Today’s guest post is from Louise Russell-Prywata, Program Manager at OpenOwnership, a global non-governmental organization that promotes greater corporate transparency by making it easier to publish and access data on company ownership.
Danske Bank’s Estonian branch appears to have enabled international money laundering on an enormous scale, with Danske Bank currently investigating about $236 billion in suspicious transactions (including, but not limited to, the notorious “Azerbaijani Laundromat” in operation from 2012-2014). Yet while money laundering on this scale may be unusual, the mechanisms that allowed funds to flow undetected from countries such as Russia, through Danske Bank Estonia, and into jurisdictions including the UK, are quite familiar. One of the most important of these techniques is the use (and abuse) of anonymously-owned companies.
If we want to stem the tide of money laundering through corporate vehicles, then public registers of the every company’s “ultimate beneficial owners” (UBOs) are an important part of the solution. Publicly available information would decrease reliance on whistleblower allegations to uncover money laundering, and companies themselves would benefit by reducing the costs of due diligence. There has been significant progress to implement public UBO registers in some countries, including the UK and Ukraine, and several other countries have committed to adopting UBO registers in future. There is already some evidence that these registers can make a difference. For example, following the requirement for UBO disclosure for Scottish Limited Partnerships (SLPs), the number of new incorporations fell dramatically; this is encouraging, as SLPs have featured prominently in several grand corruption cases. However, the Danske Bank revelations highlight that the power of national registers in isolation is limited.
To effectively deter and detect corruption and money laundering, public UBO data from different countries needs to be linked in a manner that is useful for law enforcement, investigative journalists, and others. The data from different registers must be compatible, so that it would be possible, for example, to ascertain whether the Ms. Doe owning Doe Holdings Ltd. registered in the UK, is the same Ms. Doe owning Doe’s Ltd. in Cayman Islands. This is important because a money-laundering trail rarely leads neatly from source jurisdiction straight to a company whose UBO is listed in a public register. Criminals and their associates tend to create a complex chain of legal entities to hide the illicit origin of their funds. This was the case in the Azerbaijani Laundromat, for example. Linking together UBO information from different jurisdictions would make it far easier to “follow the money” in grand corruption and money laundering cases. While law enforcement in some cases have powers to do this now, in practice the process can be complex and expensive, and it is not easily possible to link information at scale.
This is no simple task, but it is both technically and practically possible. Since 2016, OpenOwnership has been curating a group of technical and data experts to develop a Beneficial Ownership Data Standard (BODS). BODS is a template for describing UBO information, somewhat similar in spirit to the Open Contracting Data Standard. Data in BODS format from country A can automatically be linked with data in BODS format from countries B, C, and D. BODS can be used by governments, and also by the private sector as a data management tool, reducing the costs of complying with anti-money laundering regulations.
The OpenOwnership Pilot Program is working with governments implementing UBO registers, including Ukraine and the Kyrgyz Republic, to refine BODS and adapt it to meet the needs of people and entities wanting to use UBO data. The resulting data is added to OpenOwnership Register, a repository of linkable UBO information from countries across the world, which currently includes data on over 5 million companies from over 20 countries. Our aim is to prove that linking public UBO information is both possible and useful, and catalyze the adoption of BODS as an anti-money laundering tool.
The opportunities for change are huge. For example, as EU member states implement the UBO requirements of the 5th Anti-Money Laundering Directive, instead of having a patchwork of national company registers that are difficult to link, use of the BODS could substantially increase the utility of UBO registers and strengthen money laundering defenses across the EU.
Technical solutions to link UBO information exist, and continue to be refined and improved. What is needed now is greater political will to work towards internationally linked data. Money laundering and grand corruption are transnational problems and require transnational solutions. As stories from Danske Bank Estonia continue to unroll over the coming weeks and months, I hope this will refocus minds on the need for public, linked beneficial ownership information.
GAB | The Global Anticorruption Blog 
Global common registry with UBO information is a very important goal. A potential bottom-up approach to collecting and standardizing information on UBO would be to encourage governments to require from companies operating within their geographical jurisdictions to update annually information about their UBO (at a universally agreed upon and a reasonably low equity interest threshold) from any company who seeks to renew its business license, i.e., the permit issued by government that allow a company to conduct business. If every country collects this information using a similar template, merging individual country databases into a global registry would be a relatively simple exercise. And the added benefit would be that this information would be updated annually by each country, so centralized maintenance and updating of the registry will not be required.
I remember the conversation about the UBO registries ten years ago and now – it seems like there is a lot of progress in the way of how this issue is approached (even though the results are still not satisfactory).
