The Companies (Amendment) Ordinance 2018 (‘the Companies Amendment Ordinance’)
To combat money laundering and terrorist financing, the Financial Action Task Force (‘FATF’) requires member jurisdictions to take measures to prevent the misuse of legal persons for money laundering and terrorist financing by ensuring that adequate and accurate information on the beneficial owners and control of legal persons can be obtained or accessed in a timely fashion by law enforcement agencies.
To achieve this, the Companies Amendment Ordinance requires a company incorporated in Hong Kong to ascertain the individuals and legal entities that have significant control over the company, and maintain a significant controllers register (‘SCR’). Listed companies are exempt from this requirement as they are already subject to a more stringent disclosure regime under the Securities and Futures Ordinance (Cap. 571).
The Companies Amendment Ordinance adds a new Division 2A (ss. 653A to 653ZK) to Part 12 and three new Schedules (Schedules 5A, 5B and 5C) to the Companies Ordinance (Cap. 622).
A significant controller includes a registrable person and a registrable legal entity. A registrable person is generally a natural person with significant control over the company. A registrable legal entity is a legal entity which is a shareholder of the company and which has significant control over the company.
Under the Companies Amendment Ordinance (ss. 653E and 1 of Schedule 5A), a person has significant control over a company if the person meets one or more of the following conditions:
- the person holds, directly or indirectly, more than 25 percent of the issued shares in the company or, if the company does not have a share capital, the person holds, directly or indirectly, a right to share in more than 25 percent of the capital or profits of the company;
- the person holds, directly or indirectly, more than 25 percent of the voting rights of the company;
- the person holds, directly or indirectly, the right to appoint or remove a majority of the board of directors of the company;
- the person has the right to exercise, or actually exercises, significant influence or control over the company;
- the person has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm that is not a legal person, but whose trustees or members satisfy any of the first four conditions (in their capacity as such) in relation to the company.
The major obligations of a company in this regard include –
- keeping a SCR at the company’s registered office or a prescribed place;
- taking reasonable steps to ascertain the company’s significant controllers, including, where appropriate, issuing notices of inquiry to such persons and those who know the identity of another person who is a significant controller of the company;
- entering the required particulars of its significant controllers in the SCR;
- keeping the particulars required up-to-date;
- allowing inspection and making of copies of the SCR by law enforcement officers upon demand.
If a company fails to comply with any of the above requirements, the company and each of its responsible persons commit an offence.
Although the changes brought about by the Companies Amendment Ordinance apparently deviate from the principle of company law that no notice of any trust may be entered in the register of members of a company, the disclosure of corporate beneficial ownership is now part and parcel of an international concerted effort to prevent the misuse of companies for illicit purposes.
Similar disclosure arrangements have been put in place in other member jurisdictions of the FATF. For example, with effect from 6 April 2016, UK companies are required to keep a register of people with significant influence or control (PSC), and with effect from 30 June 2016, to deliver the PSC information to the central register at the Companies House. The PSC register is accessible to the public. .
Likewise in Singapore with effect from 31 March 2017, Singaporean companies are required to keep a similar register which may be inspected by the Registrar of Companies and public agencies when the agencies are administering or enforcing any written law of Singapore.
For details of the new requirements introduced under the Companies Amendment Ordinance, please visit www.cr.gov.hk/en/scr.