Beneficial Ownership Disclosure Law: A Step Forward or Backward for Sri Lanka?

Introduction

The Government of Sri Lanka has recently approved an amendment to the Companies Act No. 7 of 2007, which includes a provision on beneficial ownership disclosure. This move aims to combat money laundering and terrorism financing by ensuring greater transparency in company ownership. However, experts have raised concerns that the law may put directors in a vulnerable position without adequate data protection measures.

Anti-Money Laundering Tool or Power Grab?

The Registrar of Companies (RoC) has clarified that the new provision is an anti-money laundering tool, not a means for the Criminal Investigation Department (CID) to extract financial information from company directors. The RoC will maintain a separate register on beneficial ownership, which will be available to the public.

Key Provisions

• All listed companies and private limited companies with over 25% foreign shareholding are required to disclose their beneficial owners.
• This move aligns with international best practices, as most countries have implemented similar laws to prevent money laundering.

Concerns about Director Vulnerability

Experts warn that the law may vest more power in the CID without adequate safeguards for directors of private companies. University of Colombo Faculty of Law Senior Lecturer Dr. Prathiba Mahanamahewa expressed concerns that the amendment would put directors in a dangerous position, as they would be required to provide highly confidential and sensitive financial information.

Government Denials

The Government has denied claims that the law will allow the CID to question directors or shareholders of private companies without consent. State Finance Minister Eran Wickramaratne emphasized that the amendment is a measure against money laundering and terrorism financing, not a means for wider powers to the CID.

Debate Continues

As Sri Lanka ranks seventh in the world among money laundering destinations, experts argue that the law is a step forward in combating financial crimes. However, the lack of data protection laws in place raises concerns about the rights of directors and the security of sensitive information.

• Some experts argue that the law will attract foreign investments by demonstrating Sri Lanka’s commitment to transparency and accountability.
• Others have expressed concerns that the law may deter investors due to its potential impact on private companies and their directors.