In May 2015, the European Union (EU) adopted the 4th Anti-Money Laundering Directive (AMLD) requiring, among other things, government authorities to collect and maintain beneficial ownership (BO) information for companies incorporated in the territories of member states. This is a means of “tracing criminals who might otherwise hide their identity behind a corporate structure”, according to the AMLD. The deadline for member states to turn the requirements into national law is 26 June 2017.
In response to the increasing terrorist attacks in EU countries and the Panama Papers, the European Commission (EC) proposed a series of amendments to the 4th AMDL. Some of these amendments could significantly enhance the EU’s role in fighting money laundering, corruption, tax evasion and terrorist financing by putting an end to hidden company ownership. The European Council aims to finalise its position by the end of the year, and a decision by the European Parliament is expected in the first quarter of 2017. Public access is one of the key questions.
The EITI’s early experience with implementing beneficial ownership transparency provides important lessons learnt for the EU. At the same time, stronger European requirements for BO transparency would help strengthen the EITI’s work on this. Here are three examples of how these efforts reinforce each other.
EU leading by example
The proposed EC amendments to the 4th AMLD is an ideal opportunity for the EU to strengthen global beneficial ownership transparency through good example. The EITI was probably the first organisation to require all 51 member countries to ensure that the companies that bid for, operate or invest in extractive assets in their jurisdictions publicly disclose their beneficial owners. This is a significant political commitment and puts the EITI at the forefront in driving beneficial ownership transparency policy and implementation. It is going to be challenging for many EITI members to deliver on these commitments. They will need to learn from others and be supported in their reform efforts. EITI member countries frequently ask “Why aren’t all countries doing it?”.
The EU would set an example, both by showing how it can be done and by lending political support. Specifically related to the EITI, several EU countries are either members of the EITI or preparing to apply for EITI membership. They have therefore already committed to public disclosure of beneficial ownership for extractive companies through the EITI. This includes countries like France, Germany, Italy, the Netherlands, Norway and the United Kingdom. Furthermore, some prospective EU member countries like Albania and Ukraine are already making progress on beneficial ownership through their EITI processes.
Allaying privacy concerns
With beneficial ownership disclosure being new, there are inevitable concerns including that it may infringe privacy and lead to security exposure. Although the EITI is implemented in many countries with serious security issues and weak governance, early implementation provides lessons for the EU in that such concerns appear not to have been justified.
The EITI requires that, at a minimum, the name, nationality and country of residence of the beneficial owner is disclosed. It recommends that further details are published, including the date of birth or national identity number, the residential or service address, and other means of contact.
It is interesting to note that of the countries that have asked the oil, gas and mining companies operating in their countries to disclose their beneficial owners, most have opted for comprehensive disclosures. In the Democratic Republic of the Congo (DRC), more than a 100 mining companies have provided public access to the names, nationality, full addresses, and identity numbers of their beneficial owners. The EITI has so far received no reports of intimidation or other difficulties experienced by the beneficial owners of the companies that have publicly disclosed these details. In considering how much details it is reasonable to ask member states to publicly disclose, the EU could benefit from studying this experience.
Value of public access
The EITI requires that the beneficial ownership data is publicly accessible, be it through national registers or through other means. To date, nine countries have made BO information public through EITI Reports. Several EITI member countries, including DRC, Ghana, Kazakhstan, Kyrgyz Republic, Nigeria, Mongolia, Trinidad and Tobago and Zambia to name a few, have made plans for building beneficial ownership registers. (See what progress EITI countries are making here.)
Public accessibility to BO information is crucial not only to build public trust, but also to enable stakeholders beyond government authorities to use and monitor the information, which will help increase reliability of the data and support efforts to crack down on any dodgy activities. The EU is currently discussing options for who should have access to the beneficial ownership registers in its member states. Anything less than public access to the most basic BO data could lead to missed opportunities for fighting illicit behaviour and undermine other global efforts for public access to beneficial ownership data.
It is clear that there is a gathering movement for public disclosure of BO information. The EITI has set the pace, but only within some countries and within one sector. Amendments to the EU Directive can build on the early lessons of the EITI and help progress for non-EU EITI countries. There are many other efforts, including the work by the G20 and the Financial Action Task Force.
If well managed these efforts should be complementary. Let’s grab the opportunity.
See an overview of beneficial ownership on our dedicated page: eiti.org/beneficial-ownership