SEC cracks down on use of corporate dummies, bearer shares
The Securities and Exchange Commission seeks to better combat money laundering and terrorist financing by requiring greater transparency in corporate ownership and cracking down on dummies.
This is seen to keep the Philippines off the gray list of Paris-based Financial Action Task Force (FATF), the inter-governmental body that sets the international standards to prevent money laundering and terrorist financing.
SEC Memorandum Circular No. 1 series of 2021 was issued on Jan. 27 to provide the guidelines in preventing the misuse of corporations for illicit activities through measures designed to promote transparency of beneficial ownership.
The measures include a prohibition on the issuance of bearer shares and a requirement for the mandatory disclosure of the identity of the beneficial owners, or persons who ultimately own or effectively control corporations.
“Arrangements that allow shareholders or members to hide their identity expose corporations to the risk of being misused for illicit activities such as money laundering and terrorist financing,” SEC Chair Emilio Aquino said. “The newly issued guidelines will provide the Commission with adequate, accurate and timely information to combat such unlawful activities, while cementing our commitment to international standards and best practices against money laundering and terrorist financing.”
The guidelines adopt the recommendations in the Mutual Evaluation Report issued by the FATF in October 2019. Among others, the global watchdog urged the Philippines to introduce measures to ensure that bearer share warrants, nominee directors and nominee shareholders are not misused for money laundering and terrorist financing. The FATF had also urged the Philippines to put in place new mechanisms to ensure that information on the beneficial ownership of a company can be determined in a timely manner.
Based on the new guidelines, no corporation or entity can issue, sell or offer for sale or distribution bearer shares as well as bearer share warrants where the names of owners are neither reflected on the physical stock certificate nor recorded in the stock and transfer book of the issuing corporation.
New framework
The guidelines further require corporations other than publicly listed companies to disclose and record in their stock and transfer book the alienation, sale or transfer of shares of stock, the date thereof, by whom and to whom made within 30 days. Otherwise, the transaction will not be binding on the issuer.
The new framework also prohibits the payment of dividends to any person or entity unless the name of the recipient appears in the records of the corporation as the owner of the concerned shares of stock, except for dividend payments made by publicly listed companies to a Philippine Central Depository (PCD) nominee or any similar entity authorized to act as depository and custodian of shares for purposes of trading in the stock exchange and operating under the same rules.
The guidelines likewise require newly registered corporations to disclose the identity of the persons on whose behalf they were registered and the nominators/principals of nominee incorporators/first directors/ trustees and shareholders within 30 days from receipt of their certificates of registration.
Meanwhile, nominee directors/trustees and shareholders of existing corporations are required to disclose their nominators and principals within 30 days after the effectivity of the guidelines or 30 days from the time they became or assumed their roles of, or started acting as, nominee directors/ trustees or shareholders.
All corporations registered with the SEC are further required to keep and preserve in their principal offices adequate, timely and accurate information relating to their beneficial owners.
Violators will be fined P5,000 to P2 million, plus up to P1,000 for each day of continuing violation but not exceeding P2 million. Suspension or revocation of the certificate of incorporation and other penalties may also be imposed.
