Towards a Global Norm of Beneficial Ownership Transparency

October 2018

Towards a Global Norm of Beneficial Ownership Transparency DISCUSSION PAPER FOR THE INTERNATIONAL ANTI-CORRUPTION CONFERENCE 2018

By Michael Barron, Justine Davila and Tim Law

“the establishment of a central register of beneficial ownership available to the public…will make doing business in Ghana more transparent and reliable, and support local and foreign investment. Investment[sic] and companies want to know who they are doing business with and to be able to easily assess prospective partners and investors” (Minister of Planning for Ghana on behalf of President Afuko-Addo at Concordia Summit, New York, September 2017) “our ultimate aim is that public registers become the norm” (UK Anti-Corruption Strategy 2017-22)i “Public registers of beneficial ownership are effective tools because they facilitate the work of domestic and international law enforcement, as well as civil society and the media, by guaranteeing free and immediate access to data.”

(Transparency International. Promise to Practice 2017)ii “The identity of a company’s beneficial owners is made public in fewer than one-quarter of economies globally; and ..only 15% of OECD high-income economies collect data on beneficial ownership and make it publicly available” (Doing Business 2018)iii “In the past five years a global norm has emerged around beneficial ownership transparency…. the G20 must keep pace with its commitment to be a global leader on the issue of beneficial ownership transparency…G20 Members should ensure access to beneficial ownership information by mandating public registers of beneficial ownership information that use global consistent data classifications and verification of information” (B20 Integrity and Compliance. Argentina 2018)iv “We set the ambitious goal to ensure transparency and openness of all processes of our country…Creating [a global] register is a true breakthrough in transparency and the fight against corruption in business.”

(Minister of Justice of Ukraine, May 2017)v

`

This paper was commissioned by the UK Department for International Development as a background discussion paper for a Panel Session “Towards a Global Norm of Beneficial Ownership Transparency� at the International Anti-Corruption Conference (IACC) October 2018. This is the first stage of a scoping study, comprising an initial rapid review of the current trends towards Beneficial Ownership Transparency, the state of the international architecture and provision of support to countries addressing the challenges of implementation. A second stage in-depth scoping study will be conducted following the IACC. Acronyms and abbreviations

AML AEOI BO BOD BODS BOT BRIS CAC CFT DFID EITI EU MS EU 4/5AMLD FATF OECD OGP OO OT PSC TJN

Anti-money laundering Automatic Exchange of Information Beneficial ownership Beneficial ownership disclosure Beneficial ownership data standard Beneficial ownership transparency Business Registry Interconnection System (for EU registries) Corporate Affairs Commission (Nigerian Register) Countering the Financing of Terrorism UK Department for International Development Extractive Industries Transparency Initiative EU Member States EU Fourth or Fifth Anti Money Laundering Directive Financial Action Task Force Organisation for Economic Cooperation and Development Open Government Partnership Open Ownership Overseas Territory People with Significant Control (UK Register) Tax Justice Network

1. Summary A growing cohort of countries is committing to public registers of beneficial ownership.

Some have made significant progress with implementation, for example in Denmark, the UK and Ukraine. Eight countries6 made explicit commitments to public registers at the London Anti-Corruption Summit 2016. Other countries such as Liberia have made commitments to public registers in Open Government Partnership Action Plans or will do so in 2018. By 2020, EU Member States subject to the Fifth Anti-Money Laundering Directive will be required to legislate for public registers. The Extractive Industries Transparency Initiative (EITI) will also require its 51 implementing countries to collect and publish beneficial ownership information for companies bidding for and operating extractives licences. Beneficial ownership transparency is becoming the new norm, as countries recognise that closed systems for law enforcement or tax authorities to share information are necessary but not sufficient.

These countries have risen to the challenge of beneficial ownership transparency (BOT) for companies or other legal persons, either nationally or for a specific sector. But they often face political, technical and resourcing hurdles to implement credible public registers. In order to foster a global norm – where open beneficial ownership registers are the usual way of operating and governments, businesses and citizens across the globe can share this information efficiently – such vanguard countries need to be recognised.

