Opening up Ownership - sharing practice, building systems: Sessions day 2

Workshop 5: Emerging beneficial ownership standards

There are various global and regional efforts to improve collection, sharing and disclosure of beneficial ownership information across jurisdictions. These include the Financial Action Task Force (FATF), the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes. The European Union is also making progress with the implementation of the 4th Anti-Money Laundering Directive setting a common standard for beneficial ownership registers in the EU and ongoing efforts to establish a central register. The EITI has a global standard for beneficial ownership disclosure in the extractives.  The purpose of this session was to take stock of global developments related to beneficial ownership transparency and explore opportunities for synergies and collaboration.

The session was chaired by Putri Rahayu, International Cooperation Specialist, Corruption Eradication Commission, Indonesia, with inputs from Jeffery Isima, Inter-Governmental Action Group against Money-laundering in West Africa; Kathleen Kao, Tax Policy Analyst, Global Forum on Transparency and Exchange of Information for Tax Purposes; Jonas Moberg, Head, EITI International Secretariat; Kiagus Ahmad Badaruddin, Head of the Transaction Reports and Analysis Center (PPATK), Indonesia; and Tonusree Basu, Civil society engagement programme officer, Open Government Partnership.

In comparing the existing standards, panellists agreed that global frameworks have different entry points that are unique to the purposes that they are trying to achieve. FATF was mainly focused on anti-money laundering. Global Forum was inspired by FATF, but with a focus on tax evasion and without coverage of PEPs and counter-terrorism financing.  EITI was sector specific and the only standard requiring public access to beneficial ownership data. OGP was an important entry point for country commitments on beneficial ownership.

One of the key challenges for all standards was to move from commitment to action, and from laws to implementation. Within FATF, only one country had achieved compliance with the effectiveness requirement related to beneficial ownership transparency. Within the Global Forum, it was often the case that notwithstanding having laws in place authorities could not always access the data. OGP noted that sometimes commitments remain on paper and that legislative harmonisation was a challenge in terms of implementation.

There was a need for greater cross-sectoral, cross-jurisdictional and cross-standard collaboration. Some participants suggested that this could include harmonisation of thresholds defining who could be considered a beneficial owner, or a recommended standard for what thresholds should be used. Others argued that definitions of beneficial ownership and thresholds for who could be considered a beneficial owner should be tailored to the purpose of the various standards and disclosure frameworks. For example, in the extractive industries there was perhaps a case for a lower threshold for could be considered a beneficial owner of an oil company, given the often high profits. It was also noted that greater collaboration could help shed light on what would be appropriate sanctions for non-reporting or false reporting, even if sanctions would be different depending on whether the disclosure requirement was within a sector specific law or a general company law.

Workshop 6: Complex company structures and issues to consider in beneficial ownership disclosure

Summary/key points from the discussion

The meeting opened with an impressively detailed Video presentation from Andres Knobel (Consultant, Tax Justice Network). His presentation explored the differences between different legal entities (companies, partnerships and foundations) and legal arrangements like trusts and the transparency risks associated with each. A joint venture (e.g., an oil project) may have a combination of these different entities and arrangements:

Andres highlighted the importance of beneficial ownership reforms in addressing transparency and corruption risks. He also introduced the financial secrecy index, which provides detailed information on each country. (Note: An estimated $21 to $32 trillion of private financial wealth is located, untaxed or lightly taxed, in secrecy jurisdictions around the world). There was then a discussion about progress with the 5th Anti-Money Laundering Directive (“5AMLD”).

The next presentation was from Rimawan Pradiptyo. He noted that only 172 million (out of 260 million) Indonesians have tax identification numbers, and that completing this work should be a priority. Building on the above, he highlighted the range of different company types in Indonesia, and the complex supervision arrangements, including different arrangement for different sectors. This leads to inconsistent / heterogeneous regulation of beneficial ownership – hence the need for a presidential decree.

Maria Tambunan from the Tax Centre at University of Indonesia presented several different examples on tax avoidance strategies that are used in Indonesia, focussing on the use of debt (and interest payments) and small shares that fall below beneficial ownership disclosure thresholds.

Workshop 7: Politically exposed persons and asset declarations

Background: The EITI requires that if a politically exposed person owns oil, gas and mining assets then this ownership must be transparent. Such disclosures could most usefully be linked to existing asset disclosure requirements for government officials.

