Catalysing transformative change in beneficial ownership transparency
The following section sets out the main findings from the research. A key finding is that there is a perception that BOT is uniquely complex. Transparency reforms are complicated to begin with, but BO reforms are perceived as involving many different stakeholders – be they implementers or potential users – who have different interests and incentives. This is in part due to the many different use cases of BOT and its ability to address multiple policy goals. This perception is compounded by the complex governance challenges posed by the heightened corruption risks in the extractive industries, which was also echoed by the respondents. Broadly, the complexity that respondents described can be categorised as:
- Jurisdictional complexity: BOT implementation is uniquely complex because of the range of stakeholders it involves. It usually involves a number of different government agencies – e.g. finance, justice, and interior ministries. “There are several buckets of public agencies that are working together and coordinating this, which can be a huge challenge,” one interviewee said. These agencies are not necessarily used to working together, and the agency that makes the commitment can be different from the lead agency, which can be different again from the implementing agency. Beyond government, stakeholders include companies in all sectors of the economy that will have to disclose their BOs, as well as the services they hire (e.g. lawyers and other professional bodies) and civil society. This leads to competing, overlapping, and conflicting jurisdictions and mandates. One respondent said the responsibility of implementing BOT was passed around agencies like a “hot potato”. Though not unique to transparency reforms, the challenge of overlapping functions and responsibilities and inter-agency coordination are common.
- Political complexity: Who owns companies and benefits from them fundamentally revolves around power. There are many reasons why people have an interest in opacity, especially when politically exposed persons (PEPs) are involved in industry – in particular one as lucrative as the extractives sector. Different actors in government, industry, and CSOs can all have conflicting interests for or against BOT that can complicate implementation. This is further complicated as resource-rich countries are particularly vulnerable to state capture, conflict, and political transitions.
- Technical complexity: Whether implemented as a digital solution or not, BOT implementation requires specific knowledge and skills: from drafting the required policies that need to be translated into the necessary laws, to setting up the systems and verifying, publishing, and visually presenting the data. Without adequate technical expertise and capacity, BOT implementations are likely to fail, no matter how well the other areas of complexity are addressed.
The above findings were recurrent in all the research themes, which are discussed in detail below.
Theme 1: Preliminary country selection process and criteria
Implementation of beneficial ownership transparency
One of the key aims of the research was to explore what implementers perceived as the most critical factors for the successful implementation and impact of BOT.
The criteria required for successful implementation of BOT are often complex and differ from country to country. This political complexity is reflected in the conditions often being described enigmatically by international experts, using terms such as a “perfect storm”, requiring “windows of opportunity”, a “lucky break” or “25% luck”.
As expected, almost all respondents mention political will, or aspects constituting political will, positioning it as the initial defining factor for successful implementation of BOT. In the research, we have attempted to unpack this. The following are aspects that can contribute to or form critical parts of political will in different contexts. These are seen as prerequisites but insufficient to ensuring implementation.
- Government commitments, either voluntary or as part of international obligations (e.g. FATF, EITI, OGP, EU, Global Forum) are important but do not guarantee success. Political commitment at the highest level is often seen as a prerequisite;
- Sensitisation and understanding from all stakeholders. Broadly there is a big issue with grasping the technical complexity at each and every level. “Countries have a hard time grasping what BO really means”,10 one respondent said. A lack of understanding can turn each stakeholder into a sceptic and a blocker as people do not understand the implications and extent of the reforms;
- Support and understanding in both parliament and senate is critical to pass the necessary legislation, and reforms can often stall in either of these bodies. Having the right legislative framework and good laws are seen to make or break BOT reforms;
- Both champions and coalitions, inside and outside of government, so that vested interests are circumvented;
- A clear mandate for the lead agency that bears clear responsibilities for implementing BOT minimises jurisdictional complexity.
According to many respondents, most other factors are secondary to political will and may overlap with or be affected by political will. Resources, as well as human and technical capacity are all important, but are not as critical. “If you want to do it you can get it done,” one respondent said.10 As these factors are all important, they can also become means behind which to hide a lack of political will. For instance, people can stall legislation, saying it takes time, whilst pointing to big political commitments. Implementers can hide a lack of political will behind implementation challenges, making it challenging to assess true political will. Privacy, for instance, is a common and legitimate concern, but it is often difficult to assess the extent to which it is a genuine concern, due to a lack of understanding as opposed to a means to stall implementation. Political will is fragile and can be heavily affected by elections and changes in executive and legislative bodies, meaning political stability is also key.
