On March 1, a new law came into effect requiring certain Hong Kong companies to collect and retain information about their beneficial owners. The requirements are consistent with recommendations published by the Financial Action Task Force (FATF), an inter-governmental body established in 1989 to combat money laundering, terrorism and other threats to the global financial system. Its 37 members and observers include all G7 countries and China.
A Global Effort to Increase Transparency
Hong Kong’s new regulation is called the Companies (Amendment) Ordinance 2018, and is part of a global trend of laws intended to enhance transparency related to corporate beneficial ownership. Last month, a government spokesperson said that Hong Kong’s new law “will safeguard the integrity of Hong Kong as an international financial center and add to our credibility as a trusted and competitive place to do business.”
In 2016, the UK passed similar legislation that established “a publicly accessible central registry showing who really owns and controls UK companies … to tackle corruption, money laundering and terrorist financing.” Last year, Singapore amended its Companies Act to increase transparency related to business ownership and control.
Also effective last year, Germany established a new transparency register. German companies must file certain beneficial owner information in the transparency register if it is not already available through other German electronic registers. Similar requirements will likely be implemented by all EU member states throughout 2018, depending on the timing of local legislation.
Overview of Obligations Under Hong Kong’s Amendment Ordinance
Hong Kong’s Amendment Ordinance essentially requires any incorporated company (except listed companies) in Hong Kong to identify people or entities that have significant control over the company (known as “significant controllers”) and to maintain a significant controllers register (SCR). Unlike the 2016 UK legislation mentioned, the SCR in Hong Kong will not be made publically accessible, but must be accessible to Hong Kong law enforcement officers of specified agencies.
A significant controller is either a person with significant control over a company or a registrable legal entity (such as another company) that’s a shareholder of the company and has significant control over it. For a person or entity to have “significant control,” one of five conditions must be met. For example, a person who directly or indirectly holds more than 25 percent of a company’s issued shares or has a right to share in more than 25 percent of a company’s capital or profits is deemed to have significant control. (A complete definition of “significant controller,” and what constitutes “significant control,” are outlined in the Amendment Ordinance on the Companies Register website.)
Below is an overview of major obligations for Hong Kong companies under the new law, all of which fall under the primary obligation of keeping a significant controllers register:
- Identify significant controllers (remember that a significant controller can be either a registerable person or a registerable legal entity)
- Give notices to significant controllers and those who are believed to know the identities of significant controllers
- Enter the required particulars of the significant controller(s) in the register, such as name, address and identity-card number for a registerable person, and legal form, registration number and place of incorporation for a registerable legal entity
- Enter the name and contact details of at least one designee to provide assistance relating to the SCR to law enforcement officers; the designee must be a shareholder, director or employee of the company and resident of Hong Kong, or an accounting professional, legal professional or someone licensed to carry on a business as a trust or company service provider
- Update information in the register when there are significant changes
- Keep the SCR — which should be in the English or Chinese language — at the company’s registered address, the address where the company’s register of members is kept or other Hong Kong location; if the SCR isn’t kept at the registered office, the company must complete and deliver a Form NR2 within 15 days after the SCR is first kept at that location
- Allow inspection of the register by law enforcement officers
Failure to comply with these obligations is a criminal offence in Hong Kong. A noncompliant company and every responsible person of the company are liable to a fine of HK$25,000 and a possible additional daily fine of HK$700.
Summary: What You Need to Do Now
If you have a company in Hong Kong, you must identify any significant controllers of the company and take reasonable action to identify them. Then you must send notices to anyone who is believed to be a significant controller and anyone who is believed to know the identity of a significant controller. After gathering the relevant particulars (such as name and address), you must then prepare and maintain the SCR in accordance with local law. In addition, you must designate a representative to provide assistance related to the SCR to law enforcement officers.
Critically, you must have policies and procedures in place to ensure your SCR remains current. The particulars of significant controllers must be entered into the SCR within seven days after the required particulars have been confirmed by the registerable person. In the case of a registerable legal entity, the particulars must be entered within seven days after each particular comes to the notice of the company.
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