"Here is what SharePHIL has to say."
"Here is what SharePHIL has to say."
A couple of months ago, the Securities and Exchange Commission required all incorporated entities and new registrants to make a disclosure of beneficial ownership.
In the wake of protests from all those affected, I wrote a column where I said that the SEC requirement was in effect an enactment of a law which only Congress can do. I also wrote that the subject circular making all corporations disclose their beneficial ownership was an invasion of privacy, contrary to the 1987 Constitution.
In response, the SEC wrote a letter to Manila Standard saying that I was wrong and that it had the right to amend Circular no. 17, series of 2018 to require all corporations to disclose their beneficial ownership.
After my column, the SEC required all interested parties to comment on the amendments. I have since gotten a copy from SharePHIL, which represents shareholders. It is headed by Evelyn Singson and Francis Ed. Lim.They shared my views on the SEC’s controversial requirement.
SharePHIL’s response to the controversial circular is based on the following:
1. Only Congress can pass a law requiring corporations to disclose their ultimate beneficial owners.
2. The subject circulars of the SEC intrude on citizens’ and investors’ inherent constitutional right to privacy, and
3. The subject circular will further deter the development of the capital market to the prejudice of the investing public.
The argument raised by SharePHIL are quite long and extensive for this column to accommodate. For the sake of brevity, I will just briefly summarize them.
“Only Congress has the power to pass such measure requiring all corporations to disclose to the public their ultimate beneficial owner. The subject circulars affect not just corporations, but even natural persons such as members of SharePHIL who are ordinary investors in companies both listed and unlisted.
“A measure as broad in its effects as the subject circulars can only be passed by Congress because they deal with a subject matter that should be covered by law. As stated by Louis Fisher in his book Constitutional Conflicts Between Congress and the President, many regulations, however, bear directly on the public. It is here that the administrative legislation must be restricted its scope and application. Regulations are not supposed to be a substance for the general policy-making that Congress enacts in the form of a public law.
“While SEC was given power by Congress to make rules, regulations and orders, this power must not be construed as giving the SEC unlimited legislative authority. In this regard, the Anti-Money Laundering Act of 2001 (AMLA) as amended does not apply to all corporations. By design, it is limited to what it describes as “covered institutions” which are enumerated by Section 3(a) of the law. Equally significant is that there is nothing in the AMLA that authorizes the SEC to require covered institutions to report covered transactions.
“While the AMLA requires covered institutions to create a system for client identification (Section 9), the information given by clients of covered institutions in compliance with Section 9 of the AMLA is still protected by the Data Privacy Act (Republic Act 10173) and is not meant to be shared to the public. However, by requiring corporations to disclose their ultimate beneficial owners in the General Information Sheets. The SEC is, in effect, requiring all corporations to disclose their ultimate beneficial owners to the whole world.
“The AMLA Law did not create such a requirement, and Section 18 of the AMLA law does not authorize the SEC to impose such a requirement.”
On Point No. 2 that the subject SEC circulars intrude into the right of privacy, SharePHIL argues that the right to privacy is the right to be left alone. It is described by Republic Act 101, otherwise known as the Data Privacy Act, as a fundamental human right.
“In Ople vs. Torres, the Supreme Court recognized the right to privacy as a fundamental right guaranteed by the Constitution. Hence, it is the burden of government to show A.O. 308 is justified by compelling state interest and that it is narrowly drawn.
“A.O. 308 is predicated on two considerations: (1) The need to provide our citizens and foreigners with the facility to conveniently transact business with basic services and social security providers and other government instrumentalities, and (2) the need to reduce, if not totally eradicate, fraudulent transactions and misrepresentations by persons seeking basic services. It is debatable whether the broadness and vagueness of A.O.308 which is implemented will put people’s right to privacy in clear and present danger.
“Until the passage of subject circulars, a Filipino citizen like our members can opt to hide his ownership of companies by creating ownership layers or setting up trust arrangements with the registered stockholders of a company. There is no law that prohibits the setting up of these layers or arrangements. Indeed, the Supreme Court has recognized this setup.
“There could be a number of reasons why he would want his ownership of companies to be hidden, such that (1) he does not want others to know that he owns a company in competition with the business of his friends, (2) the company operates a business against the beliefs of the citizen’s family or in-laws, (3) he wants to remain incognito to enjoy his privacy and not be thrust in the limelight as the owner of a business enterprise (4) he does not want his family to be the target of kidnap-for-ransom gangs etc. The list can go on and on, but the underlying rights that the citizens to enjoy the constitutional rights of freedom and privacy are guaranteed by the Constitution. The subject circulars will take that freedom and privacy away from him as the companies will be forced to disclose to the whole world his ownership of companies against his will.
“Moreover, the subject circulars require the sharing of sensitive personal information (like TIN which is protected by the DPA) Under Section 2 (a) of the implementing rules and regulations of the DPA, data sharing is allowed if it is expressly authorized by law provided there are adequate safeguards for data privacy and security contained in the law. It appears that the AMLA complies with these requirements.
“With due respect, therefore, the SEC cannot require the disclosure of personal and sensitive information on the strength of the AMLA.”
On Point No, 3, SharePHIL said “it is common knowledge that despite the fact that the Philippine stock market is one of the oldest in Asia, it remains one of the smallest. Indeed in a speech before SharePHIL members in 2017 the president of the Philippine Stock Exchange, Ramon Monzon said that while the PSE Is one of the oldest in Asia, it pales in comparison to much younger exchanges in the Asean region.
“There are various reasons for the laggard development of our stock market, among which is the low participation of investors and the limited number of listed companies where investors can invest their money. For example, as of the end of April 2019, the PSE average daily turnover was only USD 125.3 million compared to the stock exchanges of Thailand (USD1.2 billion), Singapore (759.6 million), Malaysia (USD 483.5 million) and Indonesia (USD533.2 million).
The PSE also pales in comparison with other Asean exchanges in the number of listed companies.
“Needless to say, the investing public needs the option to remain private and anonymous. To require companies to disclose their ultimate beneficial owners to the public is to require them to divulge confidential information, agreements and arrangements, which are hitherto not required to be disclosed. It will discourage companies ti go or remain public and big investors, like asses management companies, mutual funds and other institutional investors which may be owned by multiple investors, from investing in our stock market. The subject circulars will cause undue burden ad difficulty in companies and investors. They further deter the development of the stock market, which will certainly prejudice the investing public like SharePHIL.”
I may add that the arguments by SharePHIL are irrefutable and well researched, so much so that the SEC will prejudice immensely the investing public if those circulars are implemented.
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