As our regular readers know, over the past few weeks GAB has had the opportunity to host on what is shaping up to be a lively and interesting debate over the advantages and disadvantages of creating public registries of the ultimate beneficial owners (UBOs) of companies and other legal entities. A UBO, for those not familiar with the lingo, is the real-live flesh-and-blood human being who has a sufficiently strong direct or indirect ownership interest in a company to be considered the “true” owner. Increasing UBO transparency is a top priority for many civil society activists, who argue that anonymous company ownership facilitates grand corruption, as well as money laundering, tax evasion, and other harmful activities. In many jurisdictions, UBO information is not available, and even law enforcement may have difficulty determining a company’s true owners. In other jurisdictions, companies must submit and update validated UBO information to the authorities, but that information is confidential, available only to law enforcement or other regulatory agencies in the context of an investigation, or perhaps to others in a limited set of circumstances (for example, banks performing customer due diligence). Most anticorruption advocates, as well as law enforcement agencies and most experts, agree that a confidential UBO registry is far superior to having no registry at all. The harder question, and the one we’ve been debating here at GAB, concerns whether the UBO registry should be public, so that anyone—not just law enforcement agencies acting pursuant to an investigation—can examine the registry to see who owns what.

The most recent round of discussion and debate was triggered when the UK—one of the few major economies that has implemented a public UBO registry—decided to require the 14 British Overseas Territories, such as the British Virgin Islands (BVI)—to create and maintain public UBO registries. Many in the civil society community celebrated this as a huge triumph, but others denounced the UK’s decision. The denunciation that got the debate going over here at GAB was a provocative piece by Martin Kenney, a BVI asset recovery lawyer, on the FCPA Blog. Mr. Kenney’s piece prompted replies from GAB Senior Contributor Rick Messick (here) and from me (here). Then last week, we were able to publish two more pieces, one from Mr. Kenney and another from Geoff Cook (the CEO of Jersey Finance). Both Mr. Kenney and Mr. Cook took issue with some or all of the arguments that Rick and I advanced, and pressed the claim that the UK’s imposition of public UBO registries on the Overseas Territories was a bad mistake.

Both of their pieces raise important points that deserve a reply. For that reason, and because I think that this issue is important enough that continuing this exchange on GAB for another round or two may be worthwhile for our readership, in this post I’m going to offer a response to Mr. Kenney’s and Mr. Cook’s posts. To lead with the conclusion: While I respect their experience and expertise in these matters, I found most of their arguments unconvincing, or at the very least in need of further explanation before I’m ready to reconsider my (admittedly tentative) view that public UBO registries have sufficient advantages over confidential UBO registries that moving from the latter to the former is desirable.

Before proceeding, I want to make clear that the question I want to focus on is the question whether a public UBO registry should be preferred over a confidential UBO registry. I emphasize this at the outset because I do not intend to address several of the arguments that Mr. Kenney and Mr. Cook advance, either because those arguments do not directly concern the question I want to explore, or because they are not in dispute (at least not between us). More specifically:

• Mr. Kenney reiterates his view that it was improper (and “imperialistic”) for the UK parliament to impose this new policy on the Overseas Territories. I have no expertise on the procedural/constitutional question here, so I’ll leave that one to the Commonwealth lawyers. I want to focus on the public policy question (Are public UBO registries a good idea?), not the procedural question.
• Mr. Kenney and Mr. Cook both emphasize that confidential registries (such as those that already exist in BVI, Jersey, and elsewhere) are far superior to a system in which even the government may have significant difficulty identifying UBOs. Mr. Kenney in particular emphasizes how easy it is to keep company ownership anonymous in the United States. I agree wholeheartedly, which is why I support legislation pending in the U.S. Congress that would create a confidential UBO registry. That’s certainly better than nothing—but it doesn’t really help us answer the question whether moving toward a public UBO registry (in the US or elsewhere) would be even better.
• Perhaps related to the preceding point: I sense in both Mr. Kenney’s and Mr. Cook’s posts a certain indignation at what they perceive as unfair aspersions cast on so-called “offshore” jurisdictions, perhaps especially from critics who live in countries (like the US) that don’t have their own houses in order. While I can’t speak for others, I want to make clear for the record that nothing in this post or in my previous post should be taken as implying that BVI, Jersey, or other offshore jurisdictions are “bad actors.” Rather, I’m asking a public policy question: would a public UBO registry (whether in the offshore territories, the UK, the US, or elsewhere) be better than a confidential UBO registry?

