When we refer to ‘beneficial owners’ of companies, we refer to the identity of the natural persons or real owners. Often, these real owners are unclear because they can be hidden by a chain of shell companies. This can be a particular challenge in the extractive industry, where knowing who has the rights to extract oil, gas and minerals is key to addressing risks of corruption or conflict of interest.

Oil, gas and mining projects can yield great profits both to extractive companies and governments. However, where governance is weak, companies may be given access to lucrative extractive projects for unfair reasons. This could be because their owners are politically connected, or because their owners are willing to engage in questionable deals to generate quick profits.

Protecting anonymity can deter investment and make it harder to curb corruption. It can enable wrongdoers to hide behind a chain of companies often registered in multiple jurisdictions. 

Beneficial ownership information supports anti-corruption efforts through the value chain – from licensing to project closure.

It is estimated that developing countries have lost USD 1 trillion a year since 2011 as a result of corrupt or illegal deals, many of which involve anonymous companies.

Attention on financial scandals like the Panama papers and closing down possibilities to hide money in financial havens draws attention to specific cases of abuse. However, these efforts will not end corruption alone. They have to be matched with better rules and enforcement in countries where the money is generated, which is why EITI’s beneficial ownership requirements are so important.

Benefits for citizens

• Once published, citizens can use beneficial ownership information to work with law enforcers, civil society and others to take action to hold those who misuse anonymous companies responsible.

• Increased transparency around real owners can increase trust and accountability for citizens and their government.

Benefits for companies

• Hidden ownership poses problems for honest companies because they don’t know who they are doing business with. Publishing the real owners supports a level playing field for all companies and allows them to know who they are doing business with.

• Transparency about real owners can reduce reputational and financial risks.

Benefits for governments

• Beneficial ownership transparency prevents conflict of interest and can help ensure compliance with anti-corruption provisions.

• Beneficial ownership transparency helps prevent tax evasion and ensures that governments are getting the revenue they are owed.

• It supports governments getting the highest value for their extractive contracts and enhances revenue collection.

In collaboration with Directorio Legislativo, EITI successfully took part in the 2020 IMF challenge. The concept was a system aiming to identify corruption risks related to politically exposed persons (PEPs). The project – ‘Joining the dots with PEPs’ – combined beneficial ownership information with other data sets to cross-check potential red flags that signal risks of corruption related to licensing and contract execution.

Our pilot has provided encouraging results, flagging 19 cases of potential conflicts of interest from the small sample of 900 public officials within the pilot. Now, we are working on the full implementation of the system in Colombia, which will be rolled out in 2021. This will include our entire database of 9000 public officials and give us the ability to unlock our system’s potential as a good governance tool for identifying corruption risks.

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

a) It is recommended that implementing countries maintain a publicly available register of the beneficial owners of the corporate entity(ies) that apply for or hold a participating interest in an exploration or production oil, gas or mining license or contract, including the identity(ies) of their beneficial owner(s), the level of ownership and details about how ownership or control is exerted.

b)  Implementing countries are required to document the government’s policy and multi-stakeholder group’s discussion on disclosure of beneficial ownership.

c)  As of 1 January 2020, it is required that implementing countries request, and companies publicly disclose, beneficial ownership information.

d)    Information about the identity of the beneficial owner should include the name of the beneficial owner, the nationality, and the country of residence, as well as identifying any politically exposed persons. It is also recommended that the national identity number, date of birth, residential or service address, and means of contact are disclosed.

e) The multi-stakeholder group should assess any existing mechanisms for assuring the reliability of beneficial ownership information and agree an approach for corporate entities within the scope of 2.5(c) to assure the accuracy of the beneficial ownership information they provide.

See the full details of Requirement 2.5.

Guidance on how this requirement is Validated can be found here. The International Secretariat has developed two beneficial ownership model declaration forms (download here) to support the implementation of Requirement 2.5 of the EITI Standard, which implementing countries can consider using.