Beneficial Ownership Transparency: a Spotlight on International Beneficial Ownership Registration

In October 2020 the G20 and B20 (the official G20 dialogue with the business community) convened at a summit in Saudi Arabia. The recommendations made to the G20 reflect a growing trend at an international level to enhance transparency in beneficial ownership. 

As we outlined in our previous briefing, Mayer Brown was selected by the Secretariat to be a Knowledge Partner and worked closely with the B20 Taskforce on Integrity & Compliance which made three recommendations to the G20, including the development of digital public registers to increase transparency around beneficial ownership.¹

Key takeaways

1. Beneficial ownership transparency has been promoted in various international policy fora over the past decade and substantial progress has been made in advancing this area of policy.
2. Whilst considerable progress has been made in promoting the establishment of public beneficial ownership registers, implementation is not consistent which risks undermining important developments.
3. Meaningful progress is required to establish and integrate verification measures within the design of registers to improve the accuracy and reliability of information submitted.

Background

Important developments at an international level, for example, the Financial Action Task Force (FATF) and the G20 fora and the London Anti-Corruption Summit in 2016 have provided significant momentum over the past decade to the implementation of beneficial ownership registers.

Nevertheless, this is a nascent area of domestic and international policy and meaningful progress has been compromised, in part, due to limitations of the policies themselves.

The Financial Accountability, Transparency & Integrity (FACTI) Panel highlighted in its July 2020 publication that the maintenance of beneficial ownership information remains an area with comparatively low compliance, even among jurisdictions that have signed up to global standards, such as the FATF Recommendations and the G20 High Level Principles on Beneficial Ownership (the G20 Principles).²

Emerging Beneficial Ownership Registration Frameworks

A total of 81 jurisdictions worldwide have passed laws requiring beneficial ownership to be registered with a government authority - only 11 of which are G20 Members.³ The FATF Recommendations are perhaps the most pervasive international norms related to beneficial ownership transparency, with 37 jurisdictions currently members. In short, the FATF Recommendations, which were first issued in 1990, set out a comprehensive and consistent framework of measures which countries should implement in order to combat money laundering and terrorist financing.  The G20 Principles, which were adopted by G20 leaders in 2014, built upon the FATF Recommendations and dramatically increased both the number and diversity of countries that have signalled their commitment at the highest political level to improve beneficial ownership transparency.⁴

The B20's policy recommendations at G20 / B20 Saudi Arabia 2020 highlighted that the business community advocates greater transparency, reinforcing integrity and fighting corruption. The policy recommendations also emphasise the importance of effectively implementing the G20's current and prior anti-corruption commitments.⁵

Progress in establishing registers had principally been focussed in Europe, however since 2018 the implementation of registers in countries in Latin America, Africa and across Asia has increased.⁶

Whilst numerous jurisdictions have been slow to implement centralised registers, there have been successful interventions in some countries at a sectoral level, particularly in the extractives sector.

Europe

Although the UK has made arguably the most progress in this area, its Crown Dependencies and Overseas Territories have generally seen slower developments. The islands of Jersey, Guernsey and the Isle of Man have introduced registers but will only make them publicly available from 2023.

Ukraine made promising policy progress establishing a public register. However, compliance has been a prevalent issue. Only 16% of companies had submitted beneficial ownership information by August 2017, three years after the law had been introduced. By the end of 2018, Ukraine reported that just 20% of registered companies disclosed ultimate beneficial ownership information.⁷

In 2015 Slovakia established a beneficial ownership register for companies participating in public procurement processes. The purpose of this legislation was to allow public scrutiny into the ownership structure of companies taking part in public procurement.⁸

Asia

In 2020 the Government of Myanmar, in co-operation with Myanmar EITI (Extractive Industries Transparency Initiative), launched a beneficial ownership register for owners of companies in the extractives sector. This register allows users to search a database of companies in the mining, oil and gas industries for the identities of individuals owning shares of 5% or higher.

Similarly within the extractives sector, in 2018 the Government of Kyrgyzstan passed legislation requiring companies to disclose their beneficial owners when applying for or holding an extractives license.

United States

The US Congress is considering introducing legislation that would require shell companies to report beneficial ownership information to a private database. Access would be limited to law enforcement agencies, yet this would be an important step forward in the US, which is now ranked second in the world for financial secrecy, below only the Cayman Islands.⁹

Developed Beneficial Ownership Registration Frameworks

United Kingdom

In 2016 the UK became one of the first countries to create a public register of the beneficial owners of companies – the register of Persons with Significant Control (PSC).

