THE NIGERIAN GOVERNMENT’S APPROACH TO CURBING SHELL COMPANIES
The fundamental tenets of corporate governance include accountability and transparency which the government has always held in the highest esteem. Taking this into account, the government has through its consistent fight against corruption, seen the improvement of the legal framework for substantial regulation of companies with laws and regulations which are:
1. Companies and Allied Matters Act (CAMA) 2020
2. Persons with Significant Control Regulations, 2022
3. Guidance on Ultimate Beneficial Ownership of Legal Persons and Legal Arrangements, 2023
1. CAMA 2020
The enactment of the Companies and Allied Matters Act (CAMA) 2020 brought to light the need for registered companies under the Act to disclose the significant control and beneficial ownership of companies. The Act specifically states that persons who have substantial control over any company must report the details of such control to the relevant companies within seven days of gaining such significant control. All affected firms must notify the Commission within one month of receiving the information, declare it in their annual reports to the Commission, and update their member registers with the necessary information. [12]
This position repealed the position of the law in the Companies and Allied Matters Act (CAMA) 2004, wherein the obligations to disclose beneficial interest were limited to where such interest was acquired in a public company.[13]
To this end, the CAMA 2020 defines “persons with significant control” to mean[14]
a. directly or indirectly holding at least 5% of the issued shares or interest in a company or limited liability partnership;
b. directly or indirectly holding at least 5% of the voting rights in a company or limited liability partnership;
c. directly or indirectly holding the right to appoint or remove a majority of the directors or partners in a company or limited liability partnership;
d. otherwise having the right to exercise or actually exercising significant influence or control over a company or limited liability partnership; or
e. having the right to exercise or actually exercising significant influence or control over the activities of a trust or firm, whether or not it is a legal entity, but would itself satisfy any of the first four conditions if it were an individual.
2. PSC Regulations 2022
The Ministry of Industry, Trade, and Investment approved the Persons with Significant Control Regulations, 2022 (PSC Regulations) in 2022.[15] These regulations were established to create an effective framework and procedure for obtaining relevant information about individuals with significant control or beneficial owners of a company, limited liability partnership, or any other relevant entity. [16]
The PSC Regulations[17] define a PSC as a beneficial owner who ultimately owns or controls a company or LLP, or the natural person on whose behalf a transaction is being conducted. It also includes individuals who exercise ultimate effective control over a legal person or arrangement. It is important to note that a corporate entity cannot be considered a PSC. The development of these guidelines improves public access to information about individuals with significant control of companies through a publicly accessible portal. It also outlines the obligations and procedures for reporting PSC information or any changes.
Regulation 5 of the PSC Regulations mandates PSCs to inform the company or LLP of their control within seven days of becoming a PSC. Simultaneously, the company or LLP must disclose information about its significant individuals to the CAC, and foreign entities must provide information about the PSC who owns them.
Also, Regulation 7 warns against not disclosing persons in control. If not complied with in seven days, the company or LLP can restrict the interest and note it in the Register of Members—the restriction voids transfers, rights, shares, and payments. Compliance within 14 days withdraws the restriction. Non-compliance marks the company as “inactive”[18] and false information results in liability for the reporting entity and its officers, with fines and imprisonment of up to two years.
In addition, under the regulation, the CAC further requires companies and LLPs to provide PSC information in order to approve their registration or annual return filing and if these companies or LLPs do not comply with PSC reporting obligations, they will not receive a letter of good standing from the CAC.
The Regulations also specify the fines that will be imposed on those who fail to comply, taking into account the seriousness of the offence and the status of the party in default.
3. Guidance on Ultimate Beneficial Ownership of Legal Persons and Legal Arrangements, 2023
The Central Bank of Nigeria on the 17th of January, 2023 released a circular to all banks and financial institutions titled “Guidance on Ultimate Beneficial Ownership of Legal Persons and Legal Arrangements”[19] to continue combating money laundering, terrorism and other unethical vices in the country in line with the Central Bank Regulations, 2022[20]. The purpose of this Guidance is to help financial institutions in identifying and verifying the beneficial owners of legal persons and legal arrangements following existing AML/CFT/CPF laws and regulations.
Furthermore, the Nigerian government is committed to eradicating shell companies that have a negative impact on the country’s economy and development through its agencies; the Nigerian Financial Intelligence Unit (NFIU) and the Economic Financial Crimes Commission (EFCC). These agencies of the Federal Government play a crucial role in identifying and investigating suspicious financial activities, including those carried out through shell companies.
1. Nigerian Financial Intelligence Unit:
The Nigerian Financial Intelligence Unit (NFIU) serves as the primary national entity entrusted with receiving disclosures from reporting organizations, analyzing these disclosures, and generating intelligence to be shared with competent authorities. As an independent unit, the NFIU operates under the umbrella of the Central Bank of Nigeria and acts as the central coordinating entity for the nation’s Anti-Money Laundering, Counter-Terrorist Financing, and Counter-Proliferation Financing (AML/CFT/CPF) framework. [21]
In 2022, the intelligence unit released the “National Inherent Risk Assessment of Legal Persons & Legal Arrangements in Nigeria”, which was conducted by the Legal Persons and Arrangements Work stream of the NIRA Working Group chaired by the Corporate Affairs Commission (CAC) and with substantial contributions from other agencies. [22]
2. Economic Financial Crimes Commission:
The EFCC has the power to investigate, enforce and prosecute offenders for any offence relating to the responsibilities of the commission, such as investigation of all crimes including money laundering, contract scams etc.
In addition, the Federal Inland Revenue Service runs tax assessments on these companies when forwarded to them by the NFIU and the Securities Exchange Commission for investigation for alleged illegal involvement in capital market activities.[23]