The Accountant – Is Good Governance on our Agenda?  –  Summer 2020 (MIA Publication)

In today’s world, it is crucial that companies know with whom they are dealing, not just knowing the name of the company or who the officers are, but the natural person owners of the company – the beneficial owners. Transparency is an essential tool for good governance and this requires knowledge of beneficial ownership in corporate structures.

Transparency is a critical component of corporate governance because it ensures that all of a company’s actions can be checked at any given time by third parties. One of the main roles of the Registrar of Companies (Registrar) in Malta is to make information public on all Maltese registered companies and partnerships, including the register on the beneficial owners of companies. The register of beneficial owners is easily accessible by all competent authorities, subject persons and the general public. The portal is https://registry.mbr.mt/ROC/

An ultimate beneficial owner is any natural person who ultimately owns or controls that body corporate or body of persons through direct or indirect ownership of 25% plus 1 or more of the shares, or more than 25% of the voting rights or an ownership interest of more than 25% in that body corporate or body of persons or through control via other means. Senior managing officials can also be treated as beneficial owners where the above criteria cannot be determined.

Although the definition of what constitutes a beneficial owner seems to be a straight forward one; collecting, updating, verifying and monitoring all of the information for every beneficial owner of every company is a large-scale effort, for both the practitioners and the authorities. This is because identifying the beneficial owner of a company is, sometimes, not like looking for a needle in a haystack but it is more like looking for a needle in a pile of other needles. Criminals have long used complex corporate structures to hide their real identities, the true purpose behind a company and this, with the aim to conceal where their funds have come from or what they are being used for.

As per Companies Act, companies are legally obliged to disclose their beneficial owner/s to the Registrar. Companies that fail to do so are just asking for trouble as the Registrar applies sanctions for companies that fail to disclose the beneficial ownership information to him. Apart from imposing administrative penalties on existing companies that failed to file the beneficial ownership information, the Registrar refuses any other documents submitted to him for registration. The Registrar also refuses to register a new Memorandum and Articles of a proposed company, if the beneficial owners are not disclosed and can also struck off existing companies that failed to make the necessary beneficial ownership disclosure with the Registrar. In addition to that, throughout this year, the Registrar has also struck off the name of approximately 10,000 companies off the register that for the past years failed to comply with their statutory obligations.

It is worth mentioning that as a general practice in the observance of good corporate governance and transparency in a corporate structure, the need for stricter disclosure requirements is inevitable. The Registrar is obliged to keep accurate, current and up-to-date information on the beneficial owners of companies. To this end, the Malta Business Registry (MBR), whose Chief Executive Officer is also legally appointed as the Registrar, also has in place a Compliance Unit within its structure which is in charge of carrying out physical onsite inspections on companies in order to verify that the information of beneficial owners submitted to the Registrar is the same as per the record on beneficial owners held by the company itself and as per internal transactions of the company. In addition to the human supervision, the MBR has also invested in intelligent technologies that have access to data, held by national and foreign authorities for cross-checking and conducting advanced analyses. The MBR will continue enhancing this by the development of algorithms to be able to perform ongoing monitoring.

Furthermore to the above verification methods, since in Malta we adopt a multi-pronged approach by using several sources of information to make the beneficial ownership of legal persons sufficiently transparent and accurate, all competent persons and subject persons are legally obliged to report any discrepancies they find between the beneficial information available to them and the beneficial ownership information held in the register of beneficial owners kept by the Registrar. In this manner the Registrar can ensure that the information held by him is accurate and up-to-date.

"When a discrepancy is reported, the Registrar seeks clarifications from the companies in question, and if necessary, report suspicious activities to competent authorities."

The challenges around identifying and verifying beneficial ownership information may be burdensome, but the risks that come with non-compliance are even greater. Companies that adopt a full transparent approach, including ownership structures and disclosure of beneficial ownership information, maintain investors’ confidence, whose support can help to finance further growth.Dr Geraldine Spiteri Lucas is Malta Business Registry’s Chief Legal Officer and she heads the Legal and Enforcement Unit.

Dr Geraldine Spiteri Lucas is Malta Business Registry’s Chief Legal Officer and she heads the Legal and Enforcement Unit.