In doing so, the UK set new standards in publishing the data as open data, meaning it can be reused by other organisations and individuals without any restrictions. A 2019 review of the PSC register conducted by the Department for Business, Energy and Industrial Strategy found that all enforcement organisations interviewed had consulted the PSC register to inform criminal investigations.

EU Anti-Money Laundering Directive

The most developed and targeted standards exist at the EU level and stem from the Fourth, Fifth and Sixth EU Anti-Money Laundering Directives (4AMLD, 5AMLD and 6AMLD, respectively).

4AMLD mandated Member States to introduce beneficial ownership registers which would be accessible to persons with a "legitimate interest" by 2017.

The introduction of 5AMLD in 2018 stipulated that Member States establish beneficial ownership registers for companies that are publicly available by January 2020. In addition, 5AMLD also required that by March 2020 Member States establish registers of beneficial ownership for trusts and similar legal arrangements, which competent authorities and those with legitimate interests can access.

The process of transposing 5AMLD into national law is far from complete. Just five EU Member States have achieved this so far: Bulgaria, Slovenia, Denmark, Latvia and Luxembourg.

By December 2020, Member States will be required to transpose 6AMLD into domestic law, which is intended to address certain gaps in the existing regime. Whilst it is not yet clear what the UK's exit from the EU will mean for its implementation of 6AMLD, it is largely expected that the UK will not deviate too far from the EU's position.

Beneficial ownership legal definition

Most countries have opted for a definition of beneficial owner based on a percentage of shares owned or controlled by the individual. The most common threshold, which has been adopted by the UK and other EU Member States, is 25% or more.

Some countries have established lower thresholds. In Argentina, Botswana, Ecuador and Saudi Arabia, anyone with just one share in a company is to be identified. In Ghana there is no threshold for the definition of beneficial ownership. 

Limitations of Beneficial Ownership Registration

Verification

One of the biggest obstacles to the effective use of registers is the lack of verification process for the information that is provided. Without established and automated systems of verification, registers are vulnerable to being populated with self-declared and inaccurate information.

Open Ownership, a non-profit organisation which supports countries implementing beneficial ownership transparency, highlighted the need for countries beginning to implement registers to consider how data will be collected, as well as the importance of establishing systems to verify and validate the beneficial ownership information submitted.¹⁰ Where information is inaccurate or unverified, this is likely to necessitate increased regulation of trust and corporate service providers.

Despite the UK's significant progress, its registration framework has faced criticism due to the lack of scrutinising powers at the UK's companies register, Companies House, and the lax supervisory regime for the Trust and Company Service Providers (TCSPs) that act as formation agents.¹¹

In response to a consultation on options to enhance the role of Companies House and increase the transparency of UK corporate entities, the UK government announced in September 2020 that only properly supervised agents will be permitted to file information at Companies House and evidence that the information has been verified will be required. The UK government also intends to introduce an obligation on bodies that fall under the Anti-Money Laundering regulations to report discrepancies between the public register of companies and the information they hold on their customers, increasing the regulation of private sector entities. These changes are intended to be implemented from as early as the end of the 2020/2021 financial year. ¹²

Some progress has been made in cross-checking information against other government databases. Denmark has pioneered the use of automated cross-checking of data from various government databases to verify beneficial ownership data prior to allowing a legal entity to be registered. The Austrian beneficial ownership register is aligned with other registers in the country, facilitating real-time checks. The UK government recently stated that it will introduce legislation to permit cross-referencing of Companies House data against other data sets.¹³

Regulatory Arbitrage

In 2016 53 countries committed to the systematic sharing of beneficial ownership information.¹⁴ Despite a growing number of countries introducing beneficial ownership transparency legislation, international efforts are undermined by the slow implementation of public beneficial registers globally; this is particularly the case in offshore company formation centres, such as the Cayman Islands.

The international legislative landscape is disparate, meaning that loopholes in regulatory regimes may be exploited as a means of arbitrage, circumventing unfavourable transparency regulations. The lack of clear and comprehensive international standards requiring countries to maintain public beneficial ownership registers means that corrupt actors may still find jurisdictions in which to remain anonymous.