Beneficial ownership

Revealing who stands behind the companies

The identity of the real owners – the ‘beneficial owners’ – of the companies that have obtained rights to extract oil, gas and minerals is often unknown, hidden by a chain of unaccountable corporate entities. This problem also affects other sectors and often helps to feed corruption and tax evasion. People who live in resource-rich countries are at particular risk of losing out as extractive assets are too often misallocated for corrupt reasons.

Ending company anonymity - the key to fighting corruption

By 2020, all EITI countries will publish the identity of oil, gas and mining companies that bid for, operate or invest in extractive projects in their country.

The EITI Standard also requires public officials – also known as Politically Exposed Persons (PEPs) to be transparent about their ownership in oil, gas and mining companies.

This information will be publicly available and will be published in EITI Reports and/or public registries. EITI requirements have sparked reform in 20 countries now working on establishing public registers.

Once published, law enforcers, civil society and others have a responsibility to scrutinize the information, and take action to hold to account those who misuse anonymous companies.

Hidden ownership also poses problems for honest companies because they don’t know who they are doing business with. Publishing the real owners will help ensure that there is a level playing field for all companies and allow them to know who they are doing business with.

What the EITI requires of its member countries

Requirement 2.5 of the EITI Standard (2016) specifies what countries will do to uncover beneficial owners:

  • By 2020, all implementing countries have to ensure that all oil, gas and mining companies that bid for, operate or invest in extractive projects in their countries publish the names of their real owners.

  • This should include the identity of the owner, i.e. the name, nationality and country of residence. Companies are also encouraged to publish further details such as the date of birth, national identity number, residential address etc.

  • Any politically exposed persons holding ownership in oil, gas and mining projects must be publicly identified.

  • The EITI recommends that beneficial ownership information is made available through public registers. At a minimum, the information must be published in the country’s EITI Report.

What is a beneficial owner?

The EITI Standard defines beneficial ownership as follows: 

2.5 f)  Definition of beneficial ownership:

i.       A beneficial owner in respect of a company means the natural person(s) who directly or indirectly ultimately owns or controls the corporate entity.

ii.      The multi-stakeholder group should agree an appropriate definition of the term beneficial owner. The definition should be aligned with (f)(i) above and take international norms and relevant national laws into account, and should include ownership threshold(s). The definition should also specify reporting obligations for politically exposed persons.

iii.   Publicly listed companies, including wholly-owned subsidiaries, are required to disclose the name of the stock exchange and include a link to the stock exchange filings where they are listed.

iv.   In the case of joint ventures, each entity within the venture should disclose its beneficial owner(s), unless it is publicly listed or is a wholly-owned subsidiary of a publicly listed company. Each entity is responsible for the accuracy of the information provided.

Beneficial ownership information enables Nigerians to expose corruption and nepotism in the acquisition process. Besides asking companies to voluntarily disclose information on their ownership structure, including any politically exposed persons, going forward NEITI has also put into effect a mechanism that would enable it to capture ownership of divested wells, license holders, lease holders and companies bidding for extractive industry contracts. In short, beneficial ownership in the extractives sector in Nigeria begins to scratch where it itches.
Nigeria EITI Secretariat

The challenge with hidden ownership

Oil, gas and mining projects can yield great profits both to extractive companies and governments. In many cases such projects are run by responsible companies with the necessary technical and financial capacity. However, experience has unfortunately also shown that in many cases, in particular where governance is weak, rights to extract oil and minerals may be given to companies that do not have such competence. Rather, such companies may be given access to lucrative extractive projects because their owners are politically connected, or because their owners are willing to engage in questionable deals aimed at generating quick profits for a few rather than benefits for wider society. Suspicion or confirmed wrongdoing can lead to devaluation of other extractive assets, and deter overall investment in countries rich in natural resources. Anonymous companies make it harder to curb money laundering and corruption as it enables wrongdoers to hide behind a chain of companies often registered in multiple jurisdictions. 

It has been estimated that developing countries lose USD 1 trillion each year as a result of corrupt or illegal deals, many of which involve anonymous companies. In 2013, the Africa Progress Panel suggested that the Democratic Republic of theCongo (DRC) in the period 2010-2012 lost at least USD 1.36 billion from five mining deals hidden behind a structure of complex and secret company ownership. According to DRC’s EITI Reports, this is about the same as the country’s average annual revenue from oil, gas and mining in the same time period. Disclosure of beneficial ownership will help lower the risk of financial misconduct.

The Panama Papers confirm that persons behind oil, gas and mineral extraction may well hide behind shell companies. Attention on closing down the possibilities for hiding money in places like Panama is welcome. But it will not alone put an end to financial secrecy facilitating tax dodging and corruption. It has to be matched with better rules and enforcement in countries where the money is generated in the first place, which is why EITI’s new ownership requirements are so important.

The benefits of beneficial ownership transparency are numerous. It can help improve the investment climate, reduce reputational and financial risks, prevent corruption and illicit financial flows, improve the rule of law, increase trust and accountability, and enhance revenue collection.

Progress with beneficial ownership in EITI countries

Since 2013, the fight against secret company ownership has gained great momentum. The G8 and G20 have made transparency in beneficial ownership a key priority. The European Union has required member states to establish registers. Several countries have passed national legislation and are working towards public registers. Yet, to date, there is relatively little beneficial ownership information out in the open.

The EITI is one of few organisations that has delivered practical results through annual collection and publication of beneficial ownership information in EITI Reports, and through the beneficial ownership pilot conducted in 11 countries from 2013-2015.

By early February 2017, fourty-five EITI countries have published beneficial ownership roadmaps which outline how they are going to reach publish beneficial owners.

2017 EITI Progress Report

Ending company anonymity – the key to fighting corruption

“Nigerian laws do not require companies to disclose beneficial ownership information. However beneficial ownership disclosure in Nigeria provides information on the ownership structure of Nigerian's common patrimony in the extractive industry".
NEITI