Janet Morrison, Legal Writer
The rules of the Jamaica Stock Exchange provide that unless its council agrees, the articles of a listed company must provide that fully paid shares are free from any restrictions on the right of transfer and free from all liens.
The rules also provide that there shall be no fee payable to the company to transfer listed shares.
Further, under the law, transfers of listed securities are free of transfer tax and stamp duties ordinarily payable on those not so listed.
Listed shares, therefore, offer the important characteristics of liquidity and transferability to their holders.
In addition, the Companies Act offers shareholders a secure title of ownership of shares because the act treats a share certificate as prima facie evidence of the title of the shareholder.
In our modern paperless securities depository, an entry under a broker's account with the Jamaica Central Securities Depository that lists a person as the holder of shares on an electronic platform, is also treated as prima facie evidence of ownership of the shares.
In addition, enshrined in the Companies Act is the well know provision that the company does not recognise the interest of any person in its shares other than that of the person entered on the share register.
Arguably, all the above factors create a situation where money laundering activities may potentially flourish given the fact of liquidity and free transferability, conclusive evidence of ownership and the impenetrable shield of the share register.
Ideal target
This could possibly make listed companies an ideal target for money laundering. However, the Proceeds of Crime Act (POCA) which came into force on March 30, 2007, recognises this risk and is designed, among other important objectives, to minimise the exposure of listed companies to money laundering.
POCA repealed the Money Laundering Act of 1996 bringing our regime in line with international anti-money laundering legislation.
Under the dramatic changes in the law introduced by POCA there are basically five money laundering offences, which are committed when a person with reasonable grounds to believe or knowingly:
(1) Engages in transactions that involve criminal property ('criminal property' is a direct or indirect benefit derived from criminal conduct);
(2) Conceals, disguises or disposes of or brings criminal property into or out of Jamaica;
(3) Facilitates either or both of the above;
(4) Acquires, uses or possesses criminal property;
(5) Attempts, conspires, incites, aids, abets, counsels or procures the commission of any of the above offences.
It is also an offence not to disclose to the relevant authorities knowledge or suspicion that property is the proceeds criminal of activities and to tip-off or disclose to a person, information that is likely to prejudice anti-money laundering investigations.
Wide dragnet
The anti-money laundering dragnet is, therefore, cast widely in order to deter money laundering and enforce compliance with disclosure requirements under the act.
Dealers and investment advisors are included in the definition of 'financial institutions' in POCA as they are the gateways to listed companies and it is on them that the onus of reporting unusually complex, large and/or suspicious transactions falls.
They may, therefore, be treated as the first line of defence to protect the securities industry from the exploits of money launderers.
Accordingly, investment brokers and advisors need to know their clients shouldering equally with bankers the obligation to designate nominated officers within their firms to report suspicious transactions to the designated authority, who is the chief technical director of the financial division of the Ministry of Finance or such other person designated by the minister.
However, should this first line of defence fail, listed companies can also protect themselves against the control of their securities by unscrupulous money launderers by more rigorous disclosure requirements in their articles.
Amended articles
Some listed companies have, therefore, decided to amend their articles to provide that the company may request shareholders to disclose whether they hold shares on their own behalf or on behalf of a third party.
Failing a shareholder's disclosure the voting rights attached to the shares may be suspended, dividend payments withheld. or transfers of the shares not registered.
A compelling precedent of such a provision is found in the UK Companies Act 1985, which provides that a public company may require a person whom it knows or has reasonable cause to believe to have an interest in shares in the company to give particulars of his ownership or that of a third party.
Such a notice may be served on a member or a non-member of the company.
The UK Act provides that the company may exercise its power to send such a notice on the requisition of stockholders who hold one-tenth of the votes.
Where a person fails to comply with a notice, the company may apply to the court to make a transfer of those shares void; to take away the attached voting rights; to make the holders ineligible to enjoy any other rights attached to the shares, such as a bonus issue or a rights issue, and to withhold dividends payable.
Where, therefore, listed companies amend their articles along these lines, this may provide a second line of defence in the fight against money laundering.
Janet Morrison is an attorney with the law firm DunnCox in Kingston. Email: janet.morrison@dunncox.com
