Ban on sale, issuance of bearer shares proposed

By Angelica Y. Yang

THE SECURITIES and Exchange Commission (SEC) is drafting new rules that aim to increase the transparency of beneficial ownership of corporations, in a bid to prevent them from being used as vehicles for money laundering and terrorist financing.

“It is well established that the risk of misuse of corporate vehicles for purposes contrary to law such as money laundering and terrorist financing arises from the lack of transparency of beneficial ownership of such corporate vehicles,” the SEC said in a draft circular posted on its website on Dec. 4.

One of the measures proposed by the SEC is to ban the issuance, sale or public offering of bearer shares and bearer share warrants in the country.

“The issuance of bearer shares and bearer share warrants similarly hides the identity of such beneficial owners and thereby increase the risk of misuse of the corporation,” the SEC said in the draft circular, noting the issuance of bearer shares and bearer share warrants are not allowed under the Revised Corporation Code of the Philippines.

The regulator defined bearer shares as “equity securities owned by the person or entity that holds the physical certificate which allows the transfer of ownership of shares of stock.” Meanwhile, bearer share warrants are documents that certify the bearer’s entitlement to a certain amount of the fully paid shares.

The SEC also proposed the mandatory disclosure and recording of alienation, sales and transfers of stock shares in the Stock and Transfer Book within 30 days of the transaction. Unless these are disclosed, these “would not be binding on the issuer,” it said.

Under the draft rules, payment of dividends will not be allowed to persons or entities unless their names appear in the corporation’s records as the “owner of the shares of stock.”

The SEC is also seeking to require the disclosure of beneficial owners, nominators, principals, and nominee arrangements. The filing must be made in a “sworn declaration to the Anti-Money Laundering Division of the Enforcement and Investor Protection Department (AMLD-EIPD) within 10 days from the issuance of the company’s certificate of registration.”

The same disclosure would also be required for those on whose behalf one acts as a director, trustee or shareholder.

Also, the regulator is proposing to require all SEC-registered corporations to keep timely and accurate information relating to its beneficial owner or owners at their principal offices.

For violations of the guidelines, the SEC recommended fines ranging from P5,000 to P2 million, and not more than P1,000 for each day of continuing violation but not exceeding P2 million.

Other sanctions include a permanent cease and desist order, suspension or revocation of the certificate of incorporation, or the dissolution of the company and forfeiture of assets.

Interested parties may submit their comments to the SEC Enforcement and Investor Protection Department on or before Dec. 20, 2020.