In last week’s Monday Opinion, we introduced the topic of understanding Zambia’s beneficial ownership laws as a crucial step towards transparency in the mining sector. This week, we continue the discussion by addressing weaknesses in the current legislation and presenting recommendations for law reform to further strengthen transparency in the sector.

While Zambia’s adoption of beneficial ownership disclosure requirements through the Companies Act of 2017 reflects its commitment to enhancing transparency, accountability, and good governance, there are some weaknesses still to be addressed that hinder effective beneficial ownership disclosure. These weaknesses include:

(i) The absence of a clear and comprehensive definition of what constitutes beneficial ownership and how such information can be captured in practice. While the law defines a beneficial owner in terms of “control”, “substantial economic benefit/interest”, it is unclear on how such information can be practically captured in the absence of specific examples or guidelines. This creates a loopholes and challenges in accurately capturing the true individuals who ultimately own or control a company, thereby hindering the effectiveness of the law. Moreover, Stakeholders, including mining companies, may struggle to understand the practical application of the law and how to properly disclose beneficial ownership information.

(ii) Inadequate enforcement and compliance mechanisms. It is crucial to ensure effective enforcement of the beneficial ownership requirements and strict compliance by all companies in the mining sector. However, the law does not provide express sanctions for failure to adhere to beneficial ownership obligations under the Companies Act. This lack of stringent penalties can weaken the deterrent effect and fail to serve as an effective deterrent against non-disclosure or fraudulent reporting of beneficial ownership information. Stricter penalties and clear guidelines for enforcement can enhance compliance and reinforce the importance of transparency.

(iii) Inadequate systems for data accuracy and verification. The accuracy and verification of the disclosed beneficial ownership information are paramount. However, the current systems and mechanisms in place for verifying the accuracy and reliability of beneficial ownership information is lacking. Without robust verification processes and tools, there is a risk of fraudulent or false disclosures, undermining the integrity of the beneficial ownership register and hindering the effectiveness of the law.

(iv) Lack of Collaboration and Information Sharing. There is an absence of strong collaboration and information-sharing mechanisms among relevant government agencies such as PACRA and the Mining Cadastre thereby hindering monitoring of beneficial ownership in the mining sector. Without effective coordination and sharing of information, it becomes difficult to identify connections, patterns, and potential risks associated with beneficial ownership arrangements.

To address these weaknesses and further strengthen transparency in the mining sector, the following recommendations can be considered:

(i) There is a need for the country to strengthen the legal framework on beneficial ownership by continuously assessing and improving the Companies Act and other relevant legislation to address any gaps or loopholes in the beneficial ownership requirements and to align them Open Ownership principles and EITI requirements. This may involve incorporating provisions for stricter penalties for non-compliance, ensuring legal protection for whistle-blowers, and providing clearer guidelines for data accuracy and verification. Moreover, there is a need to expressly provide for beneficial ownership requirements in Zambia’s mining legislation.

(ii) There is a need for PACRA to develop clear and comprehensive guidelines that provide specific examples and practical instructions on how to capture and disclose beneficial ownership information. This will help companies understand their obligations and ensure accurate and transparent reporting.

(iii) There is need for PACRA to implement robust systems and mechanisms for verifying the accuracy and reliability of disclosed beneficial ownership information. This can include implementing regular audits, employing advanced data analytics tools, and conducting thorough due diligence to validate the information provided by companies.

(iv) There is need to facilitate strong collaboration and information-sharing mechanisms among relevant government agencies involved in monitoring and regulating the mining sector in Zambia. Moreover, there is need to provide adequate resources, training, and capacity-building initiatives to such agencies to enhance their capabilities in monitoring, investigating, and enforcing compliance with beneficial ownership requirements.

(v) There is need for Zambia to enhance international cooperation and foster partnerships with other countries in obtaining accurate and reliable beneficial ownership information. Beneficial ownership transparency is a global issue, and effective regulation often requires cross-border cooperation in exchanging information and investigating cases related to illicit financial activities.

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.