Adani-Hindenburg case: Lack of requirement to disclose ‘last natural person above every person’ owning economic interest in FPIs is the challenge, SEBI to SC

Source: The post is based on the article “Adani-Hindenburg case: Lack of requirement to disclose ‘last natural person above every person’ owning economic interest in FPIs is the challenge, SEBI to SC” published in The Hindu on 12th July 2023

What is the News?

The Securities and Exchange Board of India (SEBI) has clarified in the Supreme Court that the challenges it faced in the Hindenburg-Adani allegations case were from the lack of a requirement to disclose the ‘last natural person above every person’ owning an economic interest in the FPIs.

What was the issue before the Supreme Court?

The Supreme Court had appointed a six-member committee headed by Justice Sapre to suggest measures to protect investors against the kind of market volatility seen after the Hindenburg report against the Adani Group.

The committee has said that the changes made by SEBI in Foreign Portfolio Investors (FPI) Regulations in 2019 made it difficult to identify beneficiaries of offshore funds which allegedly invested in the companies of the Adani Group.

However, SEBI has clarified in Supreme Court that the challenges it faced during the Hindenburg-Adani allegations case were not a result of the changes made in 2019 FPI regulations but due to lack of a requirement to disclose the ‘last natural person above every person’ owning an economic interest in the FPIs.

What is the Last Natural Person above every person?

It refers to the requirement to identify and disclose the ultimate individual who has control or ownership over a financial investment such as Foreign Portfolio Investor (FPI). 

It means revealing the final person in the ownership chain who holds an economic interest in the FPI ensuring transparency and accountability in the investment structure.

What are the challenges in finding the Last Natural Person above every person?

SEBI said that the core problem lay in the fact that there had never been any requirement to disclose the last natural person above every person owning any economic interest in the FPI.

Even the Prevention of Money Laundering Act(PMLA) required Beneficial Owners(BO) identification only on the basis of control or ownership.

Moreover, the Financial Action Task Force had also identified ambiguity over the last natural person owning any economic interest in an FPI ” as a global challenge.