Nominee Shareholder/Director in UAE
Lavin Nalinababu, Business Consultancy
Any company in the UAE, onshore or offshore, has its own management hierarchy as well as procedures, just like any other legal body. The registered owner of shares held for the benefit of another person is known as a nominee shareholder. A nominee director is a director who is recruited to a company’s board of directors to serve the interests of his or her appointer. A nominee director is chosen by the company’s shareholders and in some situations, a nominee may act on behalf of the company’s beneficiary. A trust agreement or a civil contract between the nominee and the real director or shareholder may govern these arrangements. Nominee directors for businesses in the United Arab Emirates are not directly linked to legitimate owners of the company and do not participate in direct administration of the company.
In the UAE, nominee arrangements are commonly used to designate someone to fill a position as a shareholder or director in a corporation if the original shareholders or directors are unavailable. The key benefit of a nominee arrangement is that the beneficial owner can maintain their name covert and that the facts will not be made public. This can provide some privacy while also safeguarding one’s identity. Other solutions, such as forming intermediate firms, are available, but they may be more expensive to establish than a nominee shareholder structure. The National Economic Register in the United Arab Emirates now provides basic corporate information, including the name of a firm’s management. The beneficial ownership and shareholding register is primarily closed to the public, however, all corporate registers share information with the Ministry of Economy. The use of nominees decreases the utility of publicly filed shareholder registries for recognizing beneficial owners and controlling people in this scenario. Similarly, authorities will find it more difficult to gather information on a corporate vehicle’s management owing to the accessibility of corporate directors.
Nominated shareholders and directors are a typical occurrence in almost all countries. Concerned citizens can check public registries for firms to find out who their directors and shareholders are in various countries. Certain instances in which nominee arrangements are permissible are also recognised in law in some nations. Nominees are used in a variety of acceptable situations, such as to protect the nominator from public disclosure obligations or to comply with the laws of the nation in which the company is established (such as requirements for companies to have a director residing domestically). It is very critical for you to take legal advice before making any nominee arrangements for yourself, your company, or another entity where you are serving as a nominee shareholder/director, in order to avoid being subject to fines imposed by UAE Ministry of Economy. Penalties and other legal obligation to nominee shareholders and directors in UAE are imposed on those who have not complied as per the current regulation. Fines may be issued by the Ministry of Economy if a company does not follow current rules and regulations. Legal and accounting professionals, Trusts and Corporate Services Providers, and professional nominees are among the service providers recognised to offer formal nominee services.
Risks and Vulnerabilities
The risk involved in use of official nominee services is to hide beneficial ownership. Nominee directors and shareholders in business documents can also impede law enforcement probes by prolonging the confirmation of the beneficial owner or fabricating ties between firms that share nominees. While the employment of nominees is legal in most jurisdictions, the function of the nominee is often to shield or hide the identity of the company’s or asset’s beneficial owner and director. A nominee can aid in the bypassing of corporate ownership controls, the concealment of ownership and control, the circumvention of court-imposed directorship prohibitions, and the evasion of rules governing international business ownership and trade. When various components of a corporate vehicle include many nations, these issues are substantially magnified. Criminals frequently establish, administrate, operate, possess, and economically run businesses in many jurisdictions, prohibiting authorities in any one jurisdiction from getting all essential information about a business. As a result, the practice’s long-term virtues are debatable in light of the enormous money laundering and terrorist funding risks connected.
Informal Nominee Shareholders & Directors
Informal nominee shareholders and directors serve the same purpose as formal nominee service providers, but their relationship with the actual director, shareholder, or beneficial owner is more typically personal in nature than professional. Spouses, children, extended relatives, business colleagues (who are managed by the real owner or controller of the firm), and other personal associates unattached to the beneficial owner’s commercial interests are typical informal candidates. Also, informal nominee shareholders are a fundamental risk, regardless of the lawful goals.
