Bearer Share Custody (part 2)

In part 2 of this article, I will present the technical requirements for holding the shares in custody, such as the documentation that the Authorised Custodian should request and what the client should expect to provide in order to have the shares held in custody.

This article will briefly look at the requirements for an Authorised Custodian, especially for a foreign custodian to be authorised, as well as looking briefly at their responsibilities.  It will also specify the details of the affidavit that the beneficial owner (referred to as “ultimate beneficial owner” or “UBO”) will need to sign for the Authorised Custodian and other documentation, and what a UBO will need to do in the case of the sale of the shares of the company to another person or for their estate planning needs.

Authorised Custodian

As mentioned in our previous article on the Custody of Bearer Shares, a local authorised custodian can be:

• Banks with a general license
• Trust Companies
• Brokerage houses
• Stock Exchanges
• Lawyers or law firms registered with the 4th Chamber of the Supreme Court

It is also possible for foreign custodians to be authorised to hold the bearer shares in custody.  The requirements for foreign banks, trust companies or financial intermediaries are:

• they must be from a FATF member jurisdiction, or
• they must be from a member jurisdiction associated with FATF; and
• they must be registered before the Banking Superintendence of Panama, which will have a special registry of foreign companies.

The minimum requirements for a foreign custodian are:

1. General incorporation details – incorporation date, legal details, and contact details
2. Certification of licenses held (banking, trust or financial services), which should be translated to Spanish
3. Designation of a Panamanian notification agent
4. Affidavit which confirms that
   1. it has full KYC requirements that meet the standards required by Law 2 (2011)
   2. That it will provide the company’s registered agent with the full details of the beneficial owner of the shares whose certificates it holds in custody.

The Banking Superintendence of Panama has full authority to regulate these requirements, which they have done by Accord No. 4 (2015), which was published in June 2015 in the Gazette.  For more information, please see their page: Authorised Custodians for Bearer Shares.  So far, no foreign custodians appear to have registered.

Authorised Custodian responsibilities

The authorised custodian has the following responsibilities:

1. hold all documentation regarding this service at their Panamanian headquarters (or in the case of foreign custodians, at their registered address)
2. have the physical custody of the share certificates at their Panamanian headquarters (or in the case of foreign custodians, at their registered address)
3. hold all of the above under strict confidentiality, as required by Law 47 (2013)
4. provide this information when required by the competent Panamanian authorities (which will not be considered a breach of the strict confidentiality required above or a breach of confidentiality or the right to privacy)
5. issue a certification regarding who is the owner of the shares, when so required by court order, the beneficial owner of the shares or the lien holder (in the case there is a lien on the shares)

In the case of a foreign custodian, there is the additional requirement that they may either:

1. put up a bond of $25,000 or
2. provide the registered agent of each company for which they are holding the shares with a notice of their appointment as authorised custodian, as well as the complete name and details of the owner(s) of the shares that they hold in their custody (which will not be considered a breach of the strict confidentiality required above or a breach of confidentiality or the right to privacy).

If they put up the bond, the foreign custodian is only required to provide the registered agent with the notification that they are the designated custodian of the shares, and then will only be required to provide the information regarding the ultimate beneficial owner when there is a request from a competent Panamanian authority.

Affidavit of Beneficial Owner

Articles 8 and 9 of the law specify different information and affidavits for companies incorporated before the law entered into effect and for companies incorporated (permitting bearer shares to be held in custody, as of August 4, 2015):

Article 8: companies incorporated before August 4, 2015:  At the moment of handing the bearer share certificate into custody, the following information should be provided by Affidavit:

1. Details of the owner(s) – UBO:
   1. complete name
   2. nationality (or jurisdiction, in the case of another legal entity)
   3. cédula (national ID card), passport or registration number (in the case of another legal entity)
   4. phone number and email address (or fax number)
2. Registered agent details:
   1. complete name
   2. physical address
   3. phone number and email address (or fax number)

The owner of the bearer shares will in all cases be deemed to be the person that appears in this sworn affidavit.  (Please note that the Authorised Custodian may request additional information.  These are merely the minimum requirements).

Article 9: companies incorporated after August 4, 2015:  At the moment of handing the bearer share certificate into custody, the following information should be provided by Affidavit:

1. Details of the owner(s) – UBO:
   1. complete name
   2. nationality (or jurisdiction, in the case of another legal entity)
   3. cédula (national ID card), passport or registration number (in the case of another legal entity)
   4. address
   5. phone number and email address (or fax number)
2. Registered agent details:
   1. complete name
   2. physical address
   3. phone number and email address (or fax number)

The owner of the bearer shares will in all cases be deemed to be the person that appears in this sworn affidavit.

Transfer of the Shares

One significant change in the handling of bearer shares, now that they will be in custody, is that the transfer of ownership no longer happens by the simple delivery of the share certificate to another person.  Previously, to transfer bearer shares, you simply handed the share certificate to another person (no contracts or documentation required), and they were the new owner.  But since the UBO will no longer have the share certificate in their power, the minimum requirement will be that the custodian must be formally notified in writing of the transfer, and the new owner must deliver to the authorised custodian the affidavit required for the beneficial owner.  We would recommend to clients that they consider documenting the transfer with a contract or donation document, depending on the case.

Estate planning considerations

Likewise, for the transfer of the shares in the case of the death of the ultimate beneficial owner, it will no longer be as simple as giving the future beneficiary the location or access to the key of the safety deposit box or telling them “the share certificates are under my bed”.  The UBO will need to provide the Authorised Custodian instructions in writing (we have not yet seen any regulations regarding this part, but for now would recommend to the client a notarised letter of wishes) instructions regarding how the shares are to be transferred in the event of their death.  These instructions take prevalence over any hereditary rights or rules in the UBO’s country of residence, according to article 13 of Law 47 (2013).

It should be noted that this transfer does not give the heirs any rights during the lifetime of the UBO, but only upon the death of the UBO, for which the heir(s) must present the death certificate (but no court order is required).

Any specific questions regarding these clauses should be addressed to a lawyer for advice.