Beneficial Ownership in Kenya

Public procurement in Kenya and the world at large plays an important role in the economic development of any country. It is the implementation vehicle by which service delivery is achieved. Due to the huge financial flows involved in public procurement, the sector is the most prone to corruption. (World Bank, 2016). Major corruption scandals in Kenya have revolved around public procurement. Billions of shillings have been lost through under deals in procurement which takes years to trace and recover.

While corruption is one type of fraud, there is a big difference between more traditional fraud and corruption in that corruption involves the payment of monies stolen from a company, through a variety of mechanisms such as shell companies. A shell company is, by design, created to hide the true or ultimate beneficial ownership of the individuals who are the final beneficiaries of the corporate structure. While there can be legitimate reasons for shell companies, they are often much more nefarious in nature. Shell companies that cannot be traced back to their owners are one of the most important mechanisms by which corrupt officials transfer illicit wealth from public coffers. This process damages these countries’ development prospects.

However, these shell companies can be unmasked to reveal the true owners of the monies through a Beneficial Ownership Registry. Beneficial ownership is a term that refers to anyone who enjoys the benefits of ownership of a security or property, without being on the record as being the owner.

Beneficial ownership transparency is in the spotlight, and many compliance experts believe 2017 was a turning point in achieving greater transparency at a global scale, especially in preventing corruption.

The Government of Kenya has over the years put in place measures to reform public procurement in the country. Among the reforms undertaken include the enactment of Public Procurement Regulations in 2001 and the Public Procurement and Disposal Act of 2005. The Public Procurement and Disposal Act, 2005 created the Public Procurement Oversight Authority (PPOA), the Public Procurement Advisory Board (PPAB) and the continuance of the Public Procurement Complaints, Review and Appeals Board (PPCRAB) as the Public Procurement Administrative Review Board (PPARB). The PPAB and PPARB are autonomous bodies. In 2014, The Government launched an e-procurement portal under the IFMIS platform as a monitoring tool to enhance accountability and efficiency and reduce paper work in public procurement. Another Significant Reform is an issuance of Executive Order No. 2 of 2018 by President Uhuru Kenyatta, on the Procurement of Public Goods, Works and Services by Public Entities effected as of 1st July 2018.

This Executive Order requires all Public Procuring Entities to maintain and continuously update and Publicize (through the websites of the Public Procuring Entity, e-Citizen, Public Procurement Regulatory Authority Platforms, Public Notice Boards) all the information required. (List of Directors, Shareholders and Beneficial Owners of the Suppliers). This amendment seeks to provide transparency by unveiling the identity of the real owners of the Company and also to deter any fraudulent transactions which could be undertaken by such persons. It has been a common practice for investors to engage Nominees in their companies thus revealing the identity of the actual owners of the companies who exercise control of the companies behind the scenes.

Kenya joined OGP in 2012, and the process has gathered momentum, redesigning the country’s architecture for institutionalizing public engagement and government accountability. This Executive Order propels InfoNET’s work as well as other key stakeholders.

InfoNET was instrumental in the submission of Kenya’s 2nd National Action Plan (NAP) under a multi-agency committee through Open Government Partnership on June 30, 2016. The plan was centered upon providing a policy-based frame work which was to support the Country’s commitment to opening the Government.

The government of Kenya has taken deliberate actions to promote and enhance openness in the government service delivery process. It is now a legal requirement that the name and address of the beneficial owners (if any) be entered in the companies’ registers of members which must be lodged with the Registrar of Companies within 30 days after completing its preparation (in accordance with section 93 (8) of the Principal Act) and which will be available for inspection by members of the public. Section 93 (9) further provides that any amendment to the register of members is to be lodged with the Registrar within 14 days after making the amendment. This however does not apply to public limited companies (considering those trading in the stock market) as their membership constantly changes.

Through Usajili,InfoNET has developed an open Beneficial Ownership Registry Portal. This portal holds data on past and existing tenders awarded for infrastructure development in select counties in Kenya whilst linking it to the respective company awarded whose ownership/directorship is made open to public scrutiny.

Slowly but surely, the commendable action of the Kenyan Government, has allowed ill-gotten gains to be more easily traced and make it more difficult and less attractive for people to benefit from the proceeds of corruption and crime. There have been less cases of newly reported graft incidents in the Public Offices since the issuance of the executive order.

With transparency that comes with embracing Beneficial Ownership, Performance of the Public Service Delivery is easily monitored therefore there is an improvement of the Delivery of Projects to the Citizens. This move aims at improving efficiency of Public Service Delivery through tackling corruption, working with non-state actors in improving government oversight and empowering citizens in governance.

President Uhuru Kenyatta has empowered relevant authorities to arrest those against whom evidence enables charges.  Irrespective of rank or position, the mandate is clear.

Notably, countries with beneficial ownership registries currently have no legislative requirement to verify the accuracy of information provided. Without verification at the register level, inaccurate data cannot be uncovered. Nevertheless, If Countries Consider working with an independent data provider that makes beneficial ownership data available. That can enable quick cross-checks. Alerts may also be generated if a discrepancy is detected.