The workshop on how to establish a legal and regulatory framework gathered over 40 participants, representing different government agencies, companies and civil society organisations. The session was facilitated by Erica Westenberg, Director of governance programs, NRGI. The speakers:
- Mavis Amoa, Head of Legislative Drafting Division, Ministry of Justice, Ghana
- Matthew Ray, Deputy Director, Business Frameworks, Department for Business, Energy and Industrial Strategy, United Kingdom
- Oleksiy Orlovsky, Democratic Practice Program Initiative Director, International Renaissance Foundation, Ukraine
- Ruslan Baimishev, Director of Subsoil Use Department Ministry for Investments and Development, Kazakhstan
- Yunus Hussein, Former Head of Financial Transaction Reports and Analysis Centre (PPTAK), Indonesia
During this session participants discussed different legal approaches to beneficial ownership transparency and tried to identify good practices in terms of mandates, confidentiality issues, enforcement, etc. Moreover, invited speakers reflected on challenges in creating legal and regulatory framework that their countries (Ghana, Indonesia, Kazakhstan, Ukraine, UK) have already faced.
The session started by short presentations from Mavis Amoa, Oleksiy Orlovsky and Matthew Ray on the good practices and challenges in legislating beneficial ownership in Ghana, Ukraine and the UK.
Mavis Amoa presented recent reforms in Ghana and mentioned that it is important to remember that each country is different – has different Constitution, existing legal background, legal reforms – and it should be taken into account when working on the legislation in each specific country. Provisions on beneficial ownership transparency can be incorporated in existing laws or can be included in a single separate law. But no matter which option is chosen, it is essential to make sure that other laws do not contradict and are coherent with beneficial ownership provisions. Moreover, the aspects of verification and access to information were highlighted as crucial to the beneficial ownership disclosure. Monetary penalties, administrative and criminal responsibility were mentioned as penalty tools in case of not providing information or providing false information. Additionally, several legal reforms were mentioned to be underway, including development of legislation on common reporting standards and asset disclosure of assets for PEPs to avoid tax evasion. All of these pieces of legislation are expected to form together an efficient anti-corruption legal background.
Oleksiy Orlovsky shortly summarised beneficial ownership reforms that took place in Ukraine over last two and half years in Ukraine. In Ukraine, there is more than one registers. In 2014, a register of legal entities was edited and an additional field on beneficial owners was added there. Staring from 2015, the information about the beneficial owners was required to be disclosed in the state register in addition to information about the founders. The second wave of beneficial ownership disclosure reforms happened in September 2016 when e-declaration system was established. At present moment about 600 000[OT1] officials completed their declarations. In this register, there is a separate field in which each official should declare the list of the companies in which he/she is the beneficial owner. This info is widely used by investigative journalists and analytics. However, there are also some challenges related to implementation of beneficial ownership legislation that the country is facing now. For example, number of companies who disclosed their information remains rather low. According to current legislation everyone controlling over 25% of the company should report. But there is no official institution to control reporting, it is estimated that only less than 20% of the companies provide information on their beneficial owners. Identification of the responsible institution and increase of the amount of penalty (now maximum penalty is about 330 US dollars) are considered to be the main ways of tackling this problem. Additionally, it is expected to make the register more user-friendly and standardise transliteration in order to make the registrar more useful both in Ukraine and globally.
Matthew Ray followed up with presenting timeline of legislations in the UK. The register was implemented in summer 2016 and by now over 3.5 million [OT2] companies have complied with the new beneficial ownership requirements. The main principles that the UK Government is following when developing and improving legislation framework for beneficial ownership framework are the following:
- Openness and transparency are good for business and promote high standards of business behaviour and corporate governance. Therefore, beneficial ownership requirement should be seen as a part of already existing company law framework, should apply to all sectors, and the register should be made public.
- Simplicity and comprehensibility. If the legislation is too complicated, no one will benefit from it. Therefore, international definitions were applied in the UK and the FATF and other international standards were considered. Moreover, the UK Government made sure that the format of the data is searchable and understandable. Additionally, the main sanction duties are put on the companies’ directors who are given a right to check information and send notice on others in case of seeing false information.
- The regulations and sanctions should be proportional and reasonable. According to data protection standards, once a public register is functioning, it will be decided on what information can be made publicly available. For example, date of birthday might only include month and year.
During the first Q&A session, a use of beneficial ownership by different institutions and collaboration between different agencies was discussed. While it was agreed that company register is a good solution for a lot of countries, it was also mentioned that there might be limitations related to the fact that not all extractive companies, especially international without subsidiaries in the country, might be necessarily included there. Additionally, different types of sanctions were discussed. Matthew Ray mentioned that criminal responsibility might have a timeframe as a downside, meaning that the action would not be taken immediately and the sanction process might take relatively long time.
The session continued by short presentations from Ruslan Baimishev and Yunus Hussein on the reforms in Kazakhstan and Indonesia.
Ruslan Baimishev briefed participants on the recent reforms in Kazakhstan. In 2017 a new Code on Subsoil and Subsoil Use was developed based on Australian system of subsoil use. In the Code, definitions of the control are provided. In Kazakhstan, the approach when the beneficial ownership is implemented not only because it is a requirement, but because there are additional benefits from disclosing such information. For example, in Kazakhstan a question of multi-vector policy is very relevant. In draft Code on Subsoil and Subsoil Use, the definition of beneficial owner is not provided, but instead of it we incorporated definition of “ownership” and “control” as these terms are also used in other laws. Therefore, beneficial ownership will be disclosed by providing information on the individual who directly or indirectly controls the company. We believe that some data should be public, but it is important to be careful with it as some parties might speculate on that data (e.g., ask government to take away the license). Therefore, we are trying to find the balanced solution and kept the draft Code rather broad to define more specific rules in bylaws.
Yunus Hussein provided financial sector perspective on the beneficial ownership disclosure legislation. Indonesia currently is still working on the legal framework for beneficial ownership. There are four registers available nowadays and each of them includes different information. Moreover, the confidentiality provisions do not always allow to disclose all needed information. However, interagency cooperation and further development of beneficial ownership legislation is one of the Governments’ priorities.
During the second round of Q&A, participants provided relevant examples from their countries and invited speakers elaborated further on beneficial ownership definitions in their countries, agencies responsible for management of registers as well as challenges in their countries and ways to tackle them.
In conclusion, participants of the workshop agreed that the approach to building the legislative framework should be based on the best international practises, but customised in each country according to legal peculiarities and in the way that would maximise implementation effectiveness. Additionally, risk analysis is crucial in order to ensure that beneficial ownership registers help to prevent, not protect, corruption.
Mongolia's second Validation against the Standard commenced on 1 November 2019. The country was previously assessed as having achieved ‘Meaningful progress’ under the 2016 EITI Standard.