Two main drivers for commitments to reforms can be identified from the respondents. One relates to anti-money laundering (AML), often associated with FATF compliance, whilst the other concerns anti-corruption efforts. The former is more often government led, and can be a very powerful motivation for reform as the consequences of non-compliance can be severe (i.e. exclusion from access to global financial markets). Whilst this is considered more “compulsory” than anti-corruption efforts, there is a risk that in this context BOT is seen as simply an obligation, leading to a cosmetic exercise to be removed from a blacklist, and not actually genuine reform “from within”.10 Additionally, whilst external pressure from FATF compliance can be important for prompting BO reform, it can also lead to local pushback. On the anti-corruption side, this pressure to reform can come from CSOs (for instance, following a scandal) and includes more creative and successful approaches from government champions. Complying with the EITI standard falls broadly within the anti-corruption motivation for BOT reforms. Whilst this can be seen as more voluntary than the AML side, respondents acknowledge the soft power of the EITI that can be important for undergirding political will. Another factor that can be identified is international prestige and being seen as a front runner, or being associated with countries like the UK, which have functioning public registers.
Broadly, there is a view that both the AML and anti-corruption drivers for BO reform are necessary. If reforms are started by the government (for instance, in reaction to an impending FATF mutual evaluation), in order for reforms to be sustained, support pressure from civil society is needed at some point. CSOs are critical in sensitisation of the public but need stories and tools, clear use cases. Early impact is important for this as it builds legitimacy for the reforms.
In addition to political will, a government’s ability to draft effective legislation that can make or break BOT reforms was often mentioned by respondents. Therefore, regulatory effectiveness is considered another critical factor in BOT implementation. Additionally, a culture of compliance and the rule of law is also seen as necessary, in order for those that are required to disclose to actually do so.
Impact of beneficial ownership transparency
Most of the respondents define the impact of BOT as data being used by a variety of users achieving the goals of their respective use cases. Several respondents highlighted the importance of including potential users (both within and outside government) in initial consultations, and focusing on data use from the outset. If this has not been done, implementation of BOT can often fall flat at the publication stage. “You can write the perfect law, but if there is no interest, [there is no impact]…”,10 as one respondent said. In order for data to be useful, data quality and usability are flagged as essential prerequisites.
“Build it and they will come does not work for BOT,” as mentioned by one respondent. Sensitisation of both the data users as well as the general public is important for impact. Sensitisation needs to be adapted to specific user groups. In the case of industry, for example, it should revolve around the role of BOT in assisting due diligence to increase investment. For all user groups, the technical complexity needs to be broken down and made accessible.
For data use to lead to impact, countries need an active civil society as well as a responsive judicial system. It is also important for there to be an adequate level of freedom of speech. “If you’re in a society where there are restrictions on the media and freedom of expression, what purpose does it serve if you know who the real owner is,”10 as one respondent said.
There is no anti-corruption impact of BOT without corruption having occurred, and early impact stories may be critical to maintain momentum. However, if those responsible for reforms are directly benefiting from opacity, this is a big barrier to reform being sustained. This is perceived as a challenge, as PEP involvement in extractives is key for impact stories.
Areas for further research
There is an extensive body of literature on political will, but further research should be done to unpack this black box for BOT and how it can be assessed. What do the “windows of opportunity” look like? Additionally, further research could explore the specific role of corruption on BOT implementation. Whilst it is a criteria for impact, it can also be a major blocker. Is it possible to disaggregate types of corruption and how they impact BOT implementation? And looking beyond direct use of BO data, how could the impact of BOT on changing stakeholder behaviour and incentives be understood and measured?
Theme 2: Understanding the priorities, needs, and demands of implementers
Main implementer roles and additional stakeholders
The research set out to identify the main types of BOT implementer roles that could help to inform the design of specific service offerings to different roles. It also sought to add further nuance to the role of additional stakeholders, such as industry and civil society.