A step change in the level and coordination of technical assistance and resources could help countries to accelerate implementation and form a leadership group from which other countries can learn. Their experience and convergence of approaches could be codified into good practice to inform updates of existing standards such as the Financial Action Task Force Recommendations, to assist countries to benchmark progress in adopting BOT and to encourage others to join in.

Countries adopt beneficial ownership disclosure for a variety of reasons. Many want this information to tackle money laundering, corruption, tax evasion and financing of criminal activities or terrorism. Public registers can reinforce these efforts, for example some European police forces use the UK register for their own investigations. Greater transparency allows independent oversight by national and international civil society, to hold individuals and countries to account for action on anti-money laundering, corruption and tax evasion. This can encourage more robust action where political will is weaker.

Public registers also enable governments to promote prosperity through a more open investment regime and value for money in public procurement. Businesses, investors and financiers are showing a growing interest in BOT both to bolster their social licence to operate and to conduct due diligence on their suppliers, markets and competitors to drive investment and trade. This business case could be made more loudly.

A central challenge has become ensuring that data is useful, reliable and interoperable, Enforcing compliance and adequate verification of information have tested implementers. Standards for open data such as the Beneficial Ownership Data Standards7 have emerged. Countries are carefully considering how to continue to make data accessible while observing regulations on data privacy - good practice on this could also be shared.

This is still a relatively new field, but there is already anecdotal evidence that BOT is affecting incentives. Policy-makers, investors and implementers will need to keep one step ahead, closing loopholes in legal arrangements and geographies to manage Towards a Global Norm of Beneficial Ownership Transparency

4

risk8. For example, the launch of the UK Register for People with Significant Control (PSC) saw a surge in the use of Scottish Limited Partnerships. Once these were included in required UK BOT disclosures, there was an 80% drop in registration of such vehicles9.

2. How has beneficial ownership transparency evolved?

2.1. Multiple approaches to disclosure of beneficial ownership and momentum towards transparency

“Legal persons and legal arrangements are prevented from misuse for money laundering or terrorist financing, and information on their beneficial ownership is available to competent authorities without impediments.� (Financial Action Task Force (FATF) Intermediate Outcome 5) The most established approaches for beneficial ownership disclosure (BOD) with the widest country coverage are the FATF Recommendations 2410 and 25 (2012) and the OECD Global Forum standards for the Automatic Exchange of Information (AEOI, 201415), based on the FATF norm. These provide for exchange of information on BO between competent authorities such as law enforcement and tax authorities within and between countries, but do not require public disclosure. 208 countries have endorsed the FATF recommendations, 153 jurisdictions have committed to the Global Forum, of which 102 are implementing the AEOI Standard. In assessing the effectiveness of country approaches FATF allows for countries to hold information in a corporate register, for companies to hold the information or to rely on existing measures, providing competent authorities have access.

Towards a Global Norm of Beneficial Ownership Transparency

5

FATF and the FATF-style regional bodies conduct mutual evaluations, the OECD conducts peer reviews of performance against its standards. These approaches assess beneficial ownership disclosure as one element of multiple aspects of compliance raising a question as to how strongly they incentivise countries to comply. Yet FATF and OECD assessments are also considered by other organisations which can also incentivise countries to act. For example, OECD Peer Review outcomes are taken into account by multilateral financing institutions and in the EU Tax Secrecy blacklist11.

FATF and OECD experience to date suggests that many countries face significant political and technical challenges in meeting their existing requirements which some feel may need to be addressed before including an additional transparency requirement. In 2019, FATF will begin collating Best Practice on beneficial ownership disclosure to inform the next overall review of FATF Recommendations expected to begin the same year. This would offer an important opportunity to align with emerging international practice on greater transparency.

In 2014, the G20 provided political impetus to BOD by incorporating the FATF norms into a set of “High Level Principles on Beneficial Ownership Transparency”, motivated by a drive to tackle international tax evasion and corruption to assist in reinvigorating global growth. A recent review12 of G20 progress found that the number of G20 countries with weak or average legal frameworks for BOD had fallen from 15 to 11 between 2015 and 2018.

