The Board agreed on the framework and timing for assessing Requirement 2.5 on beneficial ownership, and on a broader review of the Validation process.

17.06.2019
Decision 2019-48/BM-43
< >

Board decision in full

The Board agreed to the following:

  1. A framework for validating Requirement 2.5 that consists of a technical assessment of meeting the requirements and an assessment of effectiveness. Validations in the first stage (until 31 December 2021) consider a set of initial criteria that would qualify for an assessment of ‘satisfactory progress’ in meeting the requirement. This gradual approach recognises the challenges with systematically disclosing beneficial ownership information and the efforts made by countries to develop supportive legal and institutional frameworks.
     
  2. The timing of the assessment of Requirement 2.5, which follows the agreed Validation schedule with adjustments to ensure all countries undergo the assessment within a reasonable timeframe.
     
  3. The incoming EITI Board undertakes a broader review of the Validation process, considering specific challenges associated to the assessment of requirements on beneficial ownership, project-level disclosures and contract transparency.

Guidance on the assessment of the requirement is published here

Technical assessment

The technical assessment considers each aspect of the requirement. In the initial phase between 1 January 2020 and 31 December 2021, Validation focuses on a narrower subset of questions. In this first phase, progress is assessed as satisfactory if the initial criteria are met. Countries receive feedback on the gaps between their current level of implementation and full implementation.

As of 1 January 2022, Validation expects that all aspects of the requirement are met. The table below proposes questions to be considered by the Validator in the first and second phases. While Validations in the first phase would concentrate on a limited set of questions that form the initial criteria to be assesses as ‘satisfactory progress’, further progress would be documented, where applicable.

Table 1. Technical assessment of Requirement 2.5 in phases 1 and 2

Elements of Requirement 2.5

Phase 1: Initial criteria
Questions for the Validator to consider until 31 December 2021
(initial criteria to be assessed as ’satisfactory progress’)

Phase 2:
Questions for the Validator to consider as of 1 January 2022

Public register of beneficial owners (recommended) (2.5.a).

Are there laws, regulations or policies in place to back establishing and maintaining a public register of beneficial owners, including those of corporate entity(ies) that apply for, operate or hold a participating interest in an exploration or production oil, gas or mining license or contract?

 

Does a public register of beneficial owners of the corporate entity(ies) that apply for, operate or hold a participating interest in an exploration or production oil, gas or mining license or contract exist?

Does it include the identity(ies) of their beneficial owner(s), the level of ownership and details about how ownership or control is exerted?

Is the information incorporated in existing filings?

Documenting the government’s policy and MSG’s discussions (2.5.b).

Is the government’s policy and multi-stakeholder group’s discussion on disclosure of beneficial ownership documented, including details of the relevant legal provisions, actual disclosure practices and any reforms that are planned or underway?

 

Implementing countries required to request, and companies disclose, beneficial ownership information (2.5.c).

Has the implementing country requested beneficial ownership information to be publicly disclosed by corporate entity(ies) that apply for, or hold a participating interest in an exploration or production oil, gas or mining license or contract? Does the legal framework back the request?

Have any corporate entity(ies) that apply for, or hold a participating interest in an exploration or production oil, gas or mining license or contract disclosed the information?

Does the requested information include the identity(ies) of their beneficial owner(s), the level of ownership and details about how ownership or control is exerted?

Have all corporate entity(ies) that apply for, or hold a participating interest in an exploration or production oil, gas or mining license or contract disclosed the information?

Does the disclosed information include the identity(ies) of their beneficial owner(s), the level of ownership and details about how ownership or control is exerted?

Disclosing gaps and weaknesses (2.5.c)

Has the MSG assessed gaps or weaknesses in disclosure of beneficial ownership information, including an assessment of the materiality of omissions and the reliability of beneficial information?

Has the government or MSG agreed and documented plans to overcome the identified challenges?

 

Has the MSG assessed and documented gaps or weaknesses in disclosure of beneficial ownership information, including an assessment of the materiality of omissions and the reliability of beneficial information?

Have entities that failed to disclose all or parts of the beneficial ownership information been named?

Has the government or MSG documented efforts to address these and to strengthen the reporting and disclosure systems?

Required information about the identity of the beneficial owner: Nationality, country of residence, politically exposed persons (2.5.d).

Recommended: National identity number, date of birth, address and means of contact (2.5.d).

Does the requested information include details of the identity of the beneficial owner(s), including nationality, country of residence, and identification of politically exposed persons?

Does the disclosed information about the identity of the beneficial owner(s) include the name of the beneficial owner, the nationality, and the country of residence?

Are political exposed persons identified?

Is the national identity number, date of birth, residential or service address, and means of contact disclosed?

Assurances on the accuracy of information (2.5.e)

Has the relevant government entity or the MSG established an approach for participating companies to assure the accuracy of the beneficial ownership information they provide?

