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Who owns what? Putting a face to the name

EITI stakeholders and supporters met at the 2019 Global Conference to share best practice and early benefits in implementing one of the world’s first public beneficial ownership transparency requirement.  

When doing business, interested parties want to know who they are dealing with. Historically, ownership of unlisted extractive companies has been opaque, leaving governments and companies at risk of entering into corrupt deals. Both sides often put considerable resources into due diligence exercises to check that the legal owners are indeed the ultimate beneficiaries of companies bidding for extraction rights. This why the EITI Board agreed beneficial ownership transparency as a requirement in the Standard back in 2016.  

Clarifying who lies behind extractives companies is in essence what the EITI’s beneficial ownership requirement seeks to achieve. The EITI Standard requires companies to disclose the identity of beneficial owners including name, nationality, country of residence, date of birth, additional identifying details and if they are connected to politically exposed people. Disclosing information on beneficial ownership enables members of the public to access data about the individuals who own and control the companies responsible for developing their country’s natural resource wealth. 

At the 2019 EITI Global Conference in Paris last month, government representatives from more than 20 EITI countries shared their progress on drafting and reforming their beneficial ownership transparency legislation. As many of them are also members of the OGP (Open Government Partnership) they explained how they use both platforms to build political momentum and ensure inter-agency coordination.  The UK and other beneficial ownership transparency leaders shared their commitments to publish information in an open and user friendly format, as recommended in Open Ownership’s Beneficial Ownership Data Standard

However, the measurable outcomes of these efforts depends on how the data is used by governments, industry and civil society. The session brought together a panel of experienced stakeholders to discuss good case practices in how beneficial ownership information can be used, from curbing corruption to strengthening extractive sector governance.

Improving the quality of investors in the extractive sector in Ghana

In Ghana, disclosing the beneficial owners of oil companies has led to higher quality investors bidding for exploration blocks in the petroleum sector. In the past, some companies that were not qualified to operate petroleum blocks were awarded with oil licenses. For example, one specific company was awarded a contract with a promise to drill 18 oil wells; ultimately, however, no drilling took place, as the company did not have the necessary resources and expertise. 

Deputy Minister of Energy of Ghana Mohammed Amin explained how, in a previous bidding round for oil blocks, only two of the bidders were experienced companies that were publicly listed. However, in the latest bidding round, where beneficial ownership information was required for companies to be pre-qualified, only two were not publicly listed. One of these was qualified, having reported their beneficial owners to the Petroleum Commission. This example shows that beneficial ownership transparency is increasingly a norm, and that private companies need to be properly informed of this requirement and how to adhere to it.

The Deputy Minister stated that petroleum legislation in Ghana requires that 5% of the shares in the company are held by domestic owners in order for the license to be awarded. However, the lack of a beneficial owner register complicates the process for companies. Exxon Mobil spent one year conducting due diligence on their local partners and was ultimately unable to find a credible partner. Had the company had access to beneficial ownership information, the process could have been cut down to just one to two months.

Improving government oversight of the oil and mining industries in the Kyrgyz Republic

The Kyrgyz Republic has recently adopted legislation which requires beneficial owners of mining companies to be made public. If information provided by the companies on beneficial ownership is incorrect, the license can be revoked. According to Member of Parliament Ekmat Baibakpaev, this means that companies that want to hide their owners will have to think twice before entering the mining sector. This law now needs to be put into practice, to ensure better oversight of mining sector activities.

Checking your business partners, monitoring local content

Ownership transparency is good for business. Representing the industry perspective, BHP Foundation President James Ensor, explained that ownership transparency levels the playing the field and discourages corrupt corporate behaviour. Speakers also referred to how ownership information facilitates due diligence processes for companies. This can otherwise be a cumbersome and costly exercise if companies do not have access to official and verified beneficial ownership data. Charlie Cox from the Risk Advisory Group explained that companies need ownership information for regulatory reasons, as most companies are subject to some extraterritorial anti-corruption legislation. The data is also useful for investment purposes, as it can inform their commercial and operational considerations.

Beneficial ownership data is also important to monitor adherence with local content provisions, that require a degree of national participation in the lucrative extractive sector. These provisions are common across the world to ensure extraction is not handled solely by foreign companies. However, this can lead to corruption risks if the involvement of local actors, who may be connect to politically powerful individuals, is not transparent. NRGI’s Middle East and North Africa Director, Laury Haytayanexplained that these corruption risks can only be avoided if beneficial ownership data indicates whether the owner of a company is politically exposed. 

What’s needed to make the data more useful? 

It became clear towards the end of the session that thinking in advance about how the data will be used is key for designing policies and publishing data on beneficial owners. Governments, in consultation with industry and civil society, will have to consider which agencies need to have access to what data, and how to publish this in line with open data standards. 

A key takeaway from participants was that, in order for industry to meet the requirements and understand what is expected from them, beneficial ownership transparency requires outreach to local business communities and companies that will need to report their real owners.

Much work remains to be done to make beneficial ownership transparency the norm. The EITI and its partners – including Open Government Partnership, Open Ownership, Transparency International, and the Natural Resource Governance Institute – will be supporting EITI implementing countries in the lead-up to the 2020 deadline and beyond for beneficial ownership reporting.

 

Authors: 

Catherine Greene

Responsable pays

Catherine Greene apporte son soutien à l’équipe en charge de l’Amérique latine et les Caraïbes pour les Validations et l’amélioration de la mise en œuvre de l’ITIE dans les pays de la région

Ines Schjolberg Marques

Ines Schjolberg Marques

Directrice des politiques

En tant que directrice des politiques de l’ITIE, Inês Marques supervise l’élaboration, la révision et la mise en œuvre de la Norme ITIE ainsi que la préparation de la documentation d’orientation de