Promoting investment and combatting corruption: the double dividend of beneficial ownership disclosure

Blog from Day 1 of the Global Conference on “Opening up Ownership. Sharing practice - building systems”, Jakarta, Indonesia. 23 -24 October 2017

The Government of Indonesia and the Extractive Industry Transparency Initiative (EITI) today convened the largest ever global meeting dedicated to beneficial ownership disclosure, one of the most important frontiers in global efforts to combat tax avoidance and corruption. Representatives from more than 45 countries are meeting to make new commitments and to discuss the practical steps needed to reveal the real owners of companies, with a particular focus on the oil, gas and mining industries.

When the “Panama Papers” scandal broke in 2015, the role of anonymous shell companies in tax evasion and aggressive tax avoidance received global attention. The 11.5 million leaked documents provided details on more than 200,000 offshore entities. The Panama Papers investigation subsequently exposed offshore companies linked to more than 140 politicians in more than 50 countries – including 14 current or former world leaders. The ramifications are still being felt. Last week, for example, an anti-corruption court indicted former Pakistan Prime Minister Nawaz Sharif, his daughter and son-in-law. Other investigations are continuing, often in the face of strong resistance. Just a week ago, Daphne Caruana Galizia, the journalist who led the Panama Papers investigation into corruption in Malta, was killed in a car bomb near her home. This tragedy underscores the depth of the challenge, a reminder that the “Panama Papers” are only the tip of the iceberg, and that many other dodgy deals have not yet been uncovered.

The Conference opened with three strong statements of political support. The EITI Chair Fredrik Reinfeldt noted that the EITI had become a leader in promoting beneficial ownership disclosure. In many resource-rich countries the identity of the real owners – the ‘beneficial owners’ – of the companies that have been awarded the rights to extract oil, gas and minerals are unknown, hidden by a complex chain of corporate entities, often in different jurisdictions. He noted that, in February 2016, the EITI had agreed to introduce new requirements for its member countries. By 2020, all 52 EITI countries have to ensure that companies that apply for or hold a participating interest in an oil, gas or mining license or contract in their country disclose their beneficial owners. This was a ground-breaking and ambitious objective, he said, and the Conference had been convened to exchange practical information on how to achieve this goal.

The Vice President of Nigeria, Yemi Osinbajo, highlighted Nigeria’s commitment to beneficial ownership disclosure. “Breaking the wall of secret corporate ownership is an existential matter”, he said. “We know that anonymous companies are not always illegal and are not always designed to harm. But we also know that secrecy provides a convenient cover for the criminal and the corrupt”. He reiterated Nigeria’s commitment to establish a publicly accessible beneficial ownership register. This was important for addressing corruption, he said, “but we must be careful not to frame this campaign as a zero-sum between society and business”. “Legitimate businesses benefit not only from the better business climate that results when governments better serve their citizens but also from knowing who they are doing businesses with or competing against.  They benefit from a level playing field, lower costs of doing business, and from reduced reputational risks”.

Minister of National Development Planning, Bambang Permadi Soemantri Brodjonegoro, welcomed the conference participants to Indonesia. The Panama Papers, he said, had raised public expectations, as they involved a number of Indonesian citizens. The Government had declared its commitment to beneficial ownership disclosure, but noted that this was a complex task, involving many institutions covering all business sectors in the country. A Presidential Decree had been drafted to serve as the legal basis for beneficial ownership disclosure reforms.

The EITI Chair then presented awards to four countries that had made significant progress in addressing beneficial ownership disclosure:

The opening session closed with further commitments from Afghanistan, Cameroon, Kyrgyz Republic and Nigeria.

While the opening sessions highlighted the importance of the beneficial ownership transparency agenda, and the strong political support for reforms, the afternoon sessions drilled down into some of the specific challenges. A key theme, picking up on Vice President Yemi Osinbajo’s address, was that beneficial ownership reforms have a double dividend. On the one hand, they have a preventive effect in combatting corruption and illicit financial flows. But they also have a substantial positive impact, by building trust and improving the investment climate. Several speakers argued that while establishing beneficial ownership registers can be challenging, these are smart investments that pay for themselves.

The last two workshops focused on specific challenges in the oil, gas and mining sectors, exploring different approaches for addressing beneficial ownership disclosure when awarding oil, gas and mining licenses, and identifying corruption risks downstream and in the supply chain. These workshops set the stage for day 2, where the focus of the Conference shifts from political commitment to the concrete actions needed to make publicly accessible beneficial ownership registers a global norm.