Yet the strongest drivers for action on BOT had been not the G20 but regional pressures such as the EU’s Fourth Anti-Money Laundering Directive (4AMLD), leading France, Germany and Italy to establish central beneficial ownership registers, and national action on corruption, such as in Brazil. By contrast the G20 lacks a process for members to report and monitor progress on the 2014 commitments. In October 2018, business leaders from the B20 in Argentina called on the G20 to mandate public registers of beneficial ownership information13.

Momentum towards more public beneficial ownership disclosures has grown, with political commitment, new requirements and practice in specific sectors and countries starting to run ahead of the norms originally established by FATF: The Extractive Industries Transparency Initiative (EITI) recommended a publicly available register of beneficial owners of corporate entities bidding for, operating and investing in extractive assets in its 2013 Standard, tightening these recommendations in the revised 2016 Standard14. It is now required that by January 2020, EITI implementing countries request and companies bidding for and operating extractives licences disclose BO information. It is recommended that this is done through a central public register as part of broader efforts to mainstream EITI reporting into government systems.

The revelations of the Panama Papers drove renewed political impetus to take action. At the London Anti-Corruption Summit in 2016, eight countries (Afghanistan, France, Ghana, the Netherlands, Nigeria, Tanzania, UK and Ukraine) made explicit commitments to establish public central BO registers. Commitments were also made to work towards BOT in public contracting, extractives and for owners of foreign property 15.

16 countries have made commitments on BOT in Open Government Partnership Action Plans, some to public registers and others to BOT in public contracting or extractives.

Regional drivers of progress have also become even stronger. In July 2018, the EU’s new Fifth AMLD (5AMLD) came into force requiring Member States (MS) by January 2020 to introduce legislation to establish public BO registers for legal entities, provide access to the BO of trusts for competent authorities, FIUs, professional sectors subject to

Towards a Global Norm of Beneficial Ownership Transparency

6

AML rules (banks, lawyers etc) and to others with “legitimate interest”. This also requires mechanisms for verification and regional interconnectivity. The EU will list countries with low BOT. There is also growing recognition of the value to businesses of accessing and providing BO information. Some businesses have initially supported BOT for reputational reasons, to demonstrate greater commitment to paying fair rates of tax, rebuild trust with consumers and strengthen their social licence to operate. But there is a growing recognition of the potential of this information to assist companies and investors with due diligence and risk management in knowing companies’ markets, suppliers and competitors.

Governments are recognising the added value of BOT to promote an open and efficient investment climate. A case study on business registry transparency by the World Bank’s Doing Business team in 2018 recognised that transparency of information can broaden the pool of potential investors by reducing the need for personal connections. It can level the playing field for a budding entrepreneur who may lack the necessary connections to formally launch his or her company. By reducing the risk associated with an investment, transparency can help investors determine the viability of a transaction16.

Online access further facilitates efficiency in international and local investment decisions by making the information easily and cheaply accessible remotely. Private and not-for-profit service providers are moving into the market to service this demand as a means to enhance competitive advantage through disclosure17.

A diverse range of political commitments and requirements are emerging. They are yielding commonalities which are de facto establishing a new global norm and will provide important lessons to inform revision of existing formal norms such as FATF.

3. Emerging lessons A range of countries are actively dealing with the challenges of BOT implementation. Some areas of convergence are emerging:

3.1. How are approaches converging towards a new stronger norm?

Looking across countries and at different initiatives and requirements, some areas of alignment on technical definition and scope of reporting are emerging although considerable divergence remains. For example: defining a beneficial owner as either a natural person, a 100% listed company (on a recognised stock exchange) or a 100% government-owned entity; a beneficial owner can exercise ownership either directly or indirectly through a series of corporate entities; and beneficial ownership covers ownership, economic interest and control i.e. a person may not own any shares in a company but may have voting or other rights to exercise control such as appointing or removing the majority of directors.

