It is common for foreign entrepreneurs to seek the assistance of professionals when establishing their business in the Philippines. Unfortunately, despite such guidance or assistance, there are isolated cases where Filipino business partners become conduits for money laundering, acting as dummies for their foreign counterparts and/or beneficial owners. 

Curbing money laundering has been a decades-long struggle, and through the years, nations have implemented stricter measures to combat this seemingly unsolvable problem. The key to minimize laundering — or eliminate it — is transparency, and this is what the recent Securities and Exchange Commission (SEC) Memorandum Circular (MC) No. 01-2021 is all about.

First, for newly registered corporations, the incorporators are required to disclose to the SEC the person or persons on whose behalf the corporation was registered within 30 days from the issuance of the company’s Certificate of Registration. The same requirement applies to applicants for registration, directors, trustees, or shareholders, who are acting as nominees on behalf of their respective principals or nominators.

For existing corporations, those who serve as nominee shareholders, directors, or trustees before the effective date of MC No. 01-2021 must submit the disclosure to the SEC within 30 days from Jan. 29, 2021. Those who became nominees on or after the MC No. 01-2021 took effect are to submit the disclosure within 30 days from the time they became or assumed the role of, or started acting as nominee directors/trustees or shareholders.

However, if the nominator or principal is a corporation, the registered name of such corporation, its country of registration, the names of its incorporators and directors, its beneficial owner/s, its tax identification number (TIN), if any, must be disclosed. On the other hand, if the nominator or principal is a trust, the name, nationality, country of residence, the TIN or passport number of the trustor/s, trustee/s, and beneficiary/ies of the trust must be disclosed. 

The beneficial ownership details are disclosed through the filing of the Beneficial Ownership Transparency Declaration Form (BOTD Form) together with a Consent Agreement Form and a valid government-issued ID.  The disclosure form must generally be filed within the deadlines mentioned above. However, with the quarantine restrictions and novelty of the requirement, the deadline to submit these documents was extended to May 31, 2021.  Non-compliance may result in a penalty of not less than P5,000 but not more than P2,000,000, suspension or revocation of the certification of incorporation, and/or other penalties that are within the power of the SEC to impose.

The MC No. 01-2021 also reminds corporations that information on the beneficial owner(s) of a corporation must be kept and preserved at its principal office following the three-tiered approach laid down under SEC MC No. 15-2019. Under MC No. 15-2019, beneficial owners are identified through a three-tiered approach based mainly on the natural person’s (a) ultimate ownership, (b) ultimate control, and (c) position in the reporting corporation.

The information required under MC No. 01-2021 is deemed adequate when the complete names, specific residential addresses, dates of birth, nationalities, TINs, if any, and percentage of ownership, if applicable, are provided. The beneficial ownership information, or any changes to it, should promptly be reflected in the company’s internal records as mentioned above within three days from the time the information becomes available, or is reasonably expected to be available to the covered entities through the exercise of due diligence.

Second, in line with Section 64 of the Revised Corporation Code, the MC No. 01-2021 declares that the sale or distribution of bearer shares and bearer share warrants are strictly prohibited. Bearer shares are equity securities issued by a corporation by which ownership and/or entitlement to dividends is made available to one who holds the physical certificate. To distinguish, bearer share warrants are non-equities or “documents certifying that the bearer is entitled to a certain amount of the fully paid shares of the corporation.” The issuance of bearer shares and bearer share warrants hides the ultimate beneficial owners since their identities are not disclosed on the face of the document. Hence, the prohibition on their sale or distribution safeguards against the misuse of corporations for unlawful activities.

Third, in line with the restriction on bearer shares, no dividends may be paid to any shareholder unless the name appears in the corporate records as the owner of the shares of stock to whom dividends are being paid. This policy is a sound mechanism to avoid the inadvertent distribution of dividends to a shareholder-purchaser who is a party to an unregistered transfer.

In complying with the reportorial requirements of MC No. 01-2021 under the first point above, corporations need to consider any potential conflict of laws, most especially on data privacy rules in other jurisdictions, as well as the difference in terminologies. Some countries have specific prohibitions against the disclosure of personal ID numbers, while the definition of corporate terms in the Philippines may differ from those in another jurisdiction. If this is the case, the remedy is for the SEC to address these questions by timely updating the Frequently Asked Questions (FAQs) on its website. Now, more than ever, this task has become obligatory rather than just being advisory.

Moreover, there may be questions on how the personal information of the declarant should be handled to prevent leakage and potential violation of data privacy laws. Towards this end, the Information and Communications Technology Department of the SEC shall acknowledge receipt of the entities’ submission and maintain them in a database not freely accessible for public viewing, to be held in strict confidence. The information must nonetheless be made readily available upon request of competent authorities for law enforcement and other lawful purposes, as may be necessary for carrying out their functions.

If the state intends to step up its game against terrorist financing and laundering of illegally obtained money, it must establish efficient processes to unveil the fruits of such crimes. SEC MC No. 01-2021 is a welcome measure towards this end. Through disclosure and reporting of beneficial owners of corporations, a transparent and safe business environment is created. As a vital step in stamping out the social menace of money laundering, transparency is the key.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only and should not be used as a substitute for specific advice.

Carl Angelo Cabusas is a Senior Tax & Risk Management Associate at the Tax Services Department and is also working as a Senior Associate under the Office of the General Counsel  of Isla Lipana & Co., the Philippine member firm of the PwC network.

carl.angelo.cabusas@pwc.com