African countries are increasingly introducing robust disclosure requirements for Ultimate Beneficial Owners (UBOs) of companies, trusts, and partnerships mainly to counter money-laundering activities, increase transparency, and combat tax abuse. To put it in perspective, beneficial owners are the human faces behind legal vehicles, and African legislators are progressively enacting laws to compel the disclosure of personal information on such persons. The breadth of information required to be disclosed differs from country to country and may range from a disclosure of the name, address, and nature of ownership or control of the UBO to a disclosure of the tax identification number, employment details, marital status, and social security number[i] of the UBO.
The shift to stricter beneficial ownership disclosure obligations in Africa is motivated by several factors including access to funds on the international markets[ii] and international requirements to comply with global anti-money laundering standards[iii].
Not surprisingly, more than 40% of the 54 African states have some laws or regulations requiring the disclosure of beneficial owner information, with countries that previously did not require disclosure updating their laws to compel disclosure. Other countries already had a legal framework for the declaration of beneficial owners but have strengthened it by introducing this declaration for tax purposes[iv].
In several African countries, incorporation of a local entity, either as a branch or a subsidiary is one trigger for disclosure of beneficial owner information. However, some countries such as Ghana require disclosure of information of foreign companies with domestic presence including by way of “significant influence over a legal person or legal arrangement through a formal or informal agreement[v]”. The broad nature of this definition is intended to incorporate a larger category of persons under UBO disclosure requirements.
For investors in Africa, the implications of this are double-faceted. On one hand, stringent transparency laws boost investor confidence by curbing illicit financial flows and reducing the risks of money laundering. On the other hand, the extent of certain disclosure requirements may interfere with binding confidentiality agreements. Indeed, understandably, companies as part of efforts to raise capital may enter into binding confidentiality terms with investors which prevent the disclosure of certain information.
In most cases, the obligation of disclosure is on the local entity and not the ultimate beneficial owner. Although generally, local statutes may override private confidentiality obligations, a foreign UBO may not in practice be subject to local statutes. Consequently, it is the local entity that is subject to penalties from local regulators where the controlling foreign entity is hesitant to disclose information on its ultimate beneficial owners. Equally worth noting is the fact that UBOs are exposed to greater scrutiny where personal information is accessible by the general public.
Investors and foreign companies with presence in Africa must therefore anticipate on a country-by-country basis, the level of disclosure required in investees and local companies to forestall hindrances in operations within the continent.
Laurence Elong Mbassi – Partner & Miriam Afenyo – Associate
[i] For example, in Ghana, Section 35(1) (b) of the Companies Act 2019 (Act 992) requires a company to disclose, among other information, the employment details of the beneficial owner. Although Act 992 does not require the disclosure of the Taxpayer Identification Number (TIN) of the beneficial owner, in practice, forms for registration of the beneficial owner require the disclosure of the TIN of the UBO. Registration for TIN provides for the disclosure of the marital status and social security number of the UBO.
[ii] At least 34 African countries in 2020 pledged to disclose the beneficial owners of companies awarded government contracts as part of efforts to access financing from the International Monetary Fund for Covid-19 pandemic-related spending. International Monetary Fund, ‘Implementation of Governance Measures in Pandemic-Related Spending’, 2022 https://www.imf.org/en/Topics/governance-and-anti-corruption/implementation-of-governance-measures-in-pandemic-related-spending-may-2022#_ftnref2
[iii] Financial Action Task Force Recommendations 24 and 25 on Anti-Money Laundering and Combating the Financing of Terrorism, Guidance on Transparency and Beneficial Ownership https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Fatf-recommendations.html
[iv] A recent example is the Republic of Cameroon, Finance Law of the Republic of Cameroon for the 2023 Financial Year, 2023, sec. Division V, Section M, 8D-1-a. Prior to 2023, the obligation to declare beneficial owners resulted in particular from Regulation No. 01/CEMAC/UMAC/CM of 1 April 2016 on the Prevention and Suppression of Money Laundering, Terrorist Financing and Proliferation in Central Africa, which has the force of law and is directly applicable in all CEMAC Member States, without the need to transpose it into domestic law.
[v] First Schedule to the Ghana Companies Act 2019.