Introduction

Transparency and accountability are key principles of corporate governance. These principles create an obligation for the timely disclosure of information to the appropriate body(ies) and swift compliance when actions are mandated. In 2010, Nigeria was identified by the Financial Actions Task Force (FATF) as one of the jurisdictions with anti-money laundering and counter-terrorist (AML/CFT) deficiencies.¹ It therefore became apparent that the Federal Government and businesses in Nigeria needed to take decisive actions to improve the AML/CFT financing structures in the country.²  As part of its action plan, the Persons with Significant Control Regulations (PSC Regulations) 2022 was signed into law in November 2022.

The PSC Regulations is targeted at increasing transparency and accountability in corporate governance in Nigeria and seeks to curb the use of companies for illegal activities such as money laundering, terrorist financing, and tax evasion. The PSC Regulations adopts the definition of a person with significant control under the Companies and Allied Matters Act 2020 (CAMA 2020) and further expands the same to include the definition of beneficial owner which is “the natural person(s) who ultimately owns or controls a company or limited liability partnership or the natural person on whose behalf a transaction is being conducted and includes those natural persons who exercise ultimate effective control over a legal person or arrangement.” The PSC Regulations further defines “significant influence or control” as the ability to direct or materially influence the finances, financial policies, management, operations, and structure of a company or LLP, or derive significant economic benefits from the company or LLP.³

Key provisions driving transparency and accountability

The PSC Regulations are applicable specifically to any company registered under Part B of CAMA 2020, a limited liability partnership registered under Part C of CAMA 2020 and any other relevant entity specified under the PSC Regulations. The PSC Regulations achieve transparency and accountability by requiring:

1. the Corporate Affairs Commission (CAC) to maintain a central Register of PSC.⁴ The information in the central register is required to be made available to the public at no extra cost⁵  and is usually displayed on the CAC portal. This central register contains details of a PSC which must be disclosed to the CAC when a new company/LLP is formed, when filing annual returns, when a person becomes a PSC, when filing a notification for foreign exempted company/LLP, and when filing the annual report for a foreign exempted company/LLP.
2. that companies indicate PSC details in the register of members. It is mandated that the PSC be inscribed against the name of the relevant shareholder in the register of members.⁶
3.  that companies issue a warning notice to a shareholder/shareholders to disclose shareholding where there is suspicion that such shareholder is a person with significant control or has recently acquired controlling interest in the company. Once the warning is issued the shareholder must respond by disclosing details within seven (7) days of the receipt of the notice.⁷
4.  annual returns filing to indicate the details of the PSC in a company and any changes to same that may have occurred in the reporting period.⁸
5.  that where a shareholder’s interest falls below the threshold, the same notification should be made to the company and the CAC within 14 days.⁹

In addition to the above, when incorporating a company, the CAC mandates disclosures where the PSC is a Politically Exposed Persons (PEP).¹⁰ This is also key in determining individuals whose interests in companies, directly or indirectly, have far reaching effects. The PSC Regulations also achieve transparency and accountability by requiring disclosure of PSC’s who hold ownership interest indirectly (through a corporate entity). The entity is required, to report information on the intermediary corporate entity through which the interest in the reporting entity is held. This means that, in addition to providing details of the individuals who are the ultimate beneficial owners of the company, the reporting entity is required to disclose the corporate entity(ies) through which the PSC’s interest is held, where such interest is held indirectly.¹¹

Accountability is enhanced by the PSC Regulation mandating beneficial owners to disclose interests within seven (7) days of acquiring interest which falls under the definition of significant control. Once received, the company is obligated to disclose the information to the Corporate Affairs Commission (CAC) within one (1) month of the disclosure and update the members register.¹² In public companies, the individual who personally or through their nominees fall within the category must disclose the information to the company within fourteen (14) days and the company is also required to notify the CAC within fourteen (14) days of receiving the information.¹³

Sanctions for non-compliance with the provisions of the PSC Regulations

The PSC Regulations achieves transparency and accountability by imposing sanctions and empowering the CAC to enforce these sanctions.¹⁴  Sanctions include indicating the status of the defaulting entity as inactive on the PSC register and all other relevant online portals of the CAC, conviction and a fine imposed for false declarations as the court deems fit, and imprisonment for a term of two years for officers of the defaulting entity. The CAC is also empowered to withhold approval of an application for registration or filing of the annual returns of a company or LLP, unless PSC information is provided. The CAC also shall not issue a letter of good standing to such entities.

Conclusion

Whilst elements of the PSC conditions will be familiar to many because of the anti-money laundering regime, guidance maybe required to ensure full compliance with details to be captured in the PSC disclosure forms and register of members to avoid liability. It is key for individuals with significant shareholdings to assess whether they have notifiable PSC obligations because a person who fails to respond to a notice requiring confirmation of their PSC status can have their share rights restricted, including voting, dividend and transfer rights, which could prevent a sale without a court order.¹⁵ The default in compliance may also impact M&A transactions and may generate practical difficulties where the company being sold has private shareholders or beneficial owners who prefer not to disclose their connection with the company, sometimes for legitimate reasons, but must now adhere to the transparency requirements and disclose their position. This applies as well as to corporate groups with complex ownership structures which may not have natural persons to point to easily.

Overall, the PSC Regulations is a commendable move by the regulators and would significantly reduce the possibility of layering corrupt funds and illegal assets and avoid creating tax havens in Nigeria.

1. Financial Actions Task force (FAFT) Website
2. Outcomes FATF Plenary
3. Section 14 PSC Regulations 2022.
4. Section 4 (4) & 10 PSC Regulations 2022.
5. Section 10 PSC Regulations 2022.
6. Section 4 (1) PSC Regulations 2022.
7. Section 6 PSC Regulations 2022.
8. Section 119 (2) CAMA 2020.
9. Section 121 CAMA 2020.
10. beneficial ownership register: what you need to know
11. Section 4 (6) & (7) PSC Regulations 2022.
12. Section 119 & 120 CAMA 2020.
13. Section 119 & 120 CAMA 2020.
14. Section 12 PSC Regulations 2022.
15. Section 7 (3) PSC Regulations 2022.