Transparency of Czech company ownership deteriorates

By bne IntelliNews January 16, 2013

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Despite years of apparent efforts to push through legislation to make Czech company ownership more transparent, more than half of the country's registered joint-stock companies still used bearer shares - which allows ultimate beneficiaries to remain anonymous - in December 2012, according to research by Ceska kapitalova informacni agentura (CEKIA).

Clearly linked with corruption, especially connected to public procurement contracts - one of the weakest elements in the Czech anti-corruption cannon - and money-laundering, the use of bearer shares was targeted by the government in a highly publicised campaign to push through legislation banning them early in 2012. However, although the law was approved by the cabinet in May, the bill wasn't passed to parliament until November. Since then, i'ts hard to find any mention of the proposed law's fate.

Until the law on public contracts was amended in September 2010, joint-stock companies with bearer shares were allowed to participate in public tenders. Up until 2011, the Czech state was believed to be losing an estimated CZK60bn (EUR2.5bn) annually - or 10% of the overall public procurement budget - through non-transparent public contracts, according to Czech Postion.

However, companies are apparently betting there's little chance that politicians will finally cut out the practice - the use of which is limited to the Czech Republic and a handful of small nations - which denotes an equity security wholly owned by whoever holds the physical stock certificate. According to CEKIA, 13,792 joint-stock companies in the country, or 54.99%, used only bearer shares in December 2012 - a rise from the 52.64% using them two years previously.

Meanwhile, 10,730 companies - or 42.78% - used registered shares exclusively, compared with 40.89% in December 2010. A minority of 346 companies used both registered and bearer shares. Less than 5% of joint-stock companies have issued book-entry shares - mostly firms that took part in coupon privatisation or entered the stock exchange and the off-exchange market.

"Like in the previous years, businesses prefer anonymous shares owing to simple transferability, low administrative and financial costs and the possibility to keep their real owners secret," said CEKIA analyst Petra Stepanova, according to CTK.

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