GAB is pleased to publish this post summarizing a recent paper on beneficial ownership disclosure by Anton Moiseienko (Research Fellow) and Tom Keatinge (Director) of the London-based Centre for Financial Crime and Security Studies at the Royal United Services Institute. In the paper, the authors examine current standards governing disclosure of beneficial ownership data, the challenges of ensuring the data’s accuracy, and the needs and interests of the data’s different users. It will be of particular interest to American policymakers given enactment of the Corporate Transparency Act.
Beneficial ownership disclosure – the collection and sharing of information on genuine (rather than formal or nominee) owners of assets – has become a central issue in the fight against corruption and other financial crimes. To whom to disclose it can be controversial, as the very public spat between the United Kingdom, and several of its Overseas Territories shows. Moreover, even countries committed to full public disclosure face challenges in ensuring implementation meets promise as continuing discussions among EU member states shows.
Arguments over the extent of disclosure and verification can obscure an equally important issue, ensuring the ownership data meets the needs of domestic and foreign law enforcement agencies, tax authorities, regulated businesses, and the public at large. In our paper, we examine not only to whom the information should be provided and how to guarantee it is accurate but how to be sure what is collected and disclosed serves the interests of different types of users. It is based on a review of publicly available sources and over 40 interviews, including more than 25 with experts based in British Overseas Territories and Crown Dependencies, jurisdictions where the lack of information on beneficial ownership has been a major concern internationally.
What we found is that, contrary to what current controversies might suggest, there is broad scope for agreement on the parameters of disclosure. Public accessibility of beneficial ownership information is rarely, if ever, held out as an end in itself. What matters is understanding what the users of such information require, securing its accuracy, and ensuring disclosure alone does not acquire a totemic status obscuring other meaningful efforts against financial crime.
These are uncharted waters for governments as they learn to navigate the requirements of various stakeholders. To support their thinking on these issues, we outline the current international standards on beneficial ownership disclosure, identify key challenges in ensuring the accuracy of beneficial ownership information, and explore in detail the interests of various categories of users. We propose questions that governments should consider when mandating beneficial ownership disclosure (see the paper’s Annex) and structure our findings and recommendations in the following five principles that can help answer these questions:
- Domestic verification. To ensure that the beneficial ownership information is accurate, the burden of verifying the information must be placed on the state – specifically, the registrar or another appropriate agency – or regulated intermediaries. Either approach has its costs, which constitute the price of having reliable information. In contrast, solely relying on a company or other arrangement to self-report its beneficial owners is ineffectual, especially if no meaningful sanctions are in place to dissuade non-compliance.
- External validation. Domestic verification apart, confidence in a state’s beneficial disclosure system requires external validation. This can be provided either by opening the register to the public or setting up an international validation scheme. For instance, the Financial Action Task Force (FATF) could collect and analyse countries’ reviews of their experience in obtaining beneficial ownership information from other jurisdictions. This could take the form of a ‘horizontal review’ of a specific issue (that is, beneficial ownership disclosure) across countries in addition to the regular mutual evaluation review that assesses country compliance with the whole spectrum of the FATF’s requirements once every 10 years.
- Proactive use. There is a temptation in some countries, especially international financial centres, to limit their role in fighting international financial crime to furnishing information to overseas agencies on request. To identify financial crime, a more proactive approach is necessary, including reviewing the data for anomalies and revisiting it in light of news stories and newly uncovered typologies, and thus contributing to the global effort to combat financial crime.
- Parity. Despite the widespread understanding that various legal entities and arrangements – such as companies, trusts and partnerships – can be used to similar ends, beneficial ownership information in respect of them is not always collected and disclosed consistently. Some entities may historically be more often abused than others, and there may be an incentive on the part of policymakers to address one issue at a time. This creates room for displacement and results in an approach that is about as satisfactory as an unfinished jigsaw puzzle.
- Accessibility. In deciding who should have access to beneficial ownership information, governments should consider the needs of both domestic and foreign law enforcement agencies and tax authorities, as well as those of the regulated businesses and public at large. This assessment should be transparent and documented. If no arrangements exist for external validation of a country’s beneficial ownership information, the widest possible access is desirable. Those with a right to access beneficial ownership information should be able to do so without significant financial or bureaucratic barriers.