There are other areas of divergence18 related to country context but which can also tend to leave loopholes. For example, thresholds vary from country to country. The most common level is 25%. Generally, they fall in the range 5-25%. The UK only requires disclosure of ownership bands (25-50%, 50-75%, 75-100%). Critics suggest that higher shareholding thresholds enable companies and shareholders to adopt structures to avoid disclosure by keeping holdings below the thresholds. There is also not consensus internationally on all methods to reduce secrecy, for example whether to abolish bearer Towards a Global Norm of Beneficial Ownership Transparency

7

shares and nominee arrangements, or on the full scope of disclosure requirements for legal arrangements other than companies, for example trusts19. Some argue that trusts have a different purpose, for example as vehicles used by families to hold assets for children. But they can also be used to disguise the ownership of companies in the same way as complex corporate structures. 5MLD will require EU MS to disclose information on BO of trusts to competent authorities and those with a “legitimate interest� but not full transparency.

Countries are also converging on their implementation frameworks in certain ways, for example setting a clear definition in law, requiring BO registration by companies20, making beneficial ownership information available to law enforcement agencies and tax authorities as a minimum (driven by FATF and OECD rules) and including sanctions for non-compliance. Countries are taking a variety of approaches to other aspects, for example responsibilities for collecting/reporting information, the degree of free and open access and standardisation of data to ensure interoperability, the nature of sanctions and enforcement for non-compliance and depth of verification.

3.2. What are the common challenges that countries face with implementation?

Where a country is politically committed to BOT, it will need to deal with a series of legal, technical and resourcing challenges to make this a reality. This requires realism about the timescale for implementation and sharing lessons as countries navigate these issues together. Vanguard countries need continued recognition, political and technical support to maintain momentum.

Starting in 2017, 50 EITI countries have now published plans for how to ensure BOT for companies bidding for or operating extractives licences by January 2020. These roadmaps lay out the legal and other reforms needed to meet EITI requirements. Yet as of June 2018, Ghana, Kazakhstan, Mongolia, Senegal, Ukraine, the United Kingdom and Zambia had made good progress, but at least 26 countries had made more limited progress due to issues including political instability, technical and financial resourcing. (EITI Progress Report 2018. Minutes of the EITI Board Meeting, June 2018) 21 Some emerging lessons from countries on implementation and challenges are:

3.2.1. Translating political commitments into implementation A political leader may make a commitment to a central public register at an international conference, but at home a series of reforms will be required to make this happen, often involving working with parliament to secure legislation and across different government agencies. For example, for EITI BOT several countries have established inter-agency working groups to ensure national coherence in policy and reform22. The priority given to BOT reforms more broadly competes with other political, policy and resourcing needs.

These hurdles can represent genuine blockages or a smokescreen where political commitment to BOT weakens, for example with a change of government.

In Denmark, for example, companies questioned the need for additional filing requirements. In other countries, legislation has met political resistance, for example from parliamentarians concerned about the implications for disclosure of their own business holdings or from law enforcement concerned about the threat to their control of information. Such resistance has caused delays and, in some cases, forced the dilution of legislation Towards a Global Norm of Beneficial Ownership Transparency

8

Parliamentarians, civil servants and the private sector often need to build technical understanding of policy and new reporting requirements, for example on ownership structures and related risks for money-laundering, corruption and tax evasion. Sharing expertise with other implementing countries is very important to assist with this process.

Maintaining momentum can be a challenge – it may be difficult to make the case on a complex issue such as BOT in local media, where leakages and prosecutions make easier anti-corruption headlines. Media may require assistance to build expertise in this field.

National and international civil society has an important role to play in maintaining momentum, by holding governments to account for commitments on BOT. For example, Transparency International country Chapters have tracked follow-up to the London Summit and the G20 Principles; civil society monitors OGP Action Plan commitments.

In some countries, constitutional arrangements will require central governments to work with subnational governments to secure support and implement reforms. For example, Canada, which has a federal system, has been considering a commitment to BOT but this would require collaboration on implementation by individual provinces.

3.2.2. Legislative frameworks vary and require updating Three countries have functioning central public beneficial ownership registers (Denmark, Uk and Ukraine). A number of countries are legislating for such a register. Parliaments in Ghana and Nigeria are both considering such reforms to their Companies Laws. As well as EU member states that have to adopt 5AMLD by 2020, several EITI-implementing countries are legislating for a central public register. Zambia amended its Company Act earlier this year with implementation due to start in 2019. The Kyrgyz Republic has also legislated for a public register applicable to the extractive industry only. Common challenges include: Legal frameworks vary in different country contexts. Conceptualising beneficial ownership is more straightforward in some legal systems than others. For example, concepts such as beneficial ownership and trusts may initially be more easily recognisable in systems built on English common law and introduced in Companies Laws. Where, historically, the legal system has evolved differently, countries can take different approaches. For example, Azerbaijan has introduced BO as a concept under AML legislation.