Informal nominee arrangements, in which acquaintances, family members, or colleagues claim to be the beneficial owners of company firms, are frequently used by fraudsters for their criminal acts. Considering the informal and confidential character of such relationships, it could be challenging. Establishing informal relations between the true beneficial owner and the nominee in the absence of a formal document or other evidence would need investigation techniques outside the scope of most business registries. Such problem can be resolved in part by requiring nominees to reveal the identity of the person on whose account they are operating to the business registration and imposing consequences for misleading disclosures, as specified under UAE rules regulating beneficial ownership. Informal nominee agreements, unlike formal nominee arrangements, are almost never controlled by a contract. Informal nominees are more likely to declare themselves to be the beneficial owner of the arrangement in order to sustain the fiction constructed by the genuine beneficial owner.
The connection between an informal nominee and the real owner of a company can be complex. Overseas students and tourists have been persuaded or forced into forming corporations on behalf of other parties, often in exchange for minor fees or other personal benefits, according to law enforcement authorities and FIUs. These persons are listed as directors or controlling shareholders of these businesses, although they are seldom active in the day-to-day operations of the business. Covering the beneficial owner’s connection with an asset varies from establishing complicated ownership and control structures in that it aims to provide a false or misleading impression of the genuine ownership and control structure rather than attempting to establish detachment via legal intricacy. The utilization of formal and informal nominees is one of the most common methods for doing this.
Transparency, Accountability & Enhanced Due diligence
Regard to the risk with the use of nominees, registrars should consider tightening control systems to stabilise nominee arrangements in order to promote beneficial ownership transparency, with the ultimate goal of combating corruption and money laundering, which have been recognised to disguise behind nominees in the UAE and elsewhere. Nominees must clearly define themselves to the company and its regulatory authority, according to UAE legislation. This required self-identification is intended to increase transparency in the quest for beneficial owners and to penalise on candidates who fail to adequately reveal their position.
Registrars in the UAE have the authority to demand a natural or legal person carrying shares to reveal if the person owns shares as a trustee or nominee either on behalf of an individual, and if so, should reveal the person’s identity and any directions related to the transaction. Also, registrars must perform the following actions to restrict the exploitation of nominee shareholders and directors, in addition to maintaining all businesses to declare the existence of nominee shareholders and directors in their framework:
- From a compliance policy standpoint, classify all organisations having nominee arrangements as high risk.
- Examine the reason for employing a nominee arrangement as well as the nature of it.
- Using a risk-based strategy, undertake enhanced due diligence.
- Examine the nominee contract.
- Make certain that all Ultimate Beneficial Owners (UBO) have been declared and validated.
Enhanced Due Diligence (EDD) is a KYC procedure that examines possible business relationships in greater detail and reveals hazards that Customer Due Diligence cannot discover. The whole EDD process must be well recorded, and authorities should have rapid access to the information. Specialists are frequently recruited to evaluate data obtained on clients, and the accuracy of data sources is critical.
The following are examples of red signs that should prompt EDD:
- When it is obvious that a nominee is present, such as through a review of corporate documents, where the declared UBO is listed as the UBO of other licensees in the jurisdiction, and where the declared UBO is a CSP, both indicating the use of professional nominees, the entity fails to disclose nominee arrangements.
- The nominee arrangement’s purpose is unclear.
- Suspicion is raised for a nominee agreement
- Without any legitimate justification, family or close acquaintances operate as nominated shareholders or directors.
- PEPs, their colleagues, family members, or those with adverse findings are considered UBOs.
- The client is unwilling or unable to describe their company operations and corporate history, as well as refuses to collaborate or submit information and papers that are typically necessary for registration.
- Clients are forming businesses that look odd considering the age of the individual (this is particularly relevant for underage or very young customers)
- Companies that are listed under a name that implies they engage in activities or provide services that they do not.
Given that individuals have used and exploited nominee arrangements to disguise their attention in legal entities and to obscure genuine beneficial ownership, registrars must clearly show their potential to gather and scrutinise all attempts to conceal true beneficial ownership, including via the use of nominees and complex corporate structures. All declared nominee arrangements should be evaluated as part of a remedial effort, and the controls described above should be implemented as quickly as possible.
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