The brutal murder of Daphne Caruana Galizia in Malta last week brings into stark relief the dangers faced by investigative journalists who courageously expose corruption and money laundering. Much of Daphne’s work focused on following the money between politicians, organised crime groups and business, often facilitated through offshore shell companies and trusts. Through her work on the Panama Papers she sparked outrage at how political elites can all too easily hide ill-gotten gains behind anonymously owned companies.
These are also core issues for us at Global Witness. Encouragingly there is growing momentum to tackle this problem at the root. In 2016, the UK paved the way by setting up the world’s first register of the ultimate, or “beneficial” owners for companies which is accessible to the public.
Many countries are following suit, potentially including all EU Member States as a result of revisions to the EU’s Anti-Money Laundering Directive expected by the end of this year. Twenty countries engaged in the Extractive Industries Transparency Initiative (EITI) are in the process of setting up public registers of beneficial owners for companies in oil, gas and mining. This week’s EITI conference in Jakarta as well as the annual conference of the Financial Transparency Coalition in Helsinki will discuss precisely this issue.
With this in mind and almost sixteen months after the UK set up its register, there are important practical lessons for countries to take away from the UK experience (see our full briefing here):
1. Make your register data freely available
In the UK you don’t need to pay for access to company information. Since the UK removed a small paywall in 2015, data use has grown exponentially to over 2 billion data searches a year, up from 6 million access requests during 2014-15. This demonstrates there is significant demand for this data, and that even a small fee will create a barrier.
2. Publish as open data
The UK’s register is available as a searchable web interface and as “structured” data in machine-readable format. In other words, you don’t have to trawl through countless PDF pages but can download it as a spreadsheet. Advantages include:
- It’s easier to link to similar data in other countries
- It’s easier to link to other useful data sets (e.g. public procurement)
- Improving data quality as ‘many eyes’ spot mistakes
3. Provide for case-by-case exemptions for personal security
On occasion data protection and security of beneficial owners are cited as arguments for not publishing beneficial ownership data. In a small number of cases an individual may face a serious risk of violence or intimidation, for which countries should provide limited case-by-case exemptions from having personal details disclosed, as the UK has done, rather than blanket exemptions.
4. Require up-to-date information
Initially UK companies only had to provide information about changes to its beneficial ownership on an annual basis, as part of the company’s annual confirmation statement. However, now companies are required to update the central register within 28 days of a change, giving a boost to proactive compliance and allowing UK authorities to follow up at any point. Requiring companies to report ownership changes as they occur will improve accuracy and help build confidence in the register.
5. Collaborate with registry users
The UK’s Companies House established various in-person and online forums to update users on development schedules and solicit feedback. Companies House also collaborated with Global Witness in the data analysis of the registry undertaken in November 2016, even supplying additional data products. Collaboration with users allows Companies House to make improvements to the system in real time, making the tool more useful overall.
6. Include robust sanctions
This is essential to ensure effective compliance. Failure to provide accurate information to the UK register is a criminal offence and may result in a fine and/or a prison sentence of up to two years. As of yet no sanctions have been issued.
7. Consider data validation at the outset
Helping to ensure valid data is inputted in the register from the outset can help avoid some of the teething problems experienced in the UK. For example, by having a pre-populated list of recognised countries (the UK register had 500 spellings of ‘British’), integrating postal address validation and limiting the range of possible entries for date of birth to realistic values (in the UK 2,160 beneficial owners listed their date of birth as 2016).
8. Verify data
A major weakness of the UK register is that the data submitted is not verified and relies entirely on self-reported data from companies. This may result in poorer quality data and less confidence in the register as a useful tool for transparency. Much more could be done in this area, such as requiring banks, auditors, lawyers and real estate agents cross-check the data with their customer due diligence findings and report discrepancies. Countries could also require proof of identify or proof of ownership/control, as Denmark has done by requiring a scanned copy of a passport or national ID.
9. Consider effective thresholds
The UK set its beneficial ownership threshold at 25% of the shares or voting rights in a company, which creates the risk that significant interests in a company are not accurately represented or reported. In the extractives sector even a 1% stake in a company is a relationship worth reporting, given the high corruption risks and profits.
10. Allocate unique identifiers
Sometimes even when the name of a beneficial owner and their month and year of birth are disclosed, it can be difficult to identify the same person when there are many people with the same name. The UK and other countries should consider allocating unique identifiers to individuals which will make it easier to link records and match it with other data sets. We saw the value of unique identifiers first hand in our investigations into the Jade industry in Myanmar.
Clearly there is much other countries can learn from the UK’s pioneering work to ensure these registers are fit for purpose. As more countries commit and start setting up their own registers of beneficial owners it’s becoming increasingly urgent to share these lessons and ensure we can link this data across borders. Ultimately these registers will only be useful if they provide meaningful public access, and accurate and up-to-date information to tackle the very real problem of corruption and money laundering.
Download our joint briefing with OpenOwnership here: Learning the lessons from the UK’s public beneficial ownership register