and professions (DNFBPs) such as lawyers, accountants and company secretaries to carry out verification on the identities of who are the ultimate persons that they are potentially doing business with.

Therefore, the Companies Commission of Malaysia (CCM) has introduced a framework on disclosure of beneficial ownership to promote transparency, a more robust reporting and disclosure requirements. On 1 March 2020, CCM has issued a Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons (“Guidelines”).

 The following are the key aspects of the beneficial ownership framework to Malaysian companies and the responsibilities:

(a)     Exempted Companies

The beneficial reporting framework applies to all companies incorporated or registered under the Companies Act, 2016 (“Act”), unless they are the following companies exempted under the beneficial reporting framework:

• • Companies that are regulated or licensed by Bank Negara Malaysia under the Financial Services Act, 2013, Islamic Financial Services Act 2013, a prescribed development financial institution under the Development Financial Institutions Act 2002 or a licensed money services business under the Money Services Business Act 2001.
  • An entity licensed or registered under the Capital Markets and Services Act 2007 (CMSA), stock exchange, derivatives exchange, clearing house and central depository, recognised self-regulatory organisation under the CMSA and a private scheme administrator approved under the CMSA.
  • Companies whose shares are quoted in a local or foreign stock exchange.
  • Companies whose shares are deposited in the central depository pursuant to the Securities Industry (Central Depositories) Act 1991.

This exemption however does not exonerate the exempted entities from the duty to provide the beneficial ownership information to other regulators, competent authorities and law enforcement.

(b)     Identification of “beneficial owner”

The Act defines beneficial owner as “the ultimate owner of the shares and does not include a nominee of any description”. Under the guideline for the reporting framework for beneficial ownership, the phrase of “the ultimate owner of the shares” covers both form the perspective of ownership and effective control. However, for companies limited by guarantee, the beneficial ownership extends only to effective control.

(c)     Beneficial Ownership Disclosures

Companies would need to undertake the following steps to disclose Beneficial Ownership Information:

• • Identify – Take reasonable steps to identify the beneficial owner based on the criteria in the guideline.
  • Obtain – Obtain the beneficial ownership information through notices pursuant to section 56 of the CA 2016.
  • Verify – Receive and verify the beneficial ownership information.
  • Enter – Enter the verified information into the register of beneficial owners.
  • Notify – Notify CCM of the beneficial ownership information
  • Update – Keep accurate and up-to-date beneficial ownership information in the said register and updating CCM correspondingly
  • Access – Give information access to competition, authorities, law enforcement agencies, the beneficial owner and persons authorised by the beneficial

(d)     Responsibilities of the Directors, Members and Company Secretary

In the case of a company, the roles and responsibilities of the various parties with regards to the Beneficial Ownership information are as follows:

Board of Directors

The board of directors is ultimately responsible in ensuring that the company has exercised its powers under subsection 56(1), (2) or (3) of the CA 2016 in obtaining the BO information. The obligation also extends to ensure that the Beneficial Ownership information must be entered into a separate part of the register of members as stated under subsections 51(1) and 56(4) of the Act.

Members

If a member of a company receives a notice issued under subsection 56(1) or (3) of the Act, the member is obligated to inform the company whether he is the beneficial owner as defined by the Act or met at least one of the criteria identified under the Guideline. The member must also provide the particulars of the persons for whom the member holds the voting shares or the parties to the agreements or arrangements, as the case may be, to the extent that such other persons can be identified.

A person who fails to comply with a notice issued under section 56 or has provided a false information or has made a statement recklessly commits an offence as stated under subsection 56(7).

 Any Other Person Given Notice under Section 56(2) of the CA 2016

This person has the obligation to inform the company whether he is the beneficial owner as defined under the Act or has met at least one of the criteria identified under the Guideline. Similar to a member of the company, this person must provide the particulars of the persons for whom the member holds the voting shares or the parties to the agreements or arrangements, as the case may be, to the extent that such other persons can be identified.

A person who fails to comply with the notice issued under section 56 or has provided a false information or has made a statement recklessly commits an offence as stated under subsection 56(7).

 Company secretary

In line with the duty of a secretary under subsection 102(1) of the Act, the secretary must ensure that the beneficial ownership information is entered and lodge the beneficial ownership information to the CCM.

 (e)    Who can access to beneficial ownership information?

The Company must ensure that the beneficial ownership information in the register of beneficial owners shall only be made available to specified competent authorities and law enforcement agencies (such as the Royal Malaysian Police, Malaysian Anti-Corruption Commission, Bank Negara Malaysia and Securities Commission), a beneficial owner whose name is recorded in the register of beneficial owners and persons authorised by the beneficial owner. This is to ensure that such information will be kept confidential and not be publicly available.

 (f)     Legal implication for non-compliance

A person who contravenes Section 56(1), (2) or (3) of the Act or in purported compliance with such a notice, essentially, makes a false or reckless statement commits an offence. This can amount to a false or misleading statement under section 593 of the CA 2016 that carries a heavier penalty of a maximum 10-year jail term or a maximum RM3 million fine or both.

 If you have any questions or require any additional information, please contact us.

 The above have been extracted from the Guidelines issued by the CCM and is for general information only. It is not a substitute for professional advice.

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