Transparency on the beneficial ownership of companies

In February 2017, the Australian Government released a consultation paper titled ‘Increasing Transparency of the Beneficial Ownership of Companies’ (Consultation Paper) to explore the potential to implement a beneficial ownership register for companies. The consultation was in response efforts by the G20 and related bodies to combat money laundering, the financing of terrorism and tax evasion.

Current law

Under the Corporations Act 2001 (Cth) (Corporations Act), generally all companies other than listed companies are required to record whether a member holds its shares beneficially, or not, in its register of members. However, there is no requirement to disclose the identity of any beneficial holder. 

The requirements for listed Australian companies are more onerous. A person must notify the company and the ASX if they (together with any associates) hold a “relevant interest” in five per cent or more of the total number of votes attached to voting shares in the company. This concept of “relevant interest” is defined broadly in section 608 of the Corporations Act to include persons with the “power to exercise, or control the exercise of” voting rights indirectly by means of a trust, agreement or practice.

Scope of Consultation Paper

Issues discussed in the Consultation Paper include:

• the type of persons who should be captured in a beneficial ownership register, and whether the identification of beneficial owners should occur on all entities through to and including the ultimate beneficial owners;
• how and where the beneficial ownership information should be recorded, including whether this should be in a central register or in the registers maintained by each company;
• whether listed companies should be exempted from a beneficial ownership disclosure regime; and
• sanctions which should be imposed if companies or beneficial owners fail to comply with any new requirements to disclose beneficial ownership information.

Practicalities

The Consultation Paper contains a discussion of the practical issues that might arise from maintaining a register of beneficial owners of companies, including the information that might be kept, how it should be recorded and how these requirements might be enforced. This appears to recognise the difficulties with implementing and maintaining such a regime in a workable manner without significantly increasing the costs that would be incurred by complying companies and their stakeholders (i.e. shareholders and relevant beneficial owners). 

Some commentators have suggested in response to the Consultation Paper that a more practical approach would be to extend the existing reporting obligations of listed companies to also cover unlisted companies, rather than introducing more onerous requirements for both. For example, this may involve requiring unlisted companies to only collect data for persons with a “relevant interest” in a specified percentage of shares and exempting listed companies from the requirement of holding a beneficial ownership register, due to their existing disclosure obligations under the Corporations Act.

Conclusion

There has been a recent push in United Kingdom, Germany, France, Spain and Italy to establish registers or other mechanisms of disclosing the beneficial ownership of companies. The UK is furthest along with its recent establishment of a register of people with relevant beneficial interests in UK companies which provides a model for the proposed Australian regime. However, there remain legitimate concerns with the practicalities of maintaining a register of beneficial owners, for both listed and unlisted companies. JWS is monitoring the issue closely and participating in submissions to the Australian Government. We will await with interest the Government’s response to those submissions.