Scratching where it itches

Reflections from the Beneficial ownership workshop in London.

"Scratching where it itches" - this is how Ledum Mittee, Chair of the Nigeria EITI described the efforts in his country to shine a light on who ultimately owns and benefits from the oil, gas and mining companies operating in his country. In Nigeria, NEITI’s work on beneficial ownership as part of the oil and gas and the mining reports has revealed some important, but incomplete and occasionally inaccurate information. 

Earlier last week, more than twenty participants from 12 EITI implementing countries gathered at the Westminster Conference Center in London to share lessons learnt on disclosing beneficial owners in the extractive sector. The EITI Standard recommends that implementing countries maintain a public register of beneficial owners that bid for, operate or invest in the sector. The Board agreed in 2013 that disclosing beneficial owners was an important but challenging area and that countries should be encouraged to experiment with it. As such, eleven countries signed up to a voluntary Beneficial Ownership (BO) pilot programme and are now piloting disclosure of the real owners of the oil, gas and mining companies operating in their countries.

What could beneficial ownership information tell us?

The importance of BO for addressing issues of good market information, addressing tax avoidance, and of ensuring fair allocation of licenses to enhance transparency in the sector was evident during the workshop. It was accepted that there will always be some misinformation. The challenge will be to find the appropriate balance between reliability and ‘trusting the crowd’ to bring scrutiny to incorrect information about who owns what.

Building public registers

To this end, Veda Poon from the UK Cabinet Office described the UK process for establishing their public beneficial ownership registry. She explained the challenges of finding an acceptable, agreed and usuable definition of ownership, and of establishing penalties for reporting entities that fail to provide accurate and timely information.

Participants learnt from the Kyrgyz Republic that beneficial ownership disclosure is mandatory for extractive companies, and those who fail to comply will either not be granted a licesnse or could have their license revoked. “We hope to bring more information about ownership in our country to everyone. This should not, in general, be information that is hard to locate” said Elmyrza Ukubaev from the Kyrgyz Republic.

Challenges

Defining what level of detail of beneficial ownership to publish to more effectively inform citizens was a challenge for all countries. Participating states agreed that flexibility provided in the Standard on the definition of the beneficial ownership was important. “What a beneficial owner is in one country is not going to be the same in other. We have to acknowledge diversity and political situation in each country” said Deputy Minister Stephen Dorbor from Liberia.

Some of the pilot countries have no legislation requiring companies to provide information on beneficial owners, yet their desire to bring transparency to the sector have led them to join the pilot. For example, Honduras, also challenged by insecurity, will disclose BO shortly but on a voluntary basis as legislation prevents publication of information on private assets without consent. “This will open new horizon to foreign and local companies operating at home and though it is not going to be an easy road it certainly will be an exciting one” noted National Coordinator Carlos Salinas. Apart from disclosing the beneficial owners, the Honduran report will indicate whether beneficial owners are Politically Exposed Persons or not. Identifying and disclosing information about politically exposed persons holding interests in oil, gas and mining projects was another area posing challenges - not least because it is common practice that such ownership is on paper held by substitutes or proxies. 

In Zambia, understanding how to use the reporting templates and the time allowed for companies to collect the information undermined BO disclosure in the 2013 EITI Report.  

Findings of the discussion and next steps

Participants discussed their own challenges in defining who is a beneficial owner, and how far they can be expected to go to reveal ownership, knowing that many companies have several layers of ownership and could be registered in other jurisdictions. They agreed on the following points: 

  • Multi-stakeholder groups (MSGs) should include their agreed definition of BO, including Political Exposed Persons, in the EITI process. In countries like Zamba the definition of a beneficial owner was already provided by law, whilst in other countries like the DRC there was no mentioning of the concept in domestic legislation. The International Secretariat could provide more guidance drawing on usch sources as the Financial Action Task Force definitions.
  • There is a need to consider the reliability of the BO information so that citizens can have greater confidence that the beneficial owners declared are the true beneficial owners. This had been a challenge in Nigeria and Togo.
  • Knowing first level of shareholders is useful information to include in the EITI process even if it should not be confused with BO.
  • MSGs need to provide better guidance to their reporting companies on filling out the BO template and test-run the templates.
  • MSGs should consider going beyond disclosing a name of a beneficial owner to disclose further information about the identity such as address, personal identification number, nationality, etc.
  • There is a need to find systems to reflect changes of ownership over time and changes of corporate structure (eg. with sales of assets, etc.). In Liberia, there was strong interest in understanding how ownership had changed hands over the past five years, and to establish a baseline tracking changes going forward.
  • It was important to work towards building a public register, like in the UK, and as recommended by the Standard. This included considering which agency should be in charge, and go beyond a corporate register. 

While the EITI is not an end in itself, it was noted that it can support government systems of collecting beneficial ownership information (e.g. Liberian efforts to collect BO information upon award of licenses or Sierra Leone’s efforts to include BO in on-line repository of mining concessions). EITI should enhance government systems, not replace or duplicate them.

As pilot countries complete beneficial ownership reporting in the coming months, more data will become available to inform citizens. Whilst hidden ownership now features prominently on the global agenda, there are still few actors that are practically tackling this issue. EITI’s implementation and early results may thus be instrumental in taking the global debate on beneficial ownership further.

More information on the Beneficial Ownership Pilot can be found here.