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Beneficial Ownership Disclosure Rules in India: A Complex Web

In a move aimed at promoting transparency, the Ministry of Corporate Affairs has announced that companies can approach the National Company Law Appellate Tribunal (NCLAT) if a beneficial owner refuses to disclose their anonymous identity. But despite this development, the issue of identifying and disclosing the true owners of corporate entities remains a complex challenge.

Understanding the Indian Narrative

Enacted Regulations

In India, the Companies (Significant Beneficial Ownership) Rules 2011 and the Prevention of Money Laundering Act 2002 have been enacted to promote transparency in the corporate sector. However, these regulations are not without their loopholes, leaving room for beneficial owners to hide behind complex ownership structures.

Challenges in Implementation

• India does not have a unified database for centralizing information on beneficial owners, making it difficult to access timely information within and beyond domestic jurisdictions.
• Sometimes the available information only goes as far as the name and registration number of the owner.
• Section 89 of the Companies Act 2013 calls for nominee shareholders to disclose shares held on behalf of a third person but does not provide explicit penal sanctions for non-compliance.

Reforming the System

Expert Recommendations

Experts believe that addressing these issues is crucial to creating a progressive corporate environment and becoming an attractive location for corporate investments. They suggest:

• Implementing FATF guidelines for public consultation
• Establishing clear definitions of beneficial ownership
• Outlining stringent punitive sanctions for nominees who fail to disclose third-party owners
• Conducting risk assessments at least once a year
• Providing training on conducting risk assessments effectively
• Formulating mitigation strategies and continuous improvement

Benefits of Reforms

By implementing these reforms, India can promote transparency, prevent misuse of legal structures, and hold entities accountable for financial crimes.

Conclusion

The issue of beneficial ownership disclosure is complex and multifaceted, but addressing the basic challenges at hand is necessary for creating a promising corporate investment jurisdiction in the coming years. By implementing practical approaches and complying with FATF guidelines, India can take significant steps towards promoting transparency and accountability in its corporate sector.