Many countries opt to include BOD in reforms to companies’ legislation. This can be part of a much larger and more complex piece of legislation which can take a long period to be passed, not necessarily due to opposition specifically on BOT. Where there is opposition, MPs may have concerns on Politically Exposed Person disclosures, or lack technical understanding. This requires work with parliamentary committees and legislators. In Nigeria, for example, the Corporate Affairs Commission (CAC) has worked to build technical understanding with parliamentary committees.

There is likely to be a further need for detailed secondary legislation, for example where countries adopt broad international commitments into primary legislation. This is the case for some EU Member States (MS) transposing the EU AMLDs.

3.2.3.Corporate registration systems are different and will need reforming Denmark, the UK and Ukraine added beneficial ownership disclosure requirements to their existing company registers. These countries already had the reporting systems in place

Towards a Global Norm of Beneficial Ownership Transparency

9

(including the IT) and the institutional capacity to allow for additional reporting. In other countries, common challenges include: Some countries tackling beneficial ownership disclosure are starting from a lower base with manual company registers or little history of public disclosure of company information. For example, in Nigeria, the CAC has electronic records of company data only since 2013. Some UK Overseas Territories (OTs) have systems for collecting company information but do not make it publicly available. The UK parliament voted in 2018 to take steps to oblige the OTs to introduce public registers by 2020.

Many existing company registries, if they exist, do not collect BO information and were traditionally established only to facilitate company formation and trade. In some countries it has historically been the responsibility of Ministries of Finance or Justice to collect information for tax or identity purposes. Some platforms, such as the notary system in Spain and Italy, are better prepared to transition to BO data collection and verification.

Where countries have existing corporate registers, they may require substantial modernisation to change their roles23, for example to provide new responsibilities for data collection, manage the collection and/or publication of BO data, oversee any verification and sanctions regime and ensure compliance with legislation and international rules such as FATF. These roles require specific technical expertise, human and financial resourcing.

Resourcing is often a challenge for company registries which need both to establish/modify existing registers and then maintain them. Zambia, Ghana and some EU MS are considering introducing a fee for users to access their new public registers of BO. There is a trade-off between resourcing registries and ensuring open access to users such as civil society and SMEs24.

3.2.4. Reliability of data “The benefits expected by policy-makers will come about only if the data is high-quality and reliable enough to be employed by key user groups, including law enforcement, civil society, and business� (Open Government Partnership panel, Tbilisi Summit 2018)25 Countries and organisations at the vanguard of BOT are testing approaches to ensure reliability while considering the cost effectiveness. For example, Open Ownership proposes a 3-stage approach: authentication and authorisation of the person declaring BO, validation to ensure the data is a legitimate value, and verification that the data is correct26. Common challenges include: Ensuring compliance with disclosure requirements is necessary. Legal obligation to provide information is the most effective means of ensuring compliance, but is not a guarantee, requiring an effective sanctions regime. EITI implementing countries that have introduced voluntary disclosure regimes have experienced low levels of compliance. While Denmark has achieved around 93% compliance and the UK 99%, in Ukraine only 16% of companies had submitted any beneficial ownership information as of August 201727. In 2018, Denmark responded to FATF mutual evaluation findings by tightening its sanctions for certain companies which do not report BO, these can now be compulsorily dissolved.

Approaches to verification vary. Some countries place the obligation on companies to provide documentary evidence and for the company register or other government agency to conduct enquiries to verify company submissions. A second approach places the onus on users of the information, such as law enforcement, civil society and members of the

Towards a Global Norm of Beneficial Ownership Transparency

10

public to report errors or instances of apparent non-compliance. For example, the UK PSC registry has a button for anonymously reporting incorrect data.

Registers may need to store historical data, for example to track changes in ownership and company names28.

