SEC sets up transparency rules to combat money laundering

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THE Securities and Exchange Commission (SEC) has set up new protocols of transparency to combat money laundering and terrorist financing and keep the country off the gray list of the Financial Action Task Force (FATF).

SEC Memorandum Circular No. 1 issued on Jan. 27, 2021 provides the “guidelines in preventing the misuse of corporations for illicit activities through measures designed to promote transparency of beneficial ownership.”

Some of these include:

• Disclose the identity of the beneficial owner or the person or persons who ultimately owns or has ultimate effective control of the corporation.

• No corporation or entity should issue, sell or offer for sale or distribution bearer shares, as well as bearer share warrants, where the name of owners are not reflected on the physical stock certificate or recorded in the Stock and Transfer Book of the issuing corporation.

• Corporations other than publicly listed companies must 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 they are made, within 30 days from the time of alienation, sale or transfer. Otherwise, the transaction shall not be binding to the issuer.

• No dividends must be paid to any person or entity unless his or her name appears in the records of the corporation as the owners of the shares of stocks, except for dividend payments made by publicly listed companies to the 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.

• Disclosure of the person on whose behalf the corporation is registered as well as the nominators or principals of nominee incorporators, first directors, trustees and shareholders within 30 days from receipt of their certificates of registration is mandatory.

• Nominee directors/trustees and shareholders of existing corporations must 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 SEC are required to keep and preserve in their principal offices adequate, timely and accurate information relating to their beneficial owners.

• Those who will not comply will face sanctions with a minimum fine of P5,000 to a maximum of 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 SEC may impose.

“There are arrangements that allow individuals to assume a management or ownership position on behalf of their principals and in turn hide the identity of the beneficial owner. We can see that this is not ideal because it exposes the corporations to the risk of being misused for illegal activities,” said SEC-Cebu Extension Office Counsel I Lawyer Giness Marie R. Teves.

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The guidelines adopt the recommendations in the Mutual Evaluation Report issued by FATF in October 2019.

FATF recommended that the Philippines introduce measures to ensure that bearer share warrants, nominee directors, and nominee shareholders are not misused for money laundering and terrorist financing.

FATF also urged the Philippines to ensure that mechanisms operate to ensure that information on the beneficial ownership of a company can be determined promptly. (NRC/With PR)