Objectives: This session focused on reporting obligations of politically exposed persons (PEPs) and on opportunities for mainstreaming EITI’s requirements related to this. It also sought to compare asset disclosure mechanisms in EITI member countries, drawing on the experience of Afghanistan, Indonesia, and Ukraine particularly.

Participants: the session was facilitated by Alessandra Ordenes, Regional Director at the EITI International Secretariat, with presentations from Cari Votava, Senior Financial Sector Specialist working in Financial Market Integrity, World Bank; Tetiana Shevchuk, Anti-Corruption Action Center, Ukraine; Ghazaal Habibyar, Deputy Minister of Mines and Petroleum, Afghanistan; and Maryati Abdullah, National Coordinator, PWYP Indonesia

Main messages:
The Panel began by reviewing the key prerequisites for an effective identification of PEPs and an implementation legislation. First, global standards, such as the FATAF guidelines, do not provide operational definitions of PEPs. Definitions of PEPs must be adapted to the local context. To be effective, this definition should be as clear as possible and leave no room for discretionary interpretation so as not to empower corrupt individuals and vested interests. It should cover the civil service and other branches of government, including the military, judiciary, parliament, diplomatic corps, and state-owned enterprises, and include job titles and grade level. The legislation should only cover public officials receiving a government salary, as well as close associates and family. It should also include specific dispositions to cover foreign PEPs, who may have financial or economic interests in the country. The definition of PEPs should not extend to NGOs or the private sector (other than SOEs). Finally, panellists agreed that to be effective, legislation and regulations on PEPs legislation must be easily accessible and disseminated widely to enable international cooperation.

The panel ten reviewed existing mechanisms to asset disclosure. Panellists agree that it was critical to prioritize the public interest, over exaggerated concerns of public officials over security and confidentiality. To effective there must be a sanction for not disclosing assets. In order to be effective, sanctions for non-disclosure of assets should not be exclusively monetary in nature. Cutting off one’s salary or removing an individual from public office have often proven to be more effective.  A criminal penalty can also be effective in enticing public officials to disclose their assets.

Asset declarations are often not sufficient. In many countries, powerful and corrupt individuals tend to get away, while the more honest public officials are targeted.  To be effective, an asset declaration implementation mechanism must be built incrementally. Compliance should be the first building block. Lifestyle checks can then be added to the system, as well as open contracting and beneficial ownership registers. In the case of Ukraine, PEPs are encouraged to declare their property and the use of this property. Fear of criminal prosecution has proven efficient to encourage PEPs to disclose their assets.

In closing, participants encouraged the EITI International Secretariat to develop a guidance note to help implementing countries link up beneficial ownership reforms promoted under the EITI to on-going PEPs and assets declaration implementation.

 

Workshop 10: How to build a beneficial ownership register

When building a beneficial ownership (BO) register, as in most things, the devil is often in the details. Workshop 10 looked at the experiences of countries that have already come some way in building such registers and the challenges facing those who are currently doing so. The session was facilitated by Emanuel Bria, Indonesia Country Manager, NRGI Indonesia, with contributions from:

  • Olena Sukmanova, Deputy Minister of Justice, Ukraine
  • Steve Webster, Assistant Director, Corporate Transparency, United Kingdom
  • Freddy Harris, Director General of Legal Administration Affairs, Ministry of Law and Human Rights, Indonesia
  • Tariq Ajhmed Sarfaraz, Director General, Afghanistan Central Business Register

Ukraine and the United Kingdom have already set up public beneficial ownership registers, while Indonesia and Afghanistan are in the process of doing so. On the basis of their experience, panellists concluded that while one size will not fill all, some of the solutions identified by early implementers may. For example, standardization of data in the register and limiting free text through drop-down menus is a simple but effective way of limiting mistakes from the beginning, while using existing architecture such as existing company registers helps interconnectivity and reduces resource use. Likewise, offering free and paid services is a good way to limit general access to all the information in the register while still providing sufficient information to the public. Low-threshold – high-reward strategies, such as setting up feedback mechanisms on company pages to enable the public to alert authorities when the information listed may be incorrect, should be considered from the beginning. Panellists said that this was also the case for agreeing on a process for updating information when ownership changes and to sanction purposefully false entries. Good cooperation with law-enforcement agencies will be needed to ensure compliance, while adopting a risk-based approach to checking data quality ensures that the system is not bogged down by unnecessary procedures.

