Ukraine’s revolution against corruption and hidden ownership

Four lessons learned from the journey towards beneficial ownership transparency in Ukraine

Considering Ukraine’s pioneering efforts on extractives transparency, it is hardly surprising that Kyiv was chosen to host the 42^ndEITI Board meeting on 27-28 February. Ukraine was the first country to establish a publicly accessible beneficial ownership register and officially become part of the Global Beneficial Ownership Register launched by Open Ownership. At a side event on “Beneficial ownership: best practices in opening important information for good governance in extractive sector,” participants discussed Ukraine’s transparency reforms to date. Here are a few of the lessons we learned:

Legislating ownership disclosures is essential, but just a first step

An increasing number of EITI countries are adopting legal provisions related to ownership disclosure. In Ukraine, the EITI Standard was the departure point for the ground-breaking “Ensuring transparency in extractive industries” Law, passed last year. The law strengthens the implementation of the EITI Standard by requiring beneficial ownership transparency, project-level reporting and a new focus on systematic disclosure of extractives data. Olga Bielvoka, Member of Ukrainian Parliament and EITI Board member explained how surprisingly challenging it had been to approve the relatively simple idea of requiring ownership to be made public. She noted how reaching out to industry had been instrumental in securing broader buy-in for reform.

What was also made clear was that while having a clear legal framework is a good start, enforcement of the regulation is key. Governments will need to ensure that there are powers in place to enforce the legislations mandating beneficial ownership transparency.

Target strategic sectors such as the extractives

Participants at the event expressed the importance of tackling risks related to hidden ownership in a targeted way, focusing on sectors that are strategic and where corruptions risks are high. Tetiana Shevchuk from the Anti-Corruption Action Center referred to past cases where lucrative oil and gas fields in Ukraine had been awarded to anonymous companies registered only days before the licensing process. She explained that ownership transparency in the extractive sector is seen by civil society as a tool to help prevent “shady deals and monopolies.” Ukraine EITI has therefore been extracting beneficial ownership information from the existing register, and civil society has made targeted efforts to review and verify reported ownership information in the extractive sector.

Another country that is making progress on sector-specific ownership transparency is Kyrgyz Republic, which is establishing an online public beneficial ownership register of companies holding mining licenses. OpenOwnership will soon be launching a report with recommendations for how to establish the register in an open data format. 

Public access can improve accountability

This can clearly be seen from the way civil society has used and analysed beneficial ownership information published in both Ukraine and the United Kingdom. Public access has helped bring red flags in company reporting to the attention of law enforcement agencies. In Ukraine, civil society has analysed the reported ownership of more than 200 extractives companies, identifying gaps in the comprehensiveness and reliability of the data. In the United Kingdom, Global Witness recently flagged that close to 345 companies had an owner who was a disqualified director.

Matthew Ray from the Department for Business, Energy and Industrial Strategy in the United Kingdom also emphasised the importance for companies to access information on who they do business with.Some of the main users of the beneficial ownership registers are also investors and companies performing due diligence checks before taking business decisions. Public access to ownership information is therefore both a tool for improving good for governance and ensuring an open and confident business environment.

Address data verification head on

All the speakers insisted that verification matters. Louise Russell-Prywata underscored this point, highlighting the tendency for governments to think the policy comes first, and data comes later. She emphasised the need to consider issues relating to data verification upfront when making policy, to ensure that beneficial ownership regimes deliver the intended policy impact.

Oleksiy Orlovski from the International Renaissance Foundation described different challenges in ensuring that companies report reliable information. For instance, he explained that despite the legal requirement for Ukrainian companies to disclose beneficial owners, not all companies are compliant. This is partly due to low financial penalties (USD 320). The Government of Ukraine has committed to develop a specific mechanism for future verification of ownership information in their OGP National Action Plan. Ukraine is not alone in facing challenges with data verification; FATF identified challenges in the UK ownership register related to the reliability of the information.

Public ownership registers will not solve all the challenges related to hidden ownership and need to be complemented with public oversight and enforcement measures. But registers are, nonetheless, a key starting point for the “revolution against corruption”.