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Friday, March 29, 2024

Disclosure of beneficial ownership promotes transparency

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It has come to our attention that a column published on Manila Standard has assailed a requirement by the Securities and Exchange Commission (SEC) for corporations to disclose their beneficial ownership in the General Information Sheet (GIS).

The opinion piece titled “A formula for corruption” and published on the March 13 edition of Manila Standard alleged that the requirement under SEC Memorandum Circular No. 17, Series of 2018, is “a flagrant attempt to violate our right to privacy” and “a formula for corruption.”

The writer also dismissed beneficial ownership as “information which does not need to be disclosed” and questioned the rulemaking power of the SEC as supposedly “it has no authority to require such a disclosure.”

The Commission wishes to respond to such claims, which were also brought to our attention by the Department of Finance.

On the privacy issue

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The right to privacy is not absolute. The law admits of exceptions, one of which is when the information is necessary and pursuant to the exercise of the regulatory functions of a government agency.

In this case, the SEC collects information about the beneficial ownership of corporations to fulfil its statutory functions to ensure full and timely disclosure of material information, protect the investors, and minimize, if not eliminate, fraudulent or manipulative devices and practices that create distortion in a free market.

Such information also helps the Commission fulfill its mandate to assist the Anti-Money Laundering Council (AMLC), as a sitting member, in implementing the Anti-Money Laundering Act, which seeks to deter money laundering as well as terrorist financing in the country.

The SEC further takes note of the limited scope of the requirement. It only applies to natural persons with direct or indirect ownership of at least 25% of any category of voting shares or capital and those with the ability to elect a majority of the board of directors or any similar body, exert a dominant influence over the management or policies, or direct majority of the board.

Nevertheless, the Commission is duty-bound to observe and respect the privacy rights of filers, including their right to information, right to access, right to correct, right to remove, right to damages and right to data portability, as provided in the Data Privacy Act of 2012.

On the necessity of disclosure

The disclosure of beneficial ownership of corporations is necessary in tackling illicit activities perpetrated through the use of corporate vehicles such as money laundering; terrorist financing; bribery and corruption; hiding and shielding assets from creditors and other claimants; illicit tax practices; diversion of assets; and market fraud.

The lack of adequate, accurate and timely beneficial ownership information facilitates such illicit activities by disguising the identity of known or suspected criminals, the true purpose of an account or property held by a corporate vehicle, and/or the source or use of funds or property associated with a corporate vehicle.

The requirement aligns with the recommendations of the Financial Action Task Force (FATF), as adopted by the Asia Pacific Group, co-founded by the Philippines, to combat money laundering and terrorist financing. These include ensuring adequate transparency and timely access by a competent authority to current and accurate information on the beneficial ownership of legal persons and arrangements.

This is also a necessary requirement to comply with the decisions of the Supreme Court in Gamboa v. Teves promulgated on June 28, 2011 and October 9, 2012, which required the SEC to look into the beneficial ownership of corporations and ensure compliance with the limit on foreign ownership.

Besides, Section 73 (b) of the Revised Corporation Code requires corporations to keep and preserve information about their current ownership structure and voting rights, including lists of stockholders or members, group structures, intra-group relations, ownership data, and beneficial ownership.

On the Commission’s rulemaking power

The SEC is granted rulemaking power under the Revised Corporation Code and the Securities Regulation Code. It had such authority even under Batas Pambansa Blg. 68, or the old Corporation Code.

Section 179 (o) of the Revised Corporation Code, for one, empowers the Commission to “formulate and enforce standards, guidelines, policies, rules, and regulations to carry out the provisions of this Code.”

Section 5 (g) of the Securities Regulation Code also grants the Commission the power to “prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulation and orders.”

The SEC exercised its rulemaking power when it issued Memorandum Circular No. 17, Series of 2018, a measure necessary in the fulfillment of the Commission’s mandate and the policies behind the laws it ought to implement.

On the corruption claim

The requirement actually promotes transparency and tackles illicit activities, including bribery and corruption.

As discussed above, the disclosure of beneficial ownership information will prevent the misuse of corporate vehicles in money laundering; terrorist financing; bribery and corruption; hiding and shielding assets from creditors and other claimants; illicit tax practices; diversion of assets; and market fraud, among others.

The requirement will help expose the identity of known or suspected criminals, the true purpose of an account or property held by a corporate vehicle, and/or the source or use of funds or property associated with a corporate vehicle, which could be disguised through bearer shares, nominee shareholders, nominee directors and corporate directors, chains of corporate vehicles, and use of intermediaries.

The SEC will appreciate any information that can help it prevent corrupt practices arising from the implementation of the memorandum circular. The Commission is committed to eliminating corruption within and beyond its offices.

Recently, the Presidential Anti-Corruption Commission (PACC) recognized the SEC for its efforts to curtail corruption. The private sector, particularly the Makati Business Club, also cited the Commission as one of the best performing national agencies.

In addition, the SEC consistently ranked among the sincerest institutions in fighting corruption, per surveys conducted by the Social Weather Stations with support from the Integrity for Investments Initiative, funding from the United States Agency for International Development, and in partnership with the National Competitiveness Council and The Asia Foundation.
 

ATTY. ARMANDO A. PAN, JR.
Commission Secretary
Securities and Exchange Commission

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