Regulation

Should there be a mandatory register of beneficial ownership of corporate structures in every country?


By Zosia Sztykowski, Project Coordinator, Open Ownership (30/11/2017)

The Panama Papers have conclusively shown that anonymous corporate structures are the favourite vehicle of those looking to escape accountability for criminal or unethical behaviour. Several subsequent money-laundering scandals have reinforced this – and given the word ‘laundromat’ a new meaning.

The costs of these illicit activities are borne by society in the form of stilted economies and markets, underfunded public services, and the shoddy results of corrupt procurement processes. And of course, what hits the press is only the tip of the iceberg. The real question is not whether we should have central registers of beneficial ownership, but why the global community hasn’t yet taken this assertive step toward ending the abuse of anonymous company ownership.

Critically, these registers must be available to public scrutiny in open data format, allowing the information to be freely used and combined with other relevant public or proprietary datasets. While this may seem inaccessibly techie, the concept is actually quite simple: a single computer reading data can do much more to compare related pieces of information than can a team of people reviewing one record at a time.

Ultimately, this will greatly increase the likelihood that anomalies and red flags will be found, thus making it more difficult, risky and expensive for criminals to hide behind corporate structures.

Of course, this rests on an assumption that there is a demand for this data and that, when it is released, it will be used. But it is not difficult to prove this demand as potential users in the public sector, private sector and civil society clamour for access to this data. EY’s 2016 Global Fraud Survey found that 91 per cent of senior executives believe it is important to know the ultimate beneficial ownership of the entities with which they do business.

The experience of the UK’s Companies House is an excellent case study. Use of their database has grown exponentially, to 10 million searches a day, since it was made free and open. And, they have been receiving tip-offs from users about beneficial ownership information that is incorrect or incomplete since they started publishing it.

Publishing beneficial ownership as open data will also allow that data to be linked globally with other datasets. As the World Bank has noted, when corporate structures are used to launder money, this often involves adding layers of ‘legal distance’ between the beneficial owner and their assets. These layers are placed strategically across a number of jurisdictions to deliberately frustrate the efforts of investigators trying to get a true picture of the structure.

The ability to link beneficial ownership information from around the world is essential to realizing beneficial ownership data’s potential to expose transnational networks of illicit financial flows. We must be sure not to leave this information languishing in national siloes.

Some sceptics raise concerns about whether the statements about beneficial ownership made to central registers can be guaranteed to be accurate. Typically, the alternative offered is to collect beneficial ownership data via company service providers (CSPs).

But there is no reason to expect that the statements made to CSPs are any more accurate. Though some CSPs check the identity of someone opening a company against official documents such as a passport, this does not guarantee that that person is the true beneficial owner.

It’s worth saying that the expectation that anyone can guarantee the accuracy of beneficial ownership information may be misplaced. People who are laundering millions in illicit money will hardly hesitate when it comes to lying on a form, regardless of whether a corporate register or a CSP is collecting the information.

That’s exactly why we need to focus on making it easier, and more likely, for people consuming the data to raise red flags that a lie has been told, either by finding an inconsistency when compared to another data set, or by applying their own local knowledge of certain registered addresses or individuals to verify the data.

Until we do this, policymakers will struggle to meaningfully stem corruption and rebalance markets. We must see – and soon – a global regulatory push on beneficial ownership transparency that takes into account the critical role of data users in meeting these policy goals. The cost of inaction is just too steep to bear.