With that out of the way, let me now turn to the two arguments that Mr. Kenney and Mr. Cook advance in their respective posts as to why public UBO registries are a worse option than confidential registries: (1) public UBO registries may undermine rather than aid attempts to trace and recover dirty money; and (2) public UBO registries threaten legitimate privacy interests.

Would making the UBO registries public undermine efforts to identify and seize illicit assets?

Advocates for public UBO registries contend that this additional transparency will help detect and deter abuse of anonymous companies to facilitate corruption and other crimes. Mr. Kenney and Mr. Cook (and perhaps other critics) claim that even if judged solely by this metric, public UBO registries are counterproductive. Mr. Cook alludes to this possibility in relatively vague terms—he notes that “there are law enforcement agencies and regulators who have voiced concerns that it will be more difficult to detect criminals [when the UBO registry is public],” but does not explaining the mechanism. Mr. Kenney is a bit more specific: He argues, first, that if jurisdictions like the BVI must make their registries public, the bad guys will “migrat[e] to black regulatory holes like Delaware.” This will make the anonymous company problem worse, he continues, because in the BVI—with its confidential UBO registry and other powerful legal tools—it’s actually much easier to trace and seize illicit assets than it is in a place like Delaware. Second, Mr. Kenney also emphasizes that the BVI’s system makes it possible for investigators to identify illicit assets and transactions without the targets knowing, which is critical to ensuring that the targets can’t transfer the assets away before they can be seized. “A ‘fully open’ UBO registry system,” he asserts, “will make [the work of identifying illicit transactions] much more challenging.”

I confess I don’t quite get this. I’m not sure if it’s that I don’t find these arguments persuasive, or that I simply don’t understand them—in either case, some additional elaboration of these points would be quite helpful.

• On the argument that making the registers public in BVI will just cause the bad guys to migrate to Delaware (or elsewhere, but I’ll use Delaware synecdochically here), I get the logical structure of the argument, and it’s perfectly coherent—but if it’s indeed true that Delaware is so much better for hiding dirty money, then why do so many kleptocrats and money launderers and tax evaders and others opt for the so-called offshore jurisdictions? Again, my intent is not to cast aspersions on these jurisdictions, or to question the integrity and good faith of their governments. But Mr. Kenney’s argument seems to imply that right now the bad guys simply misunderstand how easy it is for law enforcement and others to track their illicit assets in the BVI and other offshore jurisdictions. If they already knew that their “secret” information wasn’t really secret in the BVI, then presumably they’d already have stashed all their assets in Delaware companies. Is it plausible that they really don’t know this? I’d tend to think not—these guys and their lawyers are pretty sophisticated. So I tend to think that Mr. Kenney may be exaggerating the effectiveness of the BVI’s mechanisms for identifying and tracking dirty money, or understating some of the disadvantages (from a money launderer’s perspective) of going to Delaware rather than BVI, or leaving something else out of the story.
• Additionally, even if this is true in the short term, if ultimately what we want is public UBO information everywhere, and there’s no way to achieve simultaneous collective action on this, then wouldn’t it be helpful to push as far as we can where we can, in the hopes that this will build momentum for eventually getting all jurisdictions to “level up”? Would Mr. Kenney still oppose public UBO registries if every major jurisdiction (including the US) adopted them? If the answer is yes, then we need to have some sense of how adopting public registries in the overseas territories will affect that larger movement. If the answer is no, then I suspect that the “migration to Delaware” argument isn’t really the main source of his objection.
• As for the bit about how making the registry public will undermine the speed and stealth that’s necessary to identify illicit assets, here I’m even more confused. It’s possible that this is just another version of the above argument: if assets move from BVI to Delaware, it may become harder to trace them without the target finding out. But if Mr. Kenney is saying that even within the BVI, it’s harder to move swiftly and secretly to identify and freeze illicit assets if the company UBO registry is public, then I’ll admit I’m baffled as to why this would be the case. Making the UBO registry would mean that the targets would never be tipped off that someone is looking at whether they own certain companies, because that information would already by public, and could be accessed without a court order. And other kinds of information that a public UBO registry would not make fully transparent—such as company balance sheets, transaction records, and so forth—would be unaffected, meaning the same techniques that Mr. Kenney describes for secretly acquiring that information would still be in place. Here again I may just be misunderstanding the argument, or missing some key facts, but I need more explanation of the mechanism here to understand why making the UBO registry public would have adverse effects on information-gathering.