3.2.5. Data privacy Disclosures can raise concerns about identity theft and data breach. Concerns about personal safety can lead to careful exemptions for some individuals or occupations29.

Where countries or regions have legislation to protect individuals’ information, this may be pre-date BOT reforms or part of parallel data-related reforms, such as the EU General Data Protection Regulation (GDPR). Beneficial ownership disclosures may be tested by legal challenges30 to registries to demonstrate they are managing data privacy appropriately.

3.2.6.BOT is just one part of a wider system for tackling corruption or improving the business environment “17% of countries do not impose any AML/CFT supervisory requirements. Countries with weak AML/CFT regimes exacerbate vulnerabilities of legal persons, arrangements and professional intermediaries” (FATF-Egmont Group Study on supervision and enforcement of BO obligations 2018)31.

Greater BOT is just one important element of the armoury that countries have to tackle corruption. Using information generated by BOT effectively requires complementary strengthening of supervisory capacity for government, the financial sector and agents such as lawyers and estate agents as well as effective investigation and law enforcement. This is also important to enable cross-border information sharing, requiring complementary strengthening of Financial Intelligence Units, for example.

Using BOT information requires effectives cross-border collaboration and accessibility for different users. For examples, Denmark is part of BRIS (Business Registers Interconnection System) that provides infrastructure, which facilitates public access to information on EU companies. BRIS implies that the EU countries’ beneficial ownership registers will eventually be interconnected, and Denmark has a focus on supporting this process and increasing the use of BRIS in the EU. Resistance to implementation of existing norms and standards may relate to other elements of AML/CFT regimes, slowing down BOT where it is part of a broader reform programme or monitoring approach. For example, it is argued that some EU MS are slow to adopt 4AMLD for this reason or conversely, incentives to deliver specifically on BO may be limited as non-compliance on this alone may not lead to significant international action against countries under the FATF approach or by financial institutions.

3.2.7. What support is available and how can it be improved?

Multiple sources of support are emerging for countries to address these implementation challenges, however many countries report that they are struggling to access sufficient and timely technical and financial resources. There is a limited pool of technical expertise in this relatively new field where practical experience is scarce. Existing providers include: technical assistance from organisations to enable countries to work towards existing standards eg. OECD, World Bank, IMF support to comply with tax or AML/CFT rules; Towards a Global Norm of Beneficial Ownership Transparency

11

bilateral knowledge sharing, study tours and technical support eg. the UK has provided support to Ghana and Nigeria and hosted visits from Latin America, Africa, Asia; guidance, case studies, toolkits and checklists, eg. from Tax Justice Network, Open Ownership, EITI, OECD and FATF. fora for implementing governments to provide peer support and share lessons. Open Ownership and EITI host networks of implementers and EITI holds regional conferences.

The OGP has established a BOT working group. EU MS have a discussion forum; World Bank managed Trust Funds for the OGP and EITI32 although these are not dedicated for beneficial ownership; Private sector providers, for example suppliers of company registry packages; Civil society eg. TI, Global Witness.

It is likely that users of this support would benefit from greater coordination and signposting to the range of support available. While overall a higher volume of financial resources could provide a significant uplift in expertise to support countries to move through implementation more quickly.

4. The way forward - towards a global norm of BOT? There is already a cohort of countries which have made political commitments and/or taken practical steps to implement BOT for companies and legal persons through central public registers. Efforts are underway to ensure that these practitioners can share learning and provide peer support, for example through the Open Government Partnership working groups and Open Ownership/EITI/EU MS networks. These fora could provide a platform to establish a vanguard group of countries which in turn can provide learning and influence other countries and existing standards. Other countries, particularly from Latin America and Africa, are also expressing interest in BOT. Together these groups could generate a geographically diverse leadership group on global BOT. This cohort of leading countries could seek to influence the international agenda on beneficial ownership and apply pressure through standard-setting bodies, political fora such as G20, work with business leaders and peer fora such as the Open Government Partnership, regional bodies and bilateral engagement to persuade other countries to follow suit.