For me, it has always seemed that the solution should be to go through the companies (legal persons) registries that already exist in all countries (how else would businesses work there?) and make them: 1) open, 2) structured and 3) obligatory to update. This means: no scanned documents, clear structure of where to provide the UBOs, shareholders, where to upload the financial documents, etc. The countries could make not all of such information public if they absolutely feel that disclosure might lead to negative effects. It could be made public to the financial institutions and other companies responsible for implementing AML and other obligations, it could be shared with institutions in other countries. This should be the reasonable and logical standard. It is unthinkable that so many countries in the XXI century have registries that are unsearchable (and thus such information as UBOs cannot be extracted from them), paid or that the documents in those registries are uploaded in a way that goes completely unchecked. I understand that the state could not check each and every single set of corporate documents, but at least in cases where it is revealed that the UBOs were not disclosed properly in the past, there should be fines!
I understand that it is extremely complex to force governments to adopt such changes – and I applaud your initiative for trying to work even without that. However, I would really like to see more leadership from international organizations in pushing for the changes that are necessary for an integral business environment. I cannot begin to describe how many times I have heard CEOs of companies half-jokingly admit that even they themselves do not know the entire corporate structure of their corporations (and the identity of UBOs). This should not be acceptable.
Ruta, I agree that it shouldn’t be acceptable, but I also think that this is a prioritization issue. While this might be extremely beneficial, I’m sensitive to the resource tradeoffs that likely need to be made in order to have governments adopt and implement those changes. Maybe it necessitates an outside NGO, like Jason suggests, to manage the general registry, but to also push countries to adopt those changes?
Thanks for this interesting post. This is yet another example of how (relatively) simple tech solutions, if implemented well, can (potentially) make a big difference in the fight against corruption. In reading your post though, I have to admit I’m a bit unclear on how exactly the BODS will work. Is the idea that each country will unilaterally adopt the BODS and amend their corporate registry rules appropriately? Then, is OpenOwnership itself maintaining the general registry that links the various BODS-adopting national registries together? If my understanding is correct, I wonder if an NGO is the ideal actor to be maintaining this general registry. It may well be, as it might end up being the most independent and trustworthy custodian for such a registry, but I can envision for privacy or security reasons we might prefer to have a multilateral organization maintain the registry. If I’m misunderstanding the proposal though, this point may be moot, so please feel free to correct me.
This was a very interesting post! While each country could be tasked with updating the information in the directory, I agree that having another actor oversee the general registry might make it more effective. While an independent NGO as Jason suggests could bring a level of independence and efficiency to the registry, it may raise some democratic concerns and undermine the legitimacy of the registry, especially as a database of this size could be very influential in future corruption cases. Another possible actor that could maintain the registry is a wing of an international institution like the World Bank or the U.N. Of course, these large institutions come with their own drawbacks, namely their bureaucracy and their politics. However, they could also provide more legitimacy to the registry.
This is a very interesting, and somewhat straightforward solution. I also am a little confused though on how this would ideally be mandated. Would it be best to lobby for an international treaty in which State parties agree to impose sanctions on banks who do not comply with the registry? And would I be for all banks that have any branch locations in the country, or just ones incorporated there. Further, at what point could the fines be high enough so that it is not financially beneficial for banks to break compliance.
This is a great idea, I just don’t know how well it will work–though badly needed globally– if it is only implemented in a few countries, such as Ukraine or the UK. Otherwise, it seems as if persons will continue outsourcing and diluting their ties to accounts through international banking in non-compliant locations.
The best selling point in this argument, in my understanding, is that BODs truly cut down on discovery costs by a ton. That is savings realized not only to prosecuting and investigating countries, but also to banks complying–but only enough if timely and expensive investigations are launched in the first place.
Thank you for your post, which I found to be fascinating and thought-provoking. I agree with Jason that it is quite amazing to see how a relatively simple, straightforward technical solution may do wonders in terms of fighting corruption.
I also think that it is interesting that basically, besides adhering to the BODS template, different governments around the world do not necessarily have to take any additional steps to work in cooperation with each other. That in turn enables “passive cooperation” on fighting money laundering between countries that for various reasons do not usually cooperate.
Thank you for shedding some light on a viable alternative to whistleblowers reporting money laundering—there are a number of reasons why whistleblowers in certain countries may feel hesitant to come forward, and your suggestion seems like a realizable fix, at least in theory. I wonder what you see as some of the barriers to actually implementing public UBO registers. Are governments reluctant to change the status quo because they do not see this as a priority? Is there a resource concern? Or is it something else?