Designing sanctions and their enforcement for beneficial ownership disclosure
To ensure the effectiveness of a BO disclosure regime that contains adequate, accurate, and up-to-date BO information, it is critical for countries to adopt and enforce effective, proportionate, and dissuasive sanctions. This policy briefing, along with the OO Principles, provides a framework for thinking about how best to develop and enforce a BO sanctions regime.
To summarise, this policy briefing outlines key considerations for implementers and policy makers to establish an effective, dissuasive, and proportionate sanctions and enforcement regime to drive up compliance with BO disclosure requirements, and ensure adequate, accurate, and up-to-date information. Sanctions regimes should have a combination of administrative, financial, non-financial, and criminal sanctions against both natural persons and legal entities and arrangements. Only having monetary fines, or setting these too low, can lead to sanctions being regarded as a cost of doing business. Various types of non-financial sanctions have been discussed in this briefing, which may be more effective than monetary penalties. To avoid creating liability loopholes, sanctions should cover all the key persons of the company – the declaring person, the beneficial owner(s), and the officers of the company – as well as the company itself. This ensures a deterrent effect applies to all the key actors involved in disclosure. This also means that if a country has imposed BO-related obligations on third parties (such as notaries or lawyers), it must be ensured that these third parties are also subject to sanctions for noncompliance or other breaches of their obligations. In some instances, such as for non-resident BOs and companies, implementers should consider requiring declarations be made – and verified to be correct – by resident third parties, so that key actors in disclosures fall within their jurisdictions. Sanctions should be in place for all forms of noncompliance, including non-submission of BO information, late-submission, incomplete submission, and false submission, as well as persistent noncompliance. Implementers may also wish to consider adding sanctions for other BO-related offences, such as the misuse of BO data.
To effectively operationalise sanctions and their enforcement, it should be clearly determined which authority is responsible for enforcing sanctions. The designated authority should have sufficient resources, legal mandate, and powers to enforce sanctions, including carrying out investigative or law enforcement functions. There should also be proper procedures and processes ensuring the effective exchange of information between the agencies responsible for enforcement, for instance, the designated authority and prosecution. To further increase the potential deterrent effect of sanctions, information on sanctions imposed could be published. Sanctions should be automated where possible, and robust verification checks and processes are required in order to detect noncompliance (e.g. submission of false information). Reversing the burden of proof for administrative or civil fines and sanctions can be a powerful enforcement tool.
Finally, it is difficult to measure the effectiveness of sanctions, as it is challenging to establish direct causal effects between sanctions and compliance rates in the presence of many other variables, such as a general compliance culture. If policymakers tasked with implementing sanctions regimes collect, monitor, and publish statistics on issued sanctions and prosecutions and their outcomes, as well as compliance rates, this will enable others to develop a better understanding about the causal relationship between sanctions and compliance, and what makes sanctions effective, dissuasive, and proportionate.