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02.07.2020 Agriculture

Chinese Fishing Corporations Operating Illegally Will Be Curbed By Companies Act: Legal Analysis

By Steve Trent
Chinese Fishing Corporations Operating Illegally Will Be Curbed By Companies Act: Legal Analysis
LISTEN JUL 2, 2020

If properly enforced, Ghana’s new 2019 Companies Act will make it much more difficult for Chinese fishing corporations to illegally use Ghanaian ‘front’ companies to obtain local licenses, a legal analysis has confirmed. Designed to improve transparency in company ownership and reveal any vested interests, the act requires clear identification of ‘beneficial owners’ – those that take home the profits.

This new law offers a great opportunity to realise legal and sustainable fisheries, says the Environmental Justice Foundation, which commissioned the analysis, but cautions the law must be fully enforced to generate these benefits. The confusion that front companies create around ownership means that these corporations often go unpunished for serious illegal fishing crimes which are threatening Ghanaian livelihoods and food security.

Around 90% of Ghana’s industrial trawl fleet is linked to Chinese ownership, investigations by EJF have shown. These operators work through Ghanaian ‘front’ companies, using opaque corporate structures to import their vessels and register and obtain a licence.

Ghanaian law expressly forbids foreign ownership of industrial trawl vessels operating under the Ghanaian flag. Both in terms of ownership on paper, and, crucially, in terms of those who profit from the vessel – known as the ‘beneficial owners’.

Industrial vessels ¬– with the sole exception of tuna vessels – should be wholly owned by Ghanaians, says Section 47 of the 2002 Fisheries Act (Act 625), and specifically refers to beneficial ownership. Information on beneficial ownership must be provided to the Fisheries Commission as part of an application to register a vessel as a Ghanaian fishing vessel, as laid out in the 2015 Fisheries (Amendment) Regulations.

Crucially, the new 2019 Companies Act (Act 992) clarifies the definition of a beneficial owner, showing clearly that the way Chinese fishing corporations are using Ghanaian front companies is illegal. The act requires that companies identify beneficial owners and disclose information on them. This includes ‘politically exposed persons’– anyone who has been entrusted with a prominent public function, and therefore may be at higher risk of involvement in bribery and corruption because of the influence they wield.

These laws are in place to ensure that the Ghanaian people receive a fair value for their resources: flouting them is denying the country of crucial economic revenue. Investigations by Ghana’s Serious Fraud Office in the early 2000s uncovered major tax and other non-tax breaches by Chinese fishing companies operating via local intermediaries.

Front companies also mean that the true beneficiaries are not held accountable for other crimes. In 2019, an industrial trawler – the Lu Rong Yuan Yu 956 – was caught fishing illegally. When the local owner refused to pay the fine it seems that no attempt was made to pursue the Chinese company that operates the vessel, Rong Cheng Ocean Fishery Co Ltd. This corporation also operates five other trawlers and two tuna vessels – all fishing under the Ghanaian flag.

Ghana’s fisheries are being driven to the brink of collapse by industrial trawlers breaking the law. If they are allowed to continue with impunity, without risk that they will be properly sanctioned, national food security and the livelihoods of millions of Ghanaians will be put at risk.

EJF’s Executive Director Steve Trent, said: “Ghana’s fishing sector is lagging behind others in terms of transparency of operations, resulting in widespread illegal fishing and loss of revenue for the Ghanaian people. The Fisheries Commission must work with the Ghana Revenue Authority, Ghana Investment Promotion Centre and Registrar General’s Department to fully investigate beneficial ownership and ensure that the fishing sector complies with all relevant laws. This is the only way that the government can ensure that the Ghanaian people receive a fair return on their own resources and that the fishery can be sustainably managed.”

Read the briefing

• Ghana’s fisheries are in a state of crisis. Landings of key species, such as sardinella, declined by around 80% during the period 1996 to 2016. Scientists predict the collapse of the small pelagic fishery within five years if there is no change to business as usual. Ghana’s marine fisheries provide livelihoods for over 2.7 million people.

• According to Section 383 of the 2019 Companies Act, a beneficial owner now includes anyone:

o who directly or indirectly ultimately owns or exercises substantial control over a person or company;

o who has a substantial economic interest in or receives substantial economic benefits from a company whether acting alone or together with other persons;

o on whose behalf a transaction is conducted; or

o who exercises significant control or influence over a legal person or legal arrangement through a formal or informal agreement.

• The 2019 Companies Act introduces requirements to improve beneficial ownership transparency. The Act establishes a Central Register of beneficial ownership information to be maintained by the Registrar of Companies and made accessible to the public. Companies are required to disclose the details of beneficial owners for inclusion in the register, including the nature of interest giving rise to the beneficial ownership (e.g. whether a legal, financial or informal arrangement) and whether the beneficial owner is a politically exposed person. Failure to provide accurate information on beneficial owners amounts to a punishable offence.

• According to the 2015 Fisheries (Amendment) Regulations (LI 2217) information on beneficial ownership must be provided to the Fisheries Commission as part of an application to register a vessel as a Ghanaian fishing vessel. Where the Commission is satisfied that the vessel fulfills all legal requirements, it recommends to the Ghana Maritime Authority that the vessel be registered as a Ghanaian fishing vessel.

• According to media reports, in the early 2000s, an investigation by Ghana’s Serious Fraud Office (SFO) found that two Chinese fishing companies had landed and re-exported fish between 1994 and 1999 but had failed to pay taxes totaling US$ 15,357,236 in what was described as a “massive fraud on the people of Ghana”. Ghana’s Investment Promotion Centre said it had not granted the two companies licenses to carry out trawl fishing in Ghana and were unaware that the companies were engaged in such activities in the country.

• At the end of 2019, three new vessels –Yu Feng 1, 3 and 4 – were imported into Ghana, having previously been registered to the Chinese flag. Although the vessels are registered to two local companies, available information raises questions about the true beneficial ownership. The two local companies were newly established in 2019, with only PO boxes provided as the registered address.

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