Have companies complied with the assurances established by the relevant government entity or the MSG?

MSG should agree a definition of beneficial owner (2.5.f.ii), including ownership thresholds and reporting obligations for PEPs.

Has the MSG agreed an appropriate definition of the term beneficial owner?

Is the definition aligned with Requirement 2.5.f.i and does it take international norms and relevant national laws into account?

Does it include ownership threshold(s) and specify reporting obligations for politically exposed persons?

Is the definition included in the EITI Report or does the report include a reference or link to another public source (e.g. a law) that includes the definition?

 

For publicly listed companies, name of stock exchange and link to stock exchange filings (2.5.f.iii).

For publicly listed companies, including wholly-owned subsidiaries, has the name of the stock exchange been disclosed and a link included to the stock exchange filings where they are listed, either in the public register on in the EITI Report?

Has the MSG considered how rigorous are requirements in the stock exchanges referred to and what ownership information is available from the stock exchange filings of the companies within the scope of the disclosures?

Beneficial ownership information of joint venture partners (2.5.f.iv).

 

In the case of joint ventures, is the beneficial owner(s) of each entity within the venture disclosed, unless it is publicly listed or is a wholly-owned subsidiary of a publicly listed company? Has each entity provided assurances, if requested by the MSG or Independent Administrator?

EITI Report should disclose legal owners and share of ownership (2.5.g).

Is information about legal owners and share of ownership of such companies publicly available?

 

Assessment of effectiveness

The assessment of the effectiveness of beneficial ownership disclosures draws on findings from the technical assessment, FATF mutual evaluations, documentation of work by the MSG and stakeholder consultations to establish an overview of whether implementation is addressing the overall objective of Requirement 2.5. Especially in the first phase, the direction of travel is reflected in the assessment.

The nature of Requirement 2.5 differs somewhat from other EITI Requirements. Firstly, obtaining complete beneficial ownership information from every company may in practice not be feasible in all countries. Secondly, the comprehensiveness of information is an imperfect measurement of the effectiveness of disclosures. Ensuring reliable data from high-risk companies, such as companies owned by politically-exposed persons, is central for meeting the objective of the requirement.

The MSG’s assessment of reasons behind gaps and weaknesses in data plays a key role in ensuring effective disclosures and addressing shortcomings. The assessment of effectiveness helps the Validator and the Board to determine whether possible omissions should affect the level of progress in the second phase and to provide the implementing country with meaningful recommendations.

In assessing the materiality of omissions, the Validator considers whether the MSG has demonstrated that full beneficial ownership information is publicly available for companies which make material payments to the government, hold significant concessions or have been recently awarded licenses. The Validator also considers any concerns raised by stakeholders about omissions or suspicions that politically exposed persons are involved in a company that has not disclosed information.

Validation seeks to identify whether the implementing country has undertaken sufficient measures to ensure that beneficial owners of high-risk companies are disclosed and whether these companies have complied with disclosure requirements. This risk-based approach helps MSGs and the Validator target the most relevant omissions. The assessment would also consider whether the ownership thresholds for disclosing beneficial owners are appropriate and provide recommendations.

The assessment documents strengths and weaknesses in data reliability and the agreed assurances. Experts consulted by the International Secretariat stressed the importance of independent verification of beneficial ownership information. Assurances provided solely by the companies themselves have weaknesses as some may have incentives to hold back information. The assessment also look at whether data is disclosed in an accessible and usable format.

Outcome of Validation

The assessment of Requirement 2.5 has a similar effect on the overall level of progress as any other requirement. In practice, an assessment below satisfactory progress in implementing Requirement 2.5 would prevent an overall assessment of satisfactory progress.

However, in the first phase, implementing the initial criteria leads to progress being assessed as satisfactory. The table below sets the expectations to achieve the various levels of progress in phases 1 and 2.

Table 2. Levels of progress in phases 1 and 2.

Level of progress

Phase 1 (1 Jan 2020 – 31 Dec 2021)

Phase 2 (as of 1 Jan 2022)

Outstanding progress

 Not applicable.

Implementation exceeds the required aspects of the requirement, and the assessment demonstrates disclosures are effective and systematic.

Satisfactory progress

Initial criteria are fully met (see table 1), with a demonstrated focus on ensuring effective disclosures.

All aspects of the requirement are fully met. Possible omissions have been considered by the MSG and are not material.

Meaningful progress

Significant elements of the initial criteria are met, and some efforts have been undertaken to promote effective disclosures.

Significant elements of the requirement are being implemented and the implementing country has made efforts to ensure effective disclosures.

Inadequate progress

Significant elements of the initial criteria are unmet.

Significant aspects of the requirement are unmet, and effective disclosures are not taking place.

No progress

No progress in implementing the initial criteria.

No progress in implementing the requirement.

Keywords: Policy, Validation