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Why the push back? Tackling beneficial ownership transparency in Latin America and the Caribbean

For citizens in the Latin America and the Caribbean region, the question of who profits from extractive resources still remains largely unanswered. To date, 18 countries have beneficial ownership regulations and eight have established registries. Yet hardly any of these registries have been made publicly accessible.

Why is ownership data not publicly disclosed across the region? Experts from government, civil society, industry and financial institutions tackled the question at the latest “Debates EITI” event. Despite broad consensus that disclosing the real owners of companies is key to mitigate corruption risks, many governments face technical and legal barriers that make disclosure challenging. Participants in Debates EITI sought to identify these challenges and highlight “quick wins” to accelerate progress.  

Laying down the law

Strong regulatory and legal frameworks form the building blocks of beneficial ownership (BO) transparency. But reform takes time. “These regulations don’t exist in a vacuum – they have to have a constitutional basis,” said Dr Roberto de Michele of the Inter-American Development Bank. To establish a robust legal basis for disclosure, governments need to agree a definition of beneficial ownership. “This means companies can be clear on what they need to disclose, and limits loopholes,” according to Louise Russell-Prywata of Open Ownership.

A number of countries are undertaking BO reforms as a part of their wider anticorruption agendas. For example, Colombia’s Congress recently introduced a bill that requires beneficial owners to be disclosed, and defines these as individuals holding 5% of more of ownership of voting powers in a company.

Mexico’s government is currently undertaking a reform of its 2013 anti-money laundering law, which requires companies to disclose shares in a company. “One of the obstacles here is that Mexico has a federal government, and the differences between states can be used by individuals to their advantage to hide beneficial ownership,” said Dr Santiago Nieto, Head of Mexico’s Financial Intelligence Unit. To combat this, the government established a financial intelligence network to minimise loopholes in its federal system.

Personal security: An unsound dilemma?

If BO registers are to support anticorruption efforts, public access should be an underlying characteristic. Yet making the BO data publicly accessible remains one of the biggest challenges in the region. Adversaries of BO transparency have cited personal safety concerns as a reason for keeping the identities of owners private. Experts challenge this argument, especially in cases where public officials and civil servants hold interests. “When we have a civil servant in the public eye, I think we have a social necessity to be able to access that kind of information for the sake of the public,” said Dr Nieto.

Noel Alonso Murray, Executive Director of Directorio Legislativo, argued that politically exposed persons and firms that enter into agreements with government should follow the rules of the game.  “The individual cannot be a stronger argument than the interest of a national public entity,” she said. Dr Michele further reinforced that BO should be public information, and that everyone should be able to benefit from it. “That can only be done through a public policy,” he added.

BO transparency also helps industry players achieve their corporate governance agendas. According to Tim Robinson, Chief Compliance Officer at BHP, public beneficial ownership data makes it much easier to comply with due diligence processes. This in turn can help companies ensure they engage in sound business practices in countries where they operate.

From commitment to disclosure to data use

While obstacles remain, some countries are leading by example. Last year, the EITI in Trinidad and Tobago launched a free, public repository with key information on extractive companies operating in the country. The register is based on voluntary reporting. It includes information like the names of the natural persons, their registered addresses, company tax ID, as well as the names of any politically exposed persons associated with the companies.

There is also immense potential to use BO data to curb corruption. Our pilot project in Colombia, conducted in partnership with Directorio Legislativo, analysed BO data to signal potential corruption risks, such as conflicts of interest. Since BO data is not publicly accessible in Colombia, the tool drew on proxy data from publicly available contracts. The results revealed 19 red flags from a sample of 900 public officials, and a more comprehensive analysis is expected later this year.

BO transparency is still a work in progress in Latin American and the Caribbean, and much remains to be done to bring this information into the public domain. Our new global programme Opening Extractives, which will be delivered in partnership with Open Ownership, aims to accelerate BO disclosure in select countries and to communicate good practice so that others can follow suit. Watch this space.