There will be opportunities for this leadership group or others to influence current globally accepted norms for BO disclosure over the next 3-5 years towards greater transparency and scope, seeking to ensure that the momentum on BOT can also widen geographical coverage. The current global standard is contained in FATF Recommendations 24 and 25 and Intermediate Outcome 5. FATF will be generating Best Practices on BOD in 2019 which could inform the next formal process of review of the FATF recommendations beginning in 2019-20. The IMF is also working on this issue.

Countries considering or adopting BOT face a series of constitutional/legislative and technical/resourcing challenges which vary according to historical context and their stage of implementation. Nonetheless there is already convergence around a number of key issues on scope and definition of BOT and emerging good practice on other points.

There are lessons from implementation of central public registers, including ways to tackle frontier challenges such as interoperability of data and verification. There is an opportunity to codify this material into a single set of principles and guidance for implementers.

This could then inform updates of existing standards such as FATF and assist with regulatory consistency across jurisdictions. It might also form the basis for establishing a BOT-specific standard, which could focus political, financial and technical support Towards a Global Norm of Beneficial Ownership Transparency

12

for countries moving through different stages of implementation depending on country context.

Maintaining political momentum on BOT requires sustained effort to support and recognise countries which are going beyond the current global standard of FATF and already developing a new norm. Civil society and media campaigns have been effective in driving BOT to date and could be focused strategically, for example on more reluctant jurisdictions and BOD loopholes where corruption risks associated with secrecy are highest. Much can be also be learnt from other international efforts to build global ownership and peer pressure – such OECD AEOI standards, EITI and OGP Action plans. A step-change in investment in funding, coordination and signposting of technical assistance for BOT is also necessary to help countries accelerate delivery of their political commitments.

Much of the international focus on BOT has been driven by anti-corruption and tax secrecy concerns. But there is a strong business rationale for both governments and investors in as it can improve business due diligence, reduce investment risk and drive trade. There is a need to work closely with governments, banks and investors, international finance institutions and both large and smaller companies to develop this business case, to evaluate and strengthen approaches to supply chain due diligence, for example, to encourage countries and businesses to adopt BOT for prosperity.

BOT is at an early stage, albeit with considerable momentum. This means there is a huge opportunity to develop baselines in different contexts to study and document impact and to establish ways to track how this shapes incentives through proxies such as trade, FDI flows and appetite for different legal arrangements across jurisdictions. This requires a systematic investment working with academics in different countries as well as practitioners.

Global challenges such as corruption, money laundering, illicit finance and tax evasion on the negative side and trade deals or investment on the other, require global responses. A global norm of BOT will only be useful if it encompasses ways for businesses, law enforcement and citizens to access data and track chains of ownership across jurisdictions. Country-level policy discussions on BOT, updates to existing international standards and potential new norms need to incorporate from the outset considerations for standardising and linking data including in open formats, for example through unique identifiers and interoperability of registers, drawing on the Beneficial Ownership Data Standard (BODS). This will ensure that information achieves accessibility in the most efficient and cost-effective way for different users and ensures linkages to other data sets, for example on Open Contracting or business due diligence and scrutiny of supply chains, as well as law enforcement or taxation.

Towards a Global Norm of Beneficial Ownership Transparency

13

References

i

UK Anti-Corruption Strategy. 2017-22. HM Government. London. December 2017.

ii

(TI Sept 2017) Amin, L. and Raymond, J. Promise to Practice. Monitoring Global Progress of the 2016 Anti-Corruption Summit Commitments. Transparency International. September 2017. An updated progress report will be issued in the autumn 2018. iii

(Doing Business 2018) Coste, C., Meunier,F., Novik, N., Reeves, M. and Tjong, E. Starting a Business: Transparency of information at business registries. World Bank. http://www.doingbusiness.org/en/reports/case-studies/2018/sab. iv

(B20 2018) B20 2018 Integrity and Compliance Policy Paper. October 2018.

v

(Open Ownership March 2018) Quoted on the occasion of an MoU for the Ukraine register to join Open Ownership’s global database, referenced in Sztykowski, Z. and Mayne, T. “Improving Beneficial Ownership Transparency in Ukraine”. Open Ownership. London. March 2018.

6

Afghanistan, France, Ghana, the Netherlands, Nigeria, Tanzania, UK and Ukraine.

