Beneficial Ownership (KE0018)

Commitment 1: Beneficial ownership
We will publish a central public register of company beneficial ownership
information operating in the Republic of Kenya
Objective
The proposed beneficial ownership register will bring greater transparency services in
Kenya.
Status quo
We currently collect but do not publish this information in an open and centrally
accessible and in machine readable format.
Ambition
The Companies Act, 2015 (“the Act”) has been amended by the Companies
(Amendment) Act, 2017, to promote transparency in the ownership of companies in
Kenya as committed in Kenya’s OGP NAP II. The Act now includes a definition of a
beneficial owner and requires that every company keep a register of its members which
shall include information relating to the beneficial owners of the company and must be
lodged with the Registrar of Companies within 30 days after its preparation, and within
14 days in case of amendment(s). The President in June 2018 through Executive Order
2 of 2018 further directed that all entities wishing to provide goods, works and services
across all National and County Governments must disclose Beneficial Ownership
Information online for public scrutiny.
Lead implementing Organization
Office of the Attorney General (AG),
Contact Person:
Ms Mariam Shighadi Mwakio,
Email: mwakiomariam@gmail.com
+254 721 585 443
Timeline
September 2018 to May 2020
OGP values
Access to information, Public accountability
Page 18 of 30
New or ongoing commitment
On-Going
Other actors involved - government
Ministry of ICT, ICTA
Other actors involved - CSOs, private sector, working groups, Multilaterals etc
INFONET Africa, Transparency International (K) and Humanistic Institute for
Cooperation with Developing Countries (Hivos) East Africa.
Verifiable and measurable milestones to
fulfil the commitment
New or
ongoing
Start date End date
1. Conduct a national risk assessment,
consult external stakeholders (e.g.
financial institutions, designated nonfinancial businesses or professions
(DNFPBs), Private Sector and NGOs
New October
2018
February
2019
2. Develop regulations that govern and
give effect to Beneficial Ownership
legislation
New September
2018
December
2018
3. Develop an open, accessible and
machine-readable beneficial
ownership register on BO standards
Ongoing December
2018
July
2020
4. Establish a central register of foreign
and local companies bidding on public
contracts and buying property
New January
2019
May
2020
5. Build a module on the Beneficial
Ownership Register Information of
companies and individuals convicted
of bribery and corrupt practices
New August
2019
December
2019

1. Beneficial Ownership

Language of the commitment as it appears in the action plan:

“We will publish a central public register of company beneficial ownership information operating in the Republic of Kenya”

Objective: The proposed beneficial ownership register will bring greater transparency services in Kenya.

Milestones

1. Conduct a national risk assessment, consult external stakeholders (e.g. financial institutions, designated non-financial businesses or professions (DNFPBs), Private Sector and NGOs
2. Develop regulations that govern and give effect to Beneficial Ownership legislation
3. Develop an open, accessible and machine-readable beneficial ownership register on BO standards
4. Establish a central register of foreign and local companies bidding on public contracts and buying property
5. Build a module on the Beneficial Ownership Register Information of companies and individuals convicted of bribery and corrupt practices

Start Date: September 2018

End Date: May 2020

Editorial note: This is a partial version of the commitment text. For the full commitment text see: https://www.opengovpartnership.org/wp-content/uploads/2018/12/KENYA_Action-Plan_2018-2020_0.pdf

Context and Objectives

Kenya is currently ranked 144 out of 180 countries on the Corruption Perception Index 2018 ^[1] which suggests that despite the arsenal of commitments made and initiatives undertaken over the last decade, corruption continues to have a significant impact on the country and its citizens. Kenya has also increasingly been described as being at high risk for money laundering activity and scores low on the Basel AML Index. This is especially in regard to the quality of its institutional and legislative framework concerning anti-money laundering and counter financing for terrorism. [2] The President of Kenya therefore declared corruption a national threat in 2015 [3] [4] and in 2016, the Judiciary responded to these realities by establishing an Anti-Corruption and Economic Crimes Division at the High Court. [5] [6] In 2019, the President once again renewed his and the government’s commitment to fighting the vice. ^[7] Publishing a central public register on beneficial ownership (BO) was an extension of this commitment.