As outlined above, BOT implementation is uniquely complex due to the range of stakeholders it involves, both in government as well as outside it. Countries have taken different approaches to implementation. Whilst some have a clear lead agency, at times identifying the main implementer roles was challenging, as some countries have different agencies working on BOT concurrently. This can be due to legacy commitments, for instance, AML commitments preceding anti-corruption commitments. Different respondents stressed the importance of having a lead agency, although there were different views about how this impacted implementation. In the absence of a clear lead agency, it is particularly important that there is good intragovernmental coordination.
The lead agencies most often included the government agency responsible for maintaining the company registers or the Ministry of Justice.
The research highlighted the role of intermediaries. Both Financial Intelligence Units (FIUs), due to AML commitments under FATF, as well as EITI MSGs are often not directly involved in implementation, but function as important catalysts for BOT implementation.
Besides implementation, the government also forms one of the most important use cases of BO data. Government data users mentioned include tax authorities, FIUs, police and law enforcement, the Attorney General or special prosecutor, and agencies preventing and investigating organised crime, as well as statistics offices and local authorities. Contrary to expectations, only one respondent mentioned the extractive industry regulators as data users.
All interviewees confirmed the importance of the role of CSOs but were divided about the specific role they play. Broadly, CSOs are both advocates for reform and users of BO data. Where BOT is focused specifically on the extractive industries, the role of CSOs in investigating the data and links to PEPs can be particularly important. Comments from one interview implied that we should think of CSOs less in terms of primary users of data and more as oversight actors that can use BOT to ensure that the government is effectively undertaking its due diligence and that conflict of interest is being mitigated.
Industry is an important stakeholder in BOT, but besides their role as providers of data their use of BO data is not well understood. They are often seen as being monolithic but it is clear there are different interests between SMEs and larger multinationals. They are mentioned less frequently as being involved in BOT than CSOs, and they are perceived to be less involved in the debate. One respondent mentioned that they are often at the receiving end of awareness efforts. As the main providers of data, this suggests that more thought needs to be given to how they should be engaged. Respondents mentioned that a lack of sensitisation among business could be an issue for BOT, and that lawyers, legal associations, and company secretaries could be blockers in reforms.
Areas for further research
Areas for further research include gaining a better understanding of industry and industry regulators as data users. How are companies using BO data? How can the industry use cases support national BOT reform? Additional research could also further explore the role of intermediaries.
Implementer challenges and technical assistance demand, and enablers and blockers
A key aim of the research is to understand the priorities, needs and demands of implementers, and to identify gaps in the current combined range of services and support offered by OO and EITI.
It is not practical to identify typical paths to implementation. Whilst implementers face different challenges according to the country context, there are certain common challenges faced by implementers across the board, some being more common than others. Many implementers mentioned verification of data as a key challenge as well as other specific technical challenges such as collection and use of data and interoperability of data. Legal reform and the drafting of good laws were challenges in many countries. Understanding the concept and importance of BOT – not necessarily among implementers, but of other stakeholders – is a big challenge, as well as maintaining support and managing coordination around implementation. It is clear that CSOs and industry need to be involved in consultations, but it is not always clear how this should be done. Privacy and whether BO data should be public were also flagged as challenges in several countries, as well as the fact that in certain jurisdictions politicians and their lawyers benefit from opacity.
To an extent, challenges that respondents identified tend to depend on what stage of implementation a country is in, but due to the fact that a disclosure system needs to be well thought through from the beginning, issues like verification were flagged at both early and late stages of implementation. Besides funding and capacity, which was more prevalent among lower income countries, challenges did not seem to differ much by income group. Some challenges (e.g. concerns with privacy and security) were more prevalent in certain country contexts.
It is clear that technical assistance is in high demand but in short supply. “We now have a better understanding of why [BOT] is important and why it needs to be done. There is nothing on how [implementation] can be done,” one respondent said. Governments are keen for peer to peer learning, particularly to understand best practice, but there are still few models to learn from, and support is likely to need to be tailored to the specific audience and context. The different kinds of assistance needed can be understood from the aforementioned challenges. Among the respondents, there was perceived to be more demand for guidance on how to implement BOT in simple and accessible language, rather than helping make the case for BOT at the national level. This does not preclude sensitisation of different stakeholder groups. Respondents indicated that some technical support and guidance exists for legal reforms, but that little expertise is available on other topics. There appears to be a general lack of technical knowledge but also a lack of basic knowledge around BOT. In several contexts, there is a desire for sensitisation to be delivered directly to companies, CSOs and the wider public, enabling different champions and making it country-owned. There is high demand from within countries but particularly from other implementers for simple, clear tools and guidance, as well as “back to basics” training. Broadly, lower income countries had greater demand for resource and capacity support.
