The Ugandan Government is introducing a new rule that requires firms which supply goods and services to the government to disclose identities of the real owners of the respective companies.
“It is in this regard that the authority issues this circular on submission of beneficial owner information for which are awarded government contracts,” a memo issued by Public Procurement and Disposal of Public Assets Authority (PPDA) on December 15, 2021, reads in part.
“The focus is on the natural (not legal) persons who actually own and benefit from the capital or assets of the legal person; as well as on those who exert effective control over it (whether or not they occupy formal positions within that legal person), rather than just the (natural or legal) persons who are legally (on paper) entitled to do so.”
For example, if a company is legally owned by a second company (according to its corporate registration information), the beneficial owners are actually the natural persons who are behind that second company or ultimate holding company in the chain of ownership and who are controlling it.
Likewise, persons listed in the corporate registration information as holding controlling positions within the company, but who are actually acting on behalf of someone else, cannot be considered beneficial owners because they are ultimately being used by someone else to exercise effective control over the company.
The memo was sent to all accounting officers of central and local government entities on December 15, 2021.
The new directive is likely to kick up dust as many local and foreign contractors prefer to use fronts to get government business.
Moreso, foreigners use anonymous shell companies to siphon billions of dollars from Uganda, a country grappling with high unemployment rates, rampant poverty and indebtedness.
Observers say the move is timely in cracking down on shell companies which are favorite vehicles of the criminal and corrupt to legally allow people to own or control them hence keeping the identities of the ‘beneficial owners’ hidden.
However, opposition supporters could express fears of being denied fatty government contracts due to their political affiliations.
However, PDDA Executive Director Benson Turamye said in the memo that the new measures are aimed at “strengthening efficiency and effectiveness in monitoring compliance of Procuring and Disposing Entities.”
He further said disclosure of beneficial information “will help the government of Uganda to understand and know the person it is dealing with for purposes of risk mitigation, fighting corruption, fraud, and tax evasion, to achieve greater transparency.”
Bidding
Turamye said beneficial owner information “should be submitted at the time of bidding through a corresponding entry in the bidding form.”
“For procurement where the bidding forms were submitted, but the procurement contracts have not been signed before the issuance of this Circular, a firm that awarded a Contract shall have the responsibility to obtain its beneficial owners’ particulars and submit them to the PDE before signing the contract,” said Turamye.
According to the provisional template for collecting beneficial information, firms will be expected to provide full legal names of bidders/joint ventures , physical and contact address and names of beneficial owners.
Politically exposed persons
According to Turamye, firms will as well indicate if the beneficial owner is a ‘politically exposed person (PEP)”.
A PEP is an individual with a high profile political role, or who has been entrusted with a prominent public function.
They present a higher risk for involvement in corruption because of the position they hold.
The idea of PEP emerged in the late 1990s in the wake of the Abacha Affair: a money-laundering scandal in Nigeria which galvanized global efforts to prevent abuse of the financial system by political figures.
PEPs include Government officials that could be politically exposed persons such as current or former officials appointed to domestic government positions, or positions in a foreign government.
This may include heads of state or individuals working in executive, legislative, administrative, military, or judicial branches, in elected and unelected roles.
Senior officials appointed to roles in major political parties at home or in foreign countries could be categorized as PEPs as well as senior executives serving in senior executive roles, such as directors or board members, in government-owned commercial enterprises or international organizations.
Relatives and Close Associates (RCA) such as immediate family members of a government or political official, or senior executive – meaning spouses, parents, siblings, children, and spouses’ parents and siblings could be categorized as PEP.
Politically exposed persons (PEPs) status does not predict criminal behavior, but the additional risk exposure it brings.
Why are they a problem?
Experts say the failure to identify beneficial owners involved in government business makes it virtually impossible for law enforcement or anyone else to identify the real individuals ultimately responsible for the company’s actions.
Such companies are a favorite way for corrupt government officials and others to remove money from developing countries like Uganda.
The legitimacy afforded to legal corporations, particularly those registered in well-respected places like the U.S., makes it easy for such companies to open bank accounts that can wire ill-gotten money to anywhere in the world.
In far too many cases, this tactic has been used by corrupt officials to rob African countries of the resources they need to invest in health, agriculture, and poverty reduction.
In addition, they exacerbate governance problems and undermine the prospects for investment and growth.
Official statistics show that Illicit financial flows cost Uganda Shs2 trillion annually and it is feared that this could get worse once commercial production of oil and gas begins.
Monthly reporting
The PPDA now requires that all procurement departments to submit the particulars (names and addresses) of beneficial owners that are awarded contract as part of monthly reports for Central Government
Entities and quarterly reports for Local Government Entities effective December 2021.
This requirement, said Turamye, shall apply to all procurements which are funded by the Government of Uganda and Development Partners.
PPDA joins the Uganda Revenue Authority to clearly define and require firms to produce details of the beneficial owner.
In the Income Tax Amendment Act, 2019, the benefits of reduced tax rates or exemptions under Double Taxation Agreements with Uganda were restricted to individuals who qualify as Beneficial Owners under the Act.
