Sri Lanka’s proposed beneficial ownership register sparks debate

Proposed amendments to Sri Lanka’s Companies Act of 2007, mandating the creation of public beneficial ownership registers, have ignited considerable discussion within the nation’s business and legal communities. 

While being  lauded by some as a crucial step towards transparency and aligning with global anti-corruption standards, prominent voices are raising alarms that the move is “onerous, overkill, and impractical,” threatening to escalate compliance costs and diminish the ease of doing business in the island nation.

At the heart of the debate is a new requirement for all companies to maintain a detailed register of their “beneficial owners”, the individuals who ultimately own or control the company, even if their names do not appear on official shareholder lists. This information would also be held in a central registry at the Department of the Registrar-General of Companies and be made accessible to the public.

Dushyantha Perera, Partner and the Head of Corporate & Commercial Law at Sudath Perera Associates in a recent social media post argued that the amendments, in their current form, could “create substantial and unnecessary compliance costs for companies, and reduce the ease of doing business in Sri Lanka.”

The government’s move is largely seen as a response to international pressure, particularly from the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog. The FATF has been a vocal proponent of beneficial ownership transparency as a tool to combat illicit financial flows. Indeed, the proposed amendments are a key component of Sri Lanka’s efforts to meet an International Monetary Fund (IMF) structural benchmark.

Under the draft amendment, an individual with a direct or indirect shareholding of 10 percent  or more, or who exercises ‘effective control’ over a company, would be classified as a beneficial owner. Perera finds this threshold, and the ambiguity of “effective control,” to be particularly concerning. He draws a comparison with Singapore, a global financial hub, where the threshold for beneficial ownership is set at a significantly higher 25 percent.

A key sticking point for critics is the public accessibility of this sensitive information. While Perera concedes the necessity of sharing such data with regulatory bodies like tax authorities and the Attorney-General’s Department, he argues that making it publicly available through Right to Information (RTI) requests is a step too far.

“A potential adverse consequence is nuisance litigation,” Perera cautioned, “seeking to disregard the corporate veil and as a dispute resolution strategy (e.g., to impose pressure to settle by dragging in publicity-averse beneficial owners).” 
(NF)