Would making the UBO registries public unduly threaten legitimate privacy interests?

In Mr. Kenney’s original post on the FCPA Blog, he raised the concern that requiring public disclosure of each company’s UBOs would threaten personal privacy interests. This is a fairly common trope in debates over ownership secrecy, and I suppose there may be something too it—but as Rick and I both argued in our respective response posts, the personal privacy interest here seems awfully thin, and likely outweighed by the public policy benefits of disclosure. In their posts last week, Mr. Kenney and Mr. Cook take issue with our minimization of the privacy issues. Mr. Cook, for example, states that “[e]very citizen has a right to confidentiality” and notes “the risk that the introduction of public registers will increase crimes such as identity theft, cybercrime, and blackmail.” Both of them also invoke the new European data protection rules, with Mr. Kenney accusing me of being “unaware of the impossibility of squaring data protection law and the push for completely ‘open’ systems of … private data on company UBO registers.”

I already had a bit to say about the privacy argument in my last post, and I don’t know if I have much more to add. Let me note a few points here.

• First, there’s no absolute right to own a company secretly, any more than there’s an absolute right to make campaign donations secretly. There’s certainly a privacy interest, but it needs to be weighed against the public policy interest in disclosure.
• Second, we need to keep in mind that we’re not here talking about revealing lots of information about these companies—we’re not talking about publicizing transaction records or balance sheets or tax payments or other financial details. We’re talking about publicizing that company X is owned by (human) person Y. I’m a bit unclear why making that sort of information public substantially increases risks of identity theft, cybercrime, and blackmail. I’m not saying I’m not open to persuasion that there’s something to this argument, but here again I need a fuller explanation of the mechanism—and a reason for thinking that the problem is a big one rather than a marginal one—in order to be convinced.
• Finally, the references to new European data protection laws seem especially wide of the mark. As I understand those laws: (1) they apply to private firms, not governments (and so wouldn’t affect a government’s ability to demand and publicize information as a condition for licensing a company); (2) even for private entities, data can be retained if it’s pursuant to a government regulatory mandate. Moreover, I have not seen even the slightest hint that the new European data protection regulation will force the UK to modify its existing public UBO registry in any way, let alone make maintenance of this public UBO registry an “impossibility.” This seems to me like pretty good prima facie evidence that on this point both Mr. Kenney and Mr. Cook are guilty of overreaching a bit in trying to make their point. If I’m wrong about this, then I’d appreciate a more thorough explanation about how the new European data protection regulations would impact UBO registries in the UK, BVI, or elsewhere.

Again, I acknowledge that the privacy concern is not wholly meritless, but it seems relatively modest, and needs to be balanced against the benefits of a public UBO. And oddly, neither Mr. Kenney nor Mr. Cook has much to say explicitly in response to the alleged benefits of a public (as opposed to confidential) UBO that I raised in my last post—though I acknowledge that they both are arguing implicitly but clearly that these benefits are slight. Still, let me close this post by restating the main arguments in favor of making UBO information public, in the hopes of stimulating further discussion of the merits of these claims. I’ll just restate here what I said in my post from a couple of weeks back:

To my mind, there are two main justifications for public registers. The first is that by making the registers public, external civil society watchdogs can help improve the quality of the registers by combing through them, identifying problems or inconsistencies, providing data on compliance that can be used to help hold governments and others accountable, etc…. Second, media and civil society groups—armed with new technology that allows for computerized “big data” analysis, and perhaps also country-specific knowledge about identities and relationships—can analyze the public registries to identify potential wrongdoing that government investigators might well miss. That is, instead of just having the register available for law enforcement and regulators in case they decide to investigate a particular company or individual, analysis of the public register (combined with other data) might prompt investigations that would not otherwise have taken place.

Are these arguments for public UBO registers convincing? Are there other arguments for or against? I’d invite others who (unlike me) have genuine expertise on this topic to weigh in.