Panellists agreed that there are some common challenges that beneficial ownership registers continue to struggle with. In countries with several official languages or with different scripts, like Ukraine or Afghanistan, the transliteration of company and proper names poses a particularly difficult challenge. What to do once companies’ ownership structures cross national boundaries was another such challenge. Whereas the UK had to some degree solved this by enabling companies to serve notice to the government when third parties do not comply with information requests, panellists noted that putting the burden on the overseas owner and sanctioning when they do not comply was more relevant for a financial hub like the UK than it would be for many other countries. In terms of key priorities, panellists agreed on the need to establish a legal framework for the registration of companies. As one participant said, at the end of the day whatever system is in place will only be as good as the information that is put into it – which in turn will only be as good as the regulations in place mandating company registrations. 

Background:​ More than 20 of the EITI’s member countries have announced in their beneficial ownership transparency roadmaps that they aim to establish public beneficial ownership registers. There is no one way of doing this, and countries are taking different approaches. 

Workshop 11: Publicly listed companies and shareholding disclosure

Summary/key points from the discussion
Discussions covered the varying criteria for reporting ownership by public and publicly listed companies across countries, with examples from Indonesia, Sierra Leone, the Philippines and the United Kingdom. For example, in the Philippines, at filing, publicly listed companies disclose the directors, principal officers and shareholders. Companies must also report material changes in ownership within 7 days to the regulatory agency but the reporting differs with the thresholds of ownership. With respect to thresholds, it was noted that even 1% of an extractive company represented a large amount of information.

It was noted that there was a lot of information was available on publicly listed companies on most issues, with the exception of ownership. Beneficial ownership information was also useful to shareholders who may stand to lose if there are shady deals between offshore companies on their behalf. However, company websites, annual reports and stock exchange filings can provide useful information. There were also private databases on beneficial ownership, accessible to civil society and other stakeholders such as the judiciary.

Key challenges identified, proposed solutions and next steps
Common challenges across regions included getting beyond the intermediate owners which may include bankers, pyramid schemes and brokers. The timing of data collection also presented challenges as regulatory bodies only collect information at the point of entry, such as the registration of companies or their filings with the stock exchange. These bodies also had limited resources to verify the information provided by the companies, especially publicly listed companies which may not be listed on the local stock exchange.

Another opportunity for data collection would be in the transfer of shares. In Sierra Leone, the company registrar’s office gives permission for transfer of the shares of public companies. Another way of tracking beneficial ownership information for publicly listed companies is to use the money trail to find out the persons behind the companies.  

In terms of next steps, some publicly listed companies such as BHP Billiton have taken the initiative and have already begun disclosing beneficial owners in low-tax jurisdictions. Civil society actors were encouraged to focus on use of beneficial ownership data from the various open data sources identified during the workshop.

Interesting examples, country stories or anecdotes
Representatives from Sierra Leone noted that the Corporate Affairs Commission had finalised the new Corporate Governance Code, which will also include provisions relating to beneficial ownership[1]. This will be applied to all sectors, but the definition of beneficial ownership was not clear in the document.

In the Philippines, it was noted that brokers are in fact, the legal owners of shared. However, they may be in possession of key beneficial ownership information. There is an ongoing court battle on whether provision of this information to the regulatory exchange commission would be a violation of the data privacy act.

The workshop covered examples of instances when ownership was not disclosed and the problems this had caused. This included the purchase of land in Africa by Phil Edmonds and Andy Groves through offshore companies on the London AIM exchange which resulted in millions of dollars lost by shareholders when the assets were sold to other offshore companies[2]. There was also the example of individuals from criminal gangs in Moldovia buying shares individually but acting in a coordinated manner to defraud banks[3].

Workshop 12: How to make use of and analyse beneficial ownership data?

The workshop gathered 35-40 participants from a wide range of organisations, government agencies and companies. The session was facilitated by Yanuar Nugroho, Deputy Chief of Staff at the Office of the President and member of the OGP Steering Committee in Indonesia. Joining him in making contributions were:

  • Chesna F. Anwar, Compliance Director, Standard Chartered Bank;
  • Stanley Ford, Assistant Director of Corporate Affairs, Financial Intelligence Unit, Liberia;
  • Tetiana Shevchuk, Legal Expert, Anti-Corruption Action Centre, Ukraine and;
  • Wahyu Dhyatmika, Investigative journalist and Editor, Tempo.

The aim of the session was to share best practice in investigating beneficial ownership and introduce tools that can assist in data analysis, in particular to share specific experiences from civil society, company, and government perspectives.

