Improving beneficial ownership transparency in Ukraine: Review and recommendations
Executive summary
Ukraine became the second country in the world after the United Kingdom to implement a public register of the beneficial owners of corporate entities registered in country. Laws were passed in 2014 and 2015, and a decree of the Cabinet of Ministers stipulated that this information should be published by spring 2016.
Since that time Ukraine has made significant progress, with some beneficial ownership data now available on Ukrainian legal entities via its companies register - the Unified State Register (USR). Ukraine should be commended for the subsequent steps it has taken to increase access to that information, including by becoming the first country in the world to commit to integrating with the OpenOwnership Register, which links beneficial ownership data from around the world.
The goal of this report is to determine the best next steps to take during an update of the companies register that is planned for 2018. This report is based on in-depth research and meetings with key officials and stakeholders in Ukraine which helped us formulate our findings.
We have identified several areas where changes are needed in order to improve access to, and usability of, the data.
These include:
- The lack of beneficial ownership data in machine-readable format.
- The completeness of the database - a consequence of low compliance.
- A need for a stronger system of sanctions and robust enforcement to ensure compliance.
- Unreliable systems of disambiguation for individuals and companies.
- No representation of chains of ownership - that is, any companies in between a target company and its ultimate beneficial owner.
- A lack of granularity in the data, in particular on the means of control.
- No information given on when the data was submitted, and no confirmation statement required, meaning that it is not possible to know if the data is up to date.
- A need to close possible loopholes by requiring the reporting of detailed beneficial ownership data. This includes using the definition of “beneficial owner” contained in the law as a basis for creating a clear test of beneficial ownership to share as guidance.
- No inline validation of beneficial ownership data at the point of collection, and inefficient processes of verification thereafter.
We recommend that:
- The Ukrainian Ministry of Justice urgently address the problem of low compliance by understanding its causes and bringing sanctions and enforcement in line with international best practice, including by requiring and enforcing regular updates to the information.
- The Ministry update the necessary regulation to improve the granularity of the data provided by requiring comprehensive data on beneficial owners and the disclosure of means of control. The high 25% threshold of shareholding that beneficial owners must exceed in order for the reporting requirement to kick in should be removed, and the full range of definitions of beneficial ownership clearly specified.
- The Ministry work with technical implementers to create forms that can collect beneficial ownership as structured data by default, including a field to indicate when the data was submitted.
- The Ministry and technical implementers ensure that there are reliable means to disambiguate individuals and companies by providing unique identifiers for individuals and companies. Reliable identifiers for companies will also allow the Ministry to link companies and beneficial owners in a full beneficial ownership chain.
- Technical implementers update business process for collecting data, and design new forms which include inline validation, as well as processes for comparing it with other relevant datasets to verify its accuracy.
A ft-for-purpose database with higher quality data and more entries will enable a variety of groups to use the information more productively, creating a feedback cycle that will have genuine impact for government, society and business in Ukraine. We look forward to applying our technical tools and subject matter expertise in support of both the Ministry of Justice and technical implementers as they make improvements to the companies register.