The commitment on BO is also derived from assurances given by former Attorney General, Githu Muigai, at the anti-corruption summit in London in 2016, which would commit the country to exposing and reducing public sector corruption and stopping illicit financial flows. [8] NAP III furthers this ambition by widening the scope of the commitment made previously in NAP II in order to address the inaccessibility of information collected on beneficial ownership. ^[9] This challenge was caused in part by a clause in section 104 of the Companies Act (2015), which stood in variance with requirements around company disclosures and transparency. Additionally, the Register of Companies did not capture beneficial ownership information and lacked the tools to capture this information. [10] The evaluation of NAP II also identified further areas that required attention such as: opening up “IFMIS contracting processes”, auditing of information submitted on beneficial ownership and strengthening the regulatory framework around beneficial ownership. ^[11] The milestones outlined under this commitment address some of these areas. In addition to this, the commitment will also address the publication of information on property or real estate purchases, though the portal currently only contains infrastructure development related information and does not reflect property transactions. The hope is also that ‘Usajili’ will eventually be linked to the Public Procurement Information Portal and that these platforms will be made even more accessible to the public. This is given concerns that described access to the entire database as being enabled only for law enforcement. [12]

Kenya has since shown significant progress in relation to the development of BO legislation through the enactment of the Companies (Amendment) Act (2017), the proposed Statute Laws Amendment Bill, (2018) and the Companies (Beneficial Ownership Information) Regulations (2019). The activities proposed under NAP III will further contribute to this through the conducting of risk assessments, developing associated regulations, establishing a central open beneficial register, with modules spotlighting persons of interest and those convicted of crimes in this regard. An additional register will also be developed with a component on transactions involving both local and foreign entities and covering purchase of public property, given that the acquisition of real estate is often tied to money laundering schemes. [13] [14] [15] As of September 2019, the electronic BO register had also been developed and a demo site been presented to various stakeholders. [16]

As outlined in the action plan, the objectives, expected results and activities are clear and can be objectively verified. In regards to specificity, the milestones outline various quality dimensions of processes that will be undertaken, using ‘openness’, ‘consultative’, ‘accessibility’ and ‘machine readability of registers’ as descriptors of the BO register. The level of specificity regarding some of its various activities can however improve especially in delineating the scope, target and/or timelines for implementation. The commitment is relevant to the OGP value of access to information through the beneficial ownership register. In addition to this, achieving milestone four and five will also create a repository of relevant information. The commitment also speaks to the OGP value of public accountability by aiming to develop regulations that will “give effect to Beneficial Ownership legislation”. The regulations will also determine, to an extent, the quality of information submitted to the Registrar of Companies and eventually what is disclosed. Furthermore, the regulations will establish standards against which the state and other entities can be held to account. [17]

The contribution of a beneficial ownership registers to the fight against corruption has been well documented, with BO initiatives contributing to resolving issues of conflict of interest, tracing illicit financial flows, recovering stolen assets and saving on the costs of law enforcement. ^{[18] [19]} The establishment of a beneficial ownership register is a key step in the right direction and could have transformative impact in the long run. However, the commitment has been rated as having “moderate” impact for various reasons.

Firstly, accessibility to the register is not clearly defined. There are some concerns that the current draft regulations introduce access restrictions in having access limited to law enforcement agencies or the ‘competent authorities’ as they are commonly referred to. [20] Additionally access may be contingent on payment of an administrative fee. [21] [22] According to one official, these concerns are currently being addressed through the creation of two channels or means of accessing BO information based on global BO standards: one channel will be a basic search that can be conducted by any citizen, free of charge. The second channel is an official search, which is considered more extensive and will be charged a fee of Kes. 500 ($5). The official search may however only be accessible by those deemed to be competent authorities. [23] Though this fee may be viewed as being minimal, the allowance is generally outside the realm of acceptable best practice. Furthermore, though access by the public is implied in the objective there is however no explicit mention of what the public will specifically have access to. Save for milestone four, the notion of public access is not explicitly mentioned in any milestone.

Secondly, the rationale for milestone five is well understood and is being supported by various other efforts such as the establishment of the Taskforce on the National Risk Assessment on Money Laundering and Terrorism Financing in March 2019. However, corruption conviction rates in Kenya are characteristically low more so for high profile persons involved in bribery and corruption. [24] [25] [26] This has been attributed to a variety of factors including: poor evidence handling, arrest records, sluggish court processes and challenges with the criminal justice system. [27] [28] The realization of this milestone is therefore contingent on significant external factors that the Business Registration Service has very little control over.

