Verification of beneficial ownership data
Verification at the point of submission
Verification at the point of submission should:
- ensure the information conforms to expected patterns and is clear and free from ambiguity (e.g. a postcode follows the expected postcode format in a particular country; total shares do not exceed 100%);
- ensure the information respects values that actually exist and are real by cross-checking against authoritative systems and other government registers where possible (e.g. a postcode actually exists);
- check supporting evidence by checking submitted information against original documents (either hard copy or via digital identification, e.g. proof of address; passports for owners or submitters’ identities; share certificates for ownership).
BO disclosure comprises three types of information:
- information about the person(s) involved in an ownership or control relationship;
- information about the nature of their ownership or control;
- information about the company or other legal entity they own or control.
Different verification checks can be conducted on each of these information statements. It is critical for disclosure regimes to be able to disambiguate between different individuals and entities, points 1 and 3, both in the type of data they collect and the verification mechanisms they employ. Point 2, information about the nature of their ownership or control, is the hardest to verify, and where most deliberate falsehoods occur. Verifying each of these types of information is substantially easier to do when the data is structured (i.e. consistently organised into separate fields, and ideally machine readable) rather than unstructured. Information about the submitter is crucial metadata to the three information statements.
Approaches to verifying these three types of information can be divided into three main categories outlined below. It is important to bear in mind that one approach does not preclude the other, and that multiple approaches complement each other and can mutually reinforce reliability and data quality.
Ensuring conformance
Conformance checks
Does the data follow an expected pattern? For example, is a birth date formatted as you would expect a birth date to be and does the system reject inadmissible dates such as 31 February?
Conformance checks are an effective tool to remove accidental errors. The checks are relatively easy and cheap to implement in digital forms. They are, however, less effective at tackling deliberate falsehoods.
Example: Belgium
In the Belgian UBO-Register (Ultimate BO), the system prevents the registration of more than 100% of the shares/voting rights for an individual as this would not technically be possible, thereby ensuring data conforms to expected patterns. [1]
Ensuring values are real and existent
Cross-checking of data
Can you look up the details in an authoritative system, such as other government registries, to check they are accurate? For example, can a birth date be cross-checked with the civil registry, or can a government Digital ID system verify identity?
Cross-checking data can to a large extent be automated, and is more effective than conformance, both in general as well as specifically tackling deliberate falsehoods. Effective cross-checking requires a basic technical infrastructure and capacity, including in other parts of government, that provide data for cross-checking. Potentially new legal mandates for using this data will need to be created if none exist. These checks are dependent on authoritative registers being in place and accurate (has the data in those registers been verified?). The checks may only cover domestic citizens, depending on what information is available.
Example: China
In China, beneficial ownership information is cross-checked with a number of other government registers, including the Administration of Industrial and Commercial Registration Information System, National Enterprise Credit Information Publicity System, Unified Social Credit Code Inquiry of National Organization System, Commercial Entity Registration Information Platform, Commercial Entity Credit Information Publicity Platform, and the Tax Registration Inquiry System. [2]
Example