The importance of framing support around financial regulations and due diligence was raised as a key enabler to delivering effective technical assistance. It was noted that it is important to factor in the incentive structures of different actors. Broadly, all criteria that are important for implementation – political will, rule of law, regulatory effectiveness – are also enablers and blockers for technical assistance. Technical assistance falls short when it focuses explicitly on implementation and not on impact (data use).
Impact of COVID-19 on BOT implementation
The COVID-19 crisis struck at the time we were developing the research framework and methodology. As the short, medium, and long-term effects of the pandemic on BOT implementation were not yet known, we decided to include this as a research theme to help inform the design of the programme as well as the wider BOT community.
The COVID-19 pandemic appears to be affecting the implementation of BOT in four distinct ways, in no particular order:
- In some cases, implementation is delayed due to data collection. In some of the countries the research looked at, companies have been given more time to submit the data, in recognition of the challenges caused by the crisis. Challenges specific to the extractive sector (i.e. the fall in oil prices) may also lead to redundancies and reduced staff capacity working on compliance issues.
- In some cases, delays on the side of the government are affecting BOT. Working remotely has slowed down communication within government agencies and with external parties, such as software developers and partners. In the short term, resources are in some cases being directed to other priorities. However, generally, implementation does not appear to have stalled significantly in the research countries.
- The pandemic has highlighted the importance of digitisation and remote access to data. This was especially noticeable in countries where some government services were digitised and others were not, where the work of Ministries with physical files slowed down considerably more than those with digital files. This has in some cases underlined the importance of creating online data collection tools and BO registers that are accessible online.
- Perhaps the most interesting finding is that the significant public investment in response to the crisis has highlighted the importance of understanding who the individuals behind companies are, who benefit from government contracts and support. One respondent mentioned that COVID-19 has led to a number of political commitments over the course of a few months that are exponentially higher than those from the previous three years where they were actively pushing BOT reforms.
Many of these effects overlap and can be present simultaneously in a country. Overall, whilst COVID-19 is causing temporary delays, implementation of BOT has not significantly stalled in any of the research countries where there appeared to be political will. Globally, in the short term, it has been an impetus to BOT commitments and short term effects in the national context have reinforced reasons to implement BOT. However, BOT implementation is a long-term process and the longer term impact of COVID-19 and the related economic crisis is not yet clear. For example, reorientation of government resources may lead to changes in technical assistance needs, and a backlog in the legislature’s work may lead to delays in introducing legislation related to BOT. The research demonstrated the importance of a legal framework that enables BO disclosures. The medium-to-long term effects of COVID-19 are therefore likely to vary depending on the stage of implementation the country is in, as well as other factors such as political will and public demand.
Areas for further research
The effect of COVID-19, including the related economic crisis, is likely to be dynamic. It is not possible to fully predict how each country will recover, and how that may affect the priorities of the government and other stakeholders over time. The implementation of BO registers seems to be in many cases motivated by FATF requirements and the risk of grey or black-listing (see section: “Theme 1:
Develop preliminary country selection process and criteria” on page ). Flexibility introduced by FATF to the timeframes for implementing these may affect government commitment and prioritisation. Nevertheless, as governments around the world face an extended period of constrained resources and increased demand for public spending, the need for good governance of natural resources will increase significantly. How to leverage this to advance BO reform and effectively make this case nationally and internationally is a useful topic for further research.
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 FATF recommendations on PEPs lists extractives as a high-risk sector. See FATF, “Politically Exposed Persons (Recommendations 12 and 22)”. June 2013. Available at: https://www.fatf-gafi.org/media/fatf/documents/recommendations/Guidance-PEP-Rec12-22.pdf [Accessed 28 July 2020].
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 Please see FATF, “FATF extends its assessment and follow-up deadlines in response to COVID-19”. 28 April 2020. Available at: https://www.fatf-gafi.org/publications/fatfgeneral/documents/mer-postponement-COVID-19.html [Accessed 13 July 2020].