In regard to milestone one a government officer reported that the risk assessment was undertaken in 2018, prior to the launch of the current NAP. [29] This was conducted mainly via the convening of four forums held within three of Kenya’s main cities. These forums were attended, on invitation, by members of the private sector, legal fraternity, civil society, and government officials (national and county level). [30] The principles of beneficial ownership indicate that a risk assessment should produce “a clear understanding of the types of legal persons and arrangements that exist in the country, their formation and registration process, their different forms and structures and the risks they pose is foundational to a substantive risk assessment.” [31] Therefore, while the participatory approach is appreciated, it is unclear whether it would adequately determine the level of risk present.

Widening the scope of public participation would also be welcome, though resource limitations are a likely factor that contributed to the limited participation. The current draft regulations are also said to be silent on the number, frequency and methodology that these risk assessments should take. [32] In addition to this, concerns raised at the ‘risk assessment’ forums in 2018 revolved around issues of data protection, security and privacy as well. It is unclear how these concerns will be addressed, though a Data Protection Bill (2018) has been published. [33] Lastly, it is also unclear whether particular loopholes in the Act have been addressed in the guidelines, such as clauses that could see parties hide behind nominee shareholders. [34] These should be addressed.

Next steps

The milestones can be further enhanced by making them more specific. For instance, milestone one aims to undertake a risk assessment. However, the focus of this risk assessment is unclear despite guidance indicating that such assessments should target various “arrangements or persons”, for example money laundering, terrorist financing or legal persons. ^{[35] [36]} This would enhance understanding of the nature of threat and risk underfoot, as well as establish a baseline for evaluating progress. The frequency of these assessments is also not clear in the current plan. Milestone two could also be strengthened by ensuring that regulations are developed against or according to best practice^{. [37]} In addition to these the government and civil society can take various steps to enhance the impact of this commitment by:

• Revisiting the risk assessment methodology and ensuring that risk assessments be conducted annually with findings published in the public domain.
• Creating a link between the “asset declaration of public officials and the BO register as was recommended in NAP II.
• Reintroducing the audit or verification of the BO register as was raised in NAP II, given that the register will be dependent solely on the veracity of information submitted to the portal. Initiatives under this commitment could be expanded to include processes of robust verification, integration, maintenance and monitoring as has been recommended.
• Developing a module that allows the public to provide comments or feedback.

1. Beneficial Ownership

Completion: Substantial. For details regarding the implementation and early results of this commitment, see Section 2.3.

Aim of the commitment

Beneficial ownership in Kenya has gained momentum through the OGP process. Out of four action plans, three have identified beneficial ownership as an instrumental strategy for fighting corruption and illicit financial flows. [1] Before the action plans, the true beneficiaries of public sector contracts in Kenya were unknown. This lack of transparency created suspicions that public procurement processes were abetting corruption and illicit financial flows out of Kenya. [2]

The commitment speaks to and progresses efforts spanning back to the presidential declaration on corruption as a national threat, [3] the commitments made during the 2016 London Anti-Corruption Summit [4] and the continuation of activities under the previous action plan. Prior to this commitment, the beneficial ownership activities had generated incremental but narrow change. For instance, the amendment of the Companies Act in 2017 [5] provided legal definition of a beneficial owner, set requirements for companies to keep a register of beneficial owners and file the same information with the registrar of companies. However, the effective application of this law required subsidiary legislation to operationalize it and provide the tools necessary to capture this information. Similarly, the Public Procurement Authority launched the Public Procurement Information Portal (PPIP) [6] to provide information on contract awards and tender notices. Although the PPIP published contracts awarded and company registration details, the information was not adequate to capture beneficial ownership. [7] The 2018–2021 action plan further explains that the Kenyan government collects beneficial ownership information, but it is not made public. [8]

This commitment endeavored to conduct a national risk assessment that would involve consultations with different stakeholders, develop associated regulations for beneficial ownership and make information on companies operating in the Republic of Kenya public through an open, accessible register. The register would also spotlight companies and individuals convicted of bribery or corrupt practices. An additional register was to be established to provide information on foreign and local entities and cover the purchase of public property. [9]

Did it open government?

