Government approves bill banning bearer shares

The government of Petr Nečas approved a bill that will regulate bearer shares and allow authorities to identify their owners. If passed by Parliament, the anti-corruption measure, which was announced by Deputy Prime Minister Karolína Peake on Wednesday, will force companies to register bearer shares in a central depository kept by the stock exchange, or deposit them with banks.

Photo: Barbora Němcová

Bearer instruments, or shares, are proof that their owner has a claim to a property, such as bonds, and differ from normal registered shares in that there are no records kept of who owns the property in question, or of the transactions involved in transferring them. Whoever physically holds the bearer shares is assumed to be the rightful owner of the property. According to the Justice Ministry, among others, bearer shares are abused for money laundering and corruption.

No more anonymity, says the government, finally making good on a promise they made a part of their election platform that they have long been accused of sidelining.

If the government’s bill is passed then the aptly-named “anonymous shares” in Czech will now cease to exist as such, and will have to be registered either with the stock exchange or immobilised – that is, deposited in a bank - in either case allowing their identification by law enforcement officials and those awarding public tenders or subsidies.

Petr Nečas, Karolína Peake

Practically all of the major Czech political parties have said at one point or another that they insist on getting rid of bearer shares, but have changed tack when it came to a vote. Moreover, while the banning of anonymous shares has been a flagship issue for many public corruption watchdogs, lawyers and politicians alike say it is only one small step towards slashing corruption rather than bringing about real solutions for transparency.

Deputy Prime Minister Karolína Peake told the Czech Press Agency on Wednesday that the abolition of bearer shares was an important step, definitely not as essential in combating corruption as it is sometimes presented. In particular, she said, it does not resolve the kinds of opportunities that companies use their complicated ownership structures to rely on. She added that the agreement under which she, along with the local development and justice ministries, would prepare other draft measures to reveal ownership structures of the companies bidding for public procurement by the end of the year, was as equally important as the abolition of bearer shares.

There are a number of other ways to obscure the real ownership structure of a company, lawyers note, for instance by establishing a Czech company whose only shareholder would be a foreign firm based in a country where bearer shares are permitted.

The Justice Ministry has therefore also proposed that shareholders be obliged to have their dividends per share sent to a bank account in the EU or in any member state of the Organisation for Economic Cooperation and Development.