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Beneficial ownership disclosure – collecting and sharing information on genuine (rather than formal or nominee) owners of assets – is an area of financial crime policy that many countries struggle with. It can be highly emotive, as demonstrated by the public disagreement between the UK, the first state with a publicly accessible beneficial ownership register, and certain British Overseas Territories (BOTs), which favour only making beneficial ownership information available to state authorities. At the same time, even countries that pride themselves on their leadership in beneficial ownership disclosure face challenges in ensuring the efficacy of their frameworks. The UK is one of them, as are EU member states, which are bound by EU law to set up public registries.
Amid disagreements about the value of transparency and technical discussions about data verification, the questions of how beneficial ownership information is in fact used and what this means for policymaking are all too often overlooked. This paper aims to address them by examining the needs and interests of various potential users of such information, including domestic and foreign law enforcement agencies, tax authorities, regulated businesses and the public at large. This analysis is based on a review of publicly available sources and over 40 interviews, including over 25 interviews with experts based in the BOTs and Crown Dependencies.
Contrary to what current controversies might lead one to believe, there is broad scope for agreement. Public accessibility of beneficial ownership information is rarely, if ever, held out as an end in itself. What does matter, however, is understanding what the users of such information require, securing its accuracy and ensuring it does not acquire a totemic status which obscures 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, this paper outlines the current international standards on beneficial ownership disclosure, identifies key challenges in ensuring the accuracy of beneficial ownership information, and explores in detail the interests of various categories of users. We propose questions that governments should consider when mandating beneficial ownership disclosure (see the 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 place in 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.
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