The panellists largely agreed that analysis of beneficial ownership information is difficult but fully possible. However, it is not feasible without complementary information such as transactional data – BO-data is not sufficient by itself. They also highlighted that country-contexts mean that there will be differences in the precise solutions to various challenges and issues concerning beneficial ownership transparency. However, the challenges are also similar enough to warrant the sharing of experiences across countries, sectors and regions. Therefore the panellists highlighted the importance of training of all stakeholders in analysis of BO-data, and that information should be shared in open data formats to help make sense of and use in investigations.

The workshop began by panellists sharing specific examples from their own experiences, citing that the outcome of the Panama Papers leaks and others would have been vastly different if beneficial ownership information had already been available. Legal and regulatory frameworks need to be put in place to enable these disclosures. It was noted that the access to and use of beneficial ownership data enables us to hold the right people accountable. The publication of beneficial owners, and thereby of their connections to public officials and high-profile individuals, fuels demand for accountability from the general population.

The panel then discussed how corruption can be identified by using BO information. Concealing corruption linked to hidden ownership can be as simple as using the name of relatives, political affiliates or strangers. One example was cited of paying homeless people to register a company, making any verification or investigation extremely difficult. Identifying beneficial owners also means looking into who benefits from specific transactions. Data on transactions is a key source of information to identify beneficial owners. But even when transaction- or BO-data is not accessible, there are clues/red flags in available data to start investigations.

The session ended with an exercise for all participants (see the attached exercise). Panellists shared typical red flags that may indicate corrupt behaviour in Ukraine, and asked participants to identify the same indicators for two real-life cases from Ukraine.

Workshop 14: How to reach out to companies and provide guidance on beneficial ownership reporting?

Summary/key points from the discussion
Experience with the EITI beneficial ownership pilot showed that a major challenge with obtaining consistent quality beneficial ownership information was the lack of guidance to companies on how to define and identify their beneficial owners. This session aimed at sharing lessons learnt, challenges and good practices in terms of outreach, awareness raising and guidance to companies to ensure effective implementation of beneficial ownership disclosures.

This session was chaired by Matthew Ray, Deputy Director, Business Frameworks, Department for Business, Energy and Industrial Strategy, with inputs from James Ensor, Executive Director, BHP Billiton Foundation, Australia; Wimboh Santoso, Chairman, Financial Services Authority, Indonesia; Godwin Okonkwo, General Manager, Group General Account, Nigerian National Petroleum Corporation; and Syahrir Abubakar, Executive Director of Indonesian Mining Association; and Karim Lourimi, Moore Stephens.

Panellists agreed that beneficial ownership disclosures made sense from an economic and ease of doing business perspective, but to be efficient the disclosure framework must be geared towards producing reliable and useful information.

Panellists noted that open registers contributed to level the playing field among companies from various jurisdictions. Several multinational corporations (MNCs), including BHP Billiton, began rallying around the beneficial ownership transparency agenda following the Panama Papers leaks, which epitomized the increasing lack of trust in corporate tax practices. Not only did open beneficial ownership registers contribute to the restoration of public trust in MNCs’ tax practices, they also provided an additional tool for companies’ due diligence with potential business partners. It was in the interest of companies to take part in the policy making process related to the establishment of BO legislations and registers to ensure that the information required from them was as useful as possible.

However, further efforts were needed to build industry awareness on the concept of Beneficial Ownership and to ensure consistency in definition, scope, and approaches to disclosures across jurisdictions.

Several panellists noted that it was still a challenge to convince companies to disclose their beneficial owners. In many cases, local companies and MNCs were reluctant to report this information as they did not understand the concept of beneficial ownership and the reason for such a requirement when information on their legal ownership had already been disclosed. More outreach to the senior management of companies and company lawyers was required to ease this resistance. Governments would be best placed to engage with companies on this matter when companies were looking to invest in a country.

Large companies sometimes faced other specific challenges in reporting due to the complexity of their ownership structures. It often required more time for them to collect beneficial ownership, as they needed approval of their shareholders and had to navigate through a complex system of shell companies.

EITI implementing countries needed to establish a stronger link between beneficial ownership reporting and existing AML and PEPs legislations and regulations, as well as with data protection legislations. Further practical guidance and templates were needed to help companies identify their beneficial owners. It was also important to evaluate beneficial ownership disclosures and document lessons learned to improve the process. It was also important to encourage cooperation and data exchange across jurisdictions.

Several panellists noted that establishing beneficial ownership registers required long-term planning. It was key to get the definition and principles right for future implementation to be effective. They agreed that companies would gradually comply with beneficial ownership requirements and realise the reputational benefits of providing such data. 

