Zambia’s mining sector serves as a critical pillar of its economy, offering immense potential for growth and development. However, the sector has been plagued by challenges such as opacity, corruption, and illicit financial flows. Recognising the need for enhanced transparency and accountability as a strategy towards increasing chances of curbing illicit financial flows, Zambia through the Companies Act of 2017 introduced beneficial ownership requirements for all companies registered in Zambia through the creation of a centralised and public beneficial ownership register at the Patents and Companies Registration Agency (PACRA). In this week’s Monday Opinion, we discuss the importance of these laws in the mining sector, their potential impact and the need for greater transparency in the mining sector.

Defining Beneficial Ownership:

At its core, beneficial ownership refers to the true individuals who ultimately own or control a company. It involves lifting the veil of secrecy surrounding complex corporate structures to unmask the true identities of those who wield significant influence and truly reap the benefits from a company’s activities. Understanding beneficial ownership is crucial as it sheds light on hidden ownership arrangements, preventing corruption, tax evasion, misappropriation of mineral resources, and other illicit financial activities that hinder Zambia’s Progress.

Zambia’s adoption of beneficial ownership laws through the Companies Act of 2017 reflects its commitment to enhancing transparency, accountability, and good governance. The law requires companies, including those in the mining sector, to disclose information about their ultimate beneficial owners to PACRA. Such disclosure is important for the following reasons:

1. Curbing Illicit Financial Flows

The mining sector has long been susceptible to illicit financial flows, with anonymous beneficial owners often exploiting loopholes to siphon off profits. In fact, it is estimated that Zambia losses approximately $3 Billion a year in IFFs. Therefore, Zambia’s beneficial ownership laws present a significant opportunity to combat this pervasive issue. By requiring mining companies to disclose their ultimate beneficial owners and exposing hidden ownership structures, such disclosure creates a comprehensive database that enables effective monitoring, investigation, and enforcement, bolstering efforts to curb illicit practices. By dismantling hidden ownership structures, Zambia can foster an environment of transparency and integrity.

2. Countering Money Laundering and Terrorism Financing:

While the primary focus of beneficial ownership laws is to combat illicit financial flows, disclosure also plays a vital role in countering money laundering and terrorism financing. Transparent ownership information allows authorities to monitor and identify suspicious financial activities, preventing the misuse of the mining sector for illicit purposes. This fosters a secure and stable business environment, protecting both national and international security interests.

3. Enhancing Revenue Collection and National Development:

Zambia’s mining sector generates substantial revenue through taxes, royalties, and fees amounting to over ZMW 38 Billion according to the 2022 EITI Report. However, without proper transparency and accountability, revenue leakages and underreporting can occur, depriving the nation of its rightful share. Beneficial ownership laws provide a mechanism to ensure that mining companies accurately disclose their ownership structures. By doing so, Zambia can enhance tax compliance and increase its tax revenues. Presently, the ratio of tax revenue to Gross Domestic Product (GDP) for Zambia stands at an average of 15.5 percent, which falls below the sub-Saharan regional average of 16.5 percent and is only half of the ratio observed for the Organisation for Economic Cooperation and Development. Increased revenues can improve government spending towards critical sectors such as healthcare, education, and infrastructure development.

4. Promoting Investor Confidence:

Investors, both local and international, seek environments that provide legal certainty and minimize risks. Beneficial ownership laws play a crucial role in instilling confidence by promoting transparency and accountability. Ethical investors are more likely to commit their resources when they can trust that their investments will not be compromised by corrupt practices or hidden agendas. By embracing beneficial ownership, Zambia can attract responsible investors who value transparency, sustainability, and long-term partnerships.

5. Reserving Natural Resources and Environmental Stewardship:

The mining sector’s impact on the environment cannot be overlooked. Transparent beneficial ownership practices enable effective monitoring and regulation of mining operations, ensuring adherence to environmental standards and the responsible extraction of resources. By promoting transparency, Zambia can safeguard its natural resources, minimize ecological damage, and foster sustainable practices that preserve the environment for future generations.
This concludes our discussion on beneficial ownership transparency in the mining sector for this week. Next week, we will continue the conversation and conclude by presenting recommendations for further legislative reform to strengthen transparency.

About the Author:

Luyando Muloshi is an advocate for the High Court of Zambia. She holds a Masters and Bachelors Degree in Law from the University of Zambia and is a Legal researcher at the Centre for Trade Policy and Development.