New rules to curb use of shell companies in tender frauds

Attorney General Githu Muigai. PHOTO | FILE 

By KIARIE NJOROGE, gkiarie@ke.nationmedia.com

IN SUMMARY

• The rules now make it mandatory for a firm to disclose its physical location down to the specific room and floor of a building as opposed to the current provisions that left the disclosure to a company’s discretion.
• The companies are expected to provide a post office contact, an office and mobile telephone number as well as an email address.
• Dozens of shell companies have been recently named in the NYS and the Youth Enterprise Development Fund scandals where they were used as vehicles to receive and move hundreds of millions of shillings.

Kenyan companies applying for registration are now required to provide detailed information of their location and number of employees as part of a renewed effort to weed out shell companies behind multi-billion shilling theft of public funds.

The rules, contained in fresh amendments to the company registration form, now make it mandatory for a firm to disclose its physical location down to the specific room and floor of a building as opposed to the current provisions that left the disclosure of such details to a company’s discretion.

Attorney-General Githu Muigai gazetted the new rules that also require companies applying for registration to disclose the number of employees in a business on the launch date.

Shell companies are usually formed as vehicles for specific financial operations and in most cases do not have a physical location or a list of employees but only exist on paper.

This has made them ideal for illicit financial operations, including money laundering, bribery, tax evasion and terrorism financing.

Dozens of such companies have been recently named in the National Youth Service (NYS) and the Youth Enterprise Development Fund (YEDF) scandals where they were used as vehicles to receive and move hundreds of millions of shillings.

READ: Suspended Youth Fund executive links board to Sh180m loss

Daphine Kemunto, the legal manager at Deloitte East Africa, said that the new provisions seek to enhance good governance through adequate disclosures.

“It should be easy to locate and act against shell companies used in illegal or scandalous practices with the introduction of these requirements,” said Ms Kemunto, adding that the disclosures will also make it easy for third parties to serve any notices on a company.

The list of details that the registrar of companies will now require those registering companies to provide includes the county, town and district where the company is located; the name of building and plot number where the offices of the company are; the street or road; and the floor or room number.

The companies are expected to provide a post office contact, an office and mobile telephone number as well as an email address.

Previously, some companies would just provide a postal address and in some cases these were their lawyers’ address, leaving no hint as to their physical location.

The design of the new regulations appears intended to ease the process of tracking down firms with suspect operations in order to facilitate quick visits to their premises and to verify that they have the capacity to undertake the businesses they claim to be doing.

The provision on the number of employees offers an additional parameter of authenticity check and is hinged on the expectation that companies doing business or receiving millions of shillings would reasonably be expected to have several employees working for them.

Ms Kemunto said employee information may also be necessary to establish whether a company is qualified to be grouped under the small companies’ regime.