SEC adds new penalties for non-disclosure of beneficial ownership and other policies

The Securities Exchange Commission (SEC) has released Memorandum Circular (Circular) Number 10, series 2022 amending SEC Memorandum Circular No.15, series 2019 or the 2019 Revision of the General Information Sheet (GIS). The announcement, which took effect on 1 January 2023, clarifies the various amended penalties regarding liabilities, disclosure, declarations, and other impositions. The Circular also highlights the changes brought by the amendment to the disclosure of Beneficial Ownership Information and the updating of that Beneficial Ownership Information.

History

The Circular was made in response to the situations surrounding Section 73 of the Republic Act (RA) 11232 or more known as the Revised Corporation Code of the Philippines (RCCP). The said section requires all corporations to keep and update their corporate books and records, specifically accurately disclosing ownership structures, intra-group relations, list of directors, officers and stockholders and beneficial ownership.

The Circular explains that there is a constant risk of misuse of these corporate vehicles as fronts for crimes like money laundering and terrorist financing, for the reason that the beneficial ownership of the corporations is not properly disclosed.  Because of this, the Commission has made it a policy that all beneficial ownership of legal persons be disclosed to combat money laundering and terrorist financing.

The SEC mentions that due to the significant number of corporations not declaring their beneficial owners with the Commission, it is necessary to increase the penalties imposed and include non-financial sanctions.

Amendments Introduced

A.) Disclosure of Beneficial Ownership Information

This amendment requires all SEC-registered corporations to update the information on their beneficial owners in the General Information Sheet (GIS). This is to help ensure that competent authorities can access this information for purposes of law enforcement and other lawful purposes.

The Circular then declared that certain information regarding the beneficial owner must be provided:

1. Complete name, which shall include the surname, given name, middle name and name extension (Jr., Sr, III, etc.)
2. Specific residential address
3. Date of Birth
4. Nationality
5. Tax Identification Number (TIN) or passport number for foreign individuals who do not have a TIN; and,
6. Percentage of ownership, if applicable.

Due to privacy issues, this information will not be uploaded to the SEC’s publicly accessible electronic database. However, it must be available to competent authorities for law enforcement and other lawful purposes.

B.) Updating of Beneficial Ownership Information.

The SEC will timely appraise relevant changes in the submitted beneficial ownership information as they arise. The owners must submit an updated GIS to the SEC within thirty (30) calendar days after the effectivity date of such changes.

C.) Penalties

I. Failure to Disclose

After due notice and hearing, if the Commission discovers a violation of the Circular by failing to disclose without any lawful cause its beneficial ownership, the reporting corporation shall be penalised based on its retained earnings (whether appropriated or unappropriated) or fund balance, as follows:

For Stock Corporations with retained earnings of less than PHP 500,000.00:

• For the first violation – PHP 50,000.00
• For the second violation – PHP 100,000.00
• For the third violation – PHP 250,000.00
• For the fourth and subsequent violations – PHP 500,000.00

For Non-Stock Corporations with a fund balance of less than 500,000.00:

• For the first violation – PHP 25,000.00
• For the second violation – PHP 50,000.00
• For the third violation – PHP 100,000.00
• For the fourth and subsequent violations – PHP 250,000.00

Note that for Stock Corporations with retained earnings or Non-Stock Corporations with a fund balance of PHP 500,000.00 or more but less than PHP 5,000,000.00, the penalties will be twice the amount of the penalties imposed for those with retained earnings or fund balance of less than PHP 500,000.00.

For Stock Corporations with retained earnings or Non-Stock Corporations with a fund balance of PHP 5,000,000.00 or more but less than PHP 10,000,000.00, the penalties will be thrice the amount imposed for those with retained earnings or fund balance of less than PHP 500,000.00.

Lastly, the reporting corporation will be imposed an additional fine of PHP 1,000.00 for each day of the delayed submission of the beneficial ownership information as a continuing violation. However, the additional penalty for the continuing violation shall in no case exceeds PHP 2,000,000.00.

II. False Declaration

If the SEC discovers that a corporation has submitted false beneficial ownership information a Notice and Order shall be sent stating the fact of false disclosure of beneficial ownership information and that the corporation has fifteen (15) days to reply.

If compliance is still lacking or after the Commission confirms that the reporting corporation has submitted a false corporation report, the offending corporation will be penalised with a Two Million Peso (PHP 2,000,000.00) fine and will be wholly dissolved afterwards.

III. Liability of Directors/Trustees and Officers of the Corporation

The SEC clarifies that the directors/trustees and/or officers of the reporting corporation who have failed to disclose beneficial ownership information without any lawful excuse will be issued the following penalties:

• first violation – PHP 10,000.00
• second violation – PHP 20,000.00
• third violation – PHP 50,000.00
• fourth and subsequent violations – PHP 100,000.00

Directors, trustees, and officers deemed in violation for non-compliance are issued a notice and a hearing to succeed afterwards. They will be penalised with a Two Hundred Thousand Peso (PHP 200,000.00) fine and be disqualified from their positions for five (5) years if the violation pertains to False Declaration specified in the Circular.

The Commission notes that missing written procedures and policies needed to update/record beneficial ownership information required for timely disclosure or lack of a Board or Senior Management Oversight to check for compliance are classified as prima facie proof of failure to exercise due diligence and is subject to penalties as well.

Other actions considered prima facie violations and can subject a corporation to penalties include submitting the GIS without the required beneficial ownership information or the late/non-submission of the GIS.

IV. Other impossible penalties

The Commission may impose a penalty on any corporation that willfully violates the Circular or on any individual refusing the conduct of examination by the SEC into the corporation’s affairs. This penalty will lead to the suspension or revocation of the certificate of incorporation, among others.

V. Criminal Actions and Criminal Liability

The Circular explains that the SEC’s administrative sanction must be imposed without prejudice to the filing of criminal charges against the individuals guilty of the violations against the RCCP as well as other applicable rules, laws, and regulations.

Additional Information

If you have any questions regarding this SEC Circular or have other queries about compliance requirements, feel free to send a message to our email @Mazars.ph or reach out to any of the contact persons listed below: