Beneficial ownership in law: Definitions and thresholds

Overview

To maximise the impact of beneficial ownership (BO) registers, it is important to minimise loopholes and make data as useful as possible. A legal definition of BO and its associated thresholds form the foundation on which a disclosure regime is built. This is necessary for those that hold significant interests in legal entities to be classed as beneficial owners and to have a legal obligation to declare their interests. Research with implementers and BO transparency (BOT) experts has shown that a robust legislative framework for BOT, including a good legal definition of BO, is one of the key enablers to BOT achieving its policy impact.[1] BO should be clearly and robustly defined in law, with low thresholds used to determine when ownership and control is disclosed.

Leading policy definitions of beneficial ownership have converged in recent years, and it is possible to start to identify best practice elements of definitions. Developing a robust definition involves ensuring these components are included in the definition, and adapting these to a specific local context. Thresholds at which it becomes a legal requirement to disclose BO are often part of legal definitions and contentious areas of debate. Low thresholds are important to ensure that most or all people with relevant BO and control interests are identified in the disclosures.

Careful consideration of definitions and thresholds is essential, as seemingly minor decisions during the early stages of implementation can have significant consequences for systems development and data publication. As this briefing illustrates, a weak legal definition can leave large numbers of beneficial owners invisible, undermining the goals of BOT reform. Thresholds that are not commensurate with the level of risk an individual, company or sector form can similarly leave large blindspots in disclosure regimes.

This policy briefing aims to help policymakers and those implementing or supporting BOT to think through the decisions required to define BO in law and to set appropriate thresholds, and how to operationalise these. The briefing outlines key policy principles, explains why these are important, and highlights emerging good practice from different countries. The briefing relates only to the BO of companies, and not trusts or other legal arrangements.[2]

A clear and robust definition – with low thresholds used to determine when ownership and control is disclosed – is a core tenet of the Open Ownership Principles. The Principles set the standard for effective beneficial ownership disclosure and establish approaches for publishing BO data. They make published data usable, accurate and interoperable.

Footnote

[1] Extractive Industries Transparency Initiative and Open Ownership, “Catalysing transformative change in beneficial ownership transparency”. August 2020. Available at: https://www.openownership.org/uploads/Opening%20Extractives%20Research%20Report.pdf [Accessed 29 September 2020].

Endnote

[2] There are specific issues for BO disclosures that relate to trusts and other legal vehicles that are not dealt with in this briefing. For trusts, there is general consensus in international policy spheres that the settlor(s), trustee(s), protector(s), beneficiaries, and any other person exercising ultimate control through direct or indirect ownership or any other means, would be deemed beneficial owners. See, for example, European Union, “Directive (EU) 2018/843”. 30 May 2018, Article 1, Paragraph (2) (b). Available at https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018L0843&from=EN [Accessed 28 August 2020]; FATF, “Guidance on Transparency and Beneficial Ownership”. October 2014, p30. Available at: https://www.fatf-gafi.org/media/fatf/documents/reports/Guidancetransparency-beneficial-ownership.pdf [Accessed 28 August 2020]; OECD, “Standard for Automatic Exchange of Financial Information in Tax Matters”. 2018, p22. Available at: https://www.oecd.org/tax/exchange-of-tax-information/implementation-handbook-standard-for-automatic-exchange-of-financial-information-in-taxmatters.pdf [Accessed 28 August 2020].

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