Marginal

Under this commitment, the Business Registration Service and partners established regulations and registered to collect beneficial ownership information. Overall, three of the four milestones aimed for under this commitment were completed. However, the register is not public and therefore the commitment fell short of its full potential to increase transparency.

The key implementer, Business Registration Service (BRS), [10] is a member to the National Risk Assessment Task Force (NRATF). This is a gazetted task force, established in March 2019 to combat money laundering and terrorism financing in Kenya. The task force membership includes actors drawn from government and nongovernmental agencies. [11] The national risk assessment has been an ongoing exercise since 2019, by NRATF. Equally, NRAFT played a key role in looking into the availability and accessibility of beneficial ownership in Kenya. Although CSOs such as Hivos, Transparency International, and Mzalendo were not part of NRATF, these organizations worked closely with BRS, championing for the implementation of the register and regulations. [12] At the time of reporting, Kenya had not published the risk assessment report, despite earlier announcements that it was expected to be delivered by 28 February 2020, and an extension to December 2020 had been granted. While the report was still a work in progress at the time of writing, BRS noted that the consultations therein contributed input to the development of legislations and regulations.

The beneficial ownership regulations were enacted. The Statute Law (Miscellaneous Amendments) Act 2019 [13] redefined the requirement to keep and file a beneficial owners register (with timelines specified), prescribed the penalties for noncompliance and, importantly, provided clarification on beneficial ownership information, as opposed to a list of directors/register of members. In addition, the Companies (Beneficial Ownership Information) Regulations 2020 [14] operationalized the Act by prescribing the detailed information, steps, and format required for filing information. The regulations also introduced clauses on disclosing and accessing beneficial ownership information, prohibiting public access, and restricting use and access to competent authorities. However, the regulation allows companies to disclose beneficial ownership information for purposes of communication to the beneficial owners, to comply with regulations or court orders, or with the written consent of the beneficial owner.

With the legislative frameworks in place, the beneficial ownership register was established in October 2020. [15] BRS issued a 31 July 2021 deadline for all companies to submit beneficial ownership information on the e-register. [16] Within the action plan implementation period, BRS operationalized e-register for private limited companies and advanced on the e-registers for other types of companies beyond the implementation period. However, the register did not conform to the Beneficial Ownership Data Standards.

Main challenges during implementation revolved around the capacity needed to support coordinated implementation. To ensure the accuracy and credibility of the information provided, BRS linked declaration of beneficial ownership information with statutory requirements for business registration and filing of annual returns. Companies had to ensure correct status in terms of compliance with annual returns declaration as they filed for beneficial ownership information. This created an influx of companies working toward meeting the set deadlines and thus, extra capacity demands on BRS. In a bid to address this challenge, BRS undertook a phased approach to documentation of beneficial ownership information—starting with private companies, then companies limited by guarantee, followed by public foreign companies, and lastly, public local companies. Further, implementation of milestones 4 and 5 required close collaboration with other government agencies, such as the Ethics and Anti-Corruption Commission, Directorate of Public Prosecution, Public Procurement Regulatory Authority, and National Lands Commission, which was not realized within the implementation period. Milestones 4 and 5 were not implemented and were carried forward to the 2020–2022 action plan.

Companies must now comply with statutory mandatory requirements, such as filing of annual returns with the registrar of companies. BRS has regularized information records for each company and thus, enabled the companies and companies’ registry to be at par, through the “link up business” [17] initiative where companies had to file annual returns before provision of beneficial ownership information. This serves as a means of verification to ensure the information provided is correct and up-to-date. In addition, BRS granted Public Procurement Regulatory Authority (PPRA) read-only access to the registry, to facilitate PPRA’s work, including counterchecking information provided through the PPIP platform.

The amendment and enactment of the law has provided the institutional framework needed for implementation of BO. This gave room for the operationalization of the register, as evidenced by public notice from BRS for companies to file. The reform also enhanced the OGP value of civic participation by creating spaces for CSOs and non-state actors to participate in the national risk assessment and in amending the law. However, the contribution of these milestones toward changing government practice and enhancing access to information were limited since access to the register was limited to specific authorities. By the end of the implementation period, the National Risk Assessment Report had not yet been shared. Hence, the influence that would be yielded by the findings of the report was not achieved. The commitment fell short of its ambition to make the BO register open and accessible. And it failed to provide information on companies bidding for and buying property and companies convicted of bribery and corruption.