Workshop 15: How to open beneficial ownership data and apply standards for disclosure formats?

Summary/key points from the discussion
The workshop gathered 20+ participants from a range of organisations, governments and companies, including open data practitioners. The session was facilitated by Jack Lord, Beneficial Ownership Lead, Open Data Services Co-Operative, United Kingdom. Joining him in making contributions were:

  • Abdoul Malick Tapsoba, Head, Burkina Faso Open Data Initiative (BODI), Burkina Faso;

  • Antya Widita, Lab Manager, Web Foundation Indonesia, and;
  • Yanuar Nugroho, Deputy Chief of Staff, Office of the President of Indonesia, and member of the OGDP Steering Committee.

The aim of the session was to consider options for disclosing beneficial ownership information in open data formats, including the application of a beneficial ownership data standard.

The panellists agreed that open data on beneficial ownership (BO) is at a very early stage. Only the United Kingdom and Ukraine have full public registers, with other partial sources of data available from Slovakia and EITI beneficial ownership pilots. The workshop introduced an existing open data standard for describing beneficial ownership, developed by OpenOwnership, the Beneficial Ownership Data Standard. It linked some of the challenges faced by beneficial ownership transparency advocates to those overcome by existing open data projects.

Panellists argued that there is a need for broad coordination and cooperation among stakeholders to ensure that beneficial ownership data responds to the demand for information, both at regional and local levels. Standards alone will not be enough for beneficial ownership transparency to succeed, their advantages will need to be explained to stakeholders and local champions will be crucial for implementation. Linking to wider open data commitments, such as the Open Government Partnership and Open Data Initiative, was also identified to ensure broader coordination and interest for beneficial ownership data.

Audience contributions also brought out the potential for data standards on beneficial ownership disclosure to link up with standards to describe sanctioned natural persons (an anti-terrorist financing use case) and PEPs (an anti-corruption use-case). Publicly Exposed Persons (PEPs) registries, as well as binding laws and regulations were cited as the most difficult areas in ensuring open data disclosures including beneficial ownership information. Solutions to navigate around individuals with vested interests in hindering open data disclosures were therefore discussed. As most of the information is already created with government or public funding some participants argued there is no reason why the information should be kept confidential – the public has a right to know about government expenditures.

Some participants highlighted that regulatory, institutional, and accountability frameworks are needed to create open databases. A common challenge here is there are often misconceptions and resistance against open data and data standards, without a complete understanding of the concept. In open data, ‘standards’ can mean developing a holistic process for collecting, validating and publishing data, where no such process existed before. It could also be raising awareness among stakeholders about existing data format standards and best practices, like the use of metadata and clear licensing. Data portals, and Indonesia’s policy of ‘One Data, One Map’ and the Burkina Faso Open Data Initiative, emerged as strong solutions to the problem of providing a single-source-of-truth to data users.

The session closed with questions regarding the relevance of open data in certain countries. Participants at the workshop expressed concerns that countries with lower technical capacity cannot perform open data disclosures; larger portals and open data platforms are often not feasible and lower digital literacy is an obstacle for effective use. Panellists argued that open data does not imply large databases and data portals, but can be in the form of simpler solutions such as excel-file attachments or downloads. It was highlighted to start with the simplest solutions and move from there – once data is published agencies must respond to the feedback of data users and ensure that the disclosures respond to the demand.

Workshop quotes
“Instead of debating the term 'open data', Indonesia sticks to its principles instead. We defined and developed our very own 'One Data' which actually implements the principle of open data. Sometimes people are concerned more about the name, not the practice” – Yanuar Nugroho, Deputy Chief of Staff, Office of the President, Indonesia and member of the OGDP Steering Committee.

“A country’s capacity to publish information in open data formats comes from practice, not feasibility studies.” – Abdoul Malick Tapsoba, Head, Burkina Faso Open Data Initiative (BODI).

Background
Beneficial ownership information should be useful and accessible to stakeholders within the government and beyond. To accommodate a sufficient degree of flexibility to various user needs, the information should be accessible in open formats enabling analysis and combination with other data sets. This implies a need for interoperability with external beneficial ownership databases and for registries including ownership chains to be linked.

This session could consider options for disclosing beneficial ownership information in open data formats, including the application of a beneficial ownership data standard. It could showcase the potential for analysis and visualisations of beneficial ownership data once published in open data formats, and allow participants to interact with different data sets.