The State will reveal secret owners of companies involved in government tenders and private-public partnerships without seeking a court order, in new regulations, as the government races to meet the stringent IMF conditions.
This is after the government started the process of amending the Beneficial Ownership regulation, which would allow the state to reveal individuals hiding behind the corporate veil through secret accounts, lawyers and nominees when doing business with the government.
As part of the conditions for the Sh263 billion loan signed with the International Monetary Fund (IMF), Kenya committed to publishing the owners of companies doing business with the government. But the country is yet to fulfill this commitment after it was met by the legal hurdles given the privacy laws.
Currently, the law only requires companies to disclose names, phone numbers and residential addresses of investors who own more than 10 percent stakes in companies through secret accounts to the Attorney General.
The regulations bar making details of beneficial owners’ public unless under instructions from the court or request from the Kenya Revenue Authority (KRA), security agencies and the Financial Reporting Centre to tap the database.
Now AG Kihara Kariuki wants to change the regulations allowing for lifting the corporate veil whenever a company supplies the government or partners with it.
“Notwithstanding sub-regulation (1) information relating to a beneficial owner may be disclosed – with written consent of the beneficial owner; or,” AG Kihara Kariuki said in the Companies (Beneficial Ownership Information) (Amendment) Regulations, 2021.
“Where the company participates in public procurement and assets disposal under the Public Procurement and Asset Disposal Act, No. 33 of 2015; or (c) where the company participates in a public-private partnership arrangement under the Public Private Partnership Act, No. 15 of 2013.”
Beneficial ownership law was meant to curb insider trading through the use of nominee accounts that investors have been using to side-step ownership limits in firms listed at the Nairobi Securities Exchange.
It was also targeting money laundering by revealing the true identity of Investors owning large blocks of shares in both private and listed companies who were also of interest to KRA.
The register is now being deployed to reveal the links between companies that win state tenders and their real owners who hide behind proxies when dealing with the government.
The move is a bid to dismantle cartels and public servants using proxies to leech off state tenders that have led to bid-rigging, backhand deals and inflation of contract prices.
The World Bank and IMF have called for a change in tack in fighting corruption towards transparency and accountability in state tendering in place of arraigning graft suspects in court. In the Kenya Systematic Country Diagnostic report, the World Bank said public trials and convictions for corruption can demonstrate a commitment to punishing misbehavior and indicate that no one can act with impunity.
The multilateral institution however said it is important to identify focal areas for anti-corruption work that can serve as the leading wedge for reducing corrupt practices, such as reducing corruption in public procurement.
“Simply increasing the number of criminal convictions or administrative sanctions is unlikely to have a major effect overall,” World Bank said.
Kenya spends on average Sh670 billion annually for use of goods and services and acquiring non-financial assets according to the Kenya Public Expenditure Review 2020.
The government has been posting transactional level procurement data at the public procurement information portal (PPIP) but the World Bank wants a more granular level of detail.
World Bank said the PPIP was not up to date showing tenders valued at Sh179bn which was only one third of total procurement spending.
The move follows renewed efforts to track state procurement deals that has also now incorporated the taxman.
The government has started the search for an online platform that will process all public tenders and linked to the KRA in a policy shift aimed at enhancing transparency and nabbing tax cheats.
The KRA enforcement team has stepped up analysis of companies’ financial dealings, especially firms doing business with the national government and counties, to unearth tax cheats by matching their payments and income declared to the authority.