7

The Beneficial Ownership Data Standard (BODS) aims to make BO data more easily interoperable, reused and higher quality as a public good for different users – eg. for collectors of data, in procurement, for journalists or other investigators or due diligence. See: https://openownership.org/uploads/Introducing%20the%20beneficial%20ownership%20data%20standard%20%20slides%20from%20the%20OGP%20Global%20Summit%202018.pdf 8

(TJN 1). As highlighted by the Tax Justice Network, “For example, if both country A and country B both offer secretive companies, but one million companies have been created in country A while none have been created in country B, then the risk posed by country A is much worse in practice than that of country B.” https://www.taxjustice.net/wp-content/uploads/2018/06/TJN2018BeneficialOwnershipRegistration-StateOfPlay-FSI.pdf 9

For further analysis of SLPs see Global Witness: https://www.globalwitness.org/en-gb/blog/three-ways-uks-register-real-ownerscompanies-already-proving-its-worth/ 10

FATF Recommendation 24. To ensure that “adequate, accurate and timely information on the beneficial ownership and control of legal persons... can be obtained or accessed in a timely fashion by competent authorities” 11

https://ec.europa.eu/taxation_customs/tax-common-eu-list_en; https://ec.europa.eu/taxation_customs/sites/taxation/files/eu_list_update_02_10_2018_en.pdf 12

Martini, M. and Murphy, M. G20 Leaders or Laggards? Reviewing G20 promises on ending anonymous companies. Transparency International. July 2018.

13

B20 2018 op cit.

14

www.eiti.org. 2016 Standard requirement 2.5.

15

TI Sept 2017 op cit.

Doing Business 2018 op cit.

16 17

For example TRACE International, has established an online global registry for companies voluntarily to list their BO, on the basis that “our inclusion in the TRACEpublic database also provides you with a competitive advantage as multinational companies often require third parties to disclose beneficial owners as part of their due diligence process.” https://tpms.traceinternational.org/Home/FAQs 18

Some organisations are working to systematise into a checklist the range of issues which countries could consider to minimise loopholes, see for example the work of the Tax Justice Network: https://www.taxjustice.net/wp-content/uploads/2017/04/TJN2017_BORegistry-ChecklistGuidelines-Apr.pdf 19

According to the Tax Justice Network “in the case of partnerships, trusts or private foundations, no country has comprehensive beneficial ownership registration where information is available online and for free”. TJN 1 (op cit) 20

TJN 1 (op cit): In the last three years considerable progress has taken place, especially in Europe, a few countries in Latin America, and one African country: laws requiring beneficial ownership registration have been approved (or are required to be approved by 2020) in a total of 45 jurisdictions 21

(EITI 2018) EITI Progress Report 2018. A Platform for Progress.

Minutes of the 40th EITI Board Meeting, Berlin, 28-29 June 2018.

22

(EITI 2018) op cit.

23

See for example. FATF Guidance on Transparency and Beneficial Ownership. 2014.

24

Global Witness records that “After paywalls were removed in June 2015, access to UK company data grew exponentially to over 2 billion data searches a year, compared with just over 6 million access requests for paid information during 2014-2015.

25

https://www.opengovpartnership.org/stories/where-do-we-go-here-taking-stock-of-beneficial-ownership-transparency

26

https://openownership.org/news/what-we-really-mean-when-we-talk-about-verification-authentication-and-authorization-part-2-of-4/

Copyright © 2018 Adam Smith International. All rights reserved.

27

Ibid.

28

Op cit.

29

For example, the UK PSC Register allows individuals in pharmaceutical, animal-testing and defence industries to apply for an exemption which is considered on a case-by-case basis.

30

See for example, https://academy.mishcon.com/legal-challenge-to-common-reporting-standard-crs-and-beneficial-ownership-boregisters-posted-on-01-august-2018/ 31

http://www.fatf-gafi.org/media/fatf/documents/reports/FATF-Egmont-Concealment-beneficial-ownership-Executive-summary.pdf FATF-Egmont group study: Concealment of Beneficial Ownership 2018 32

This is the World Bank Extractives Global Programme Support (EGPS), of which part is used to support the broad range of EITI implementation, not only BOT.

Copyright Š 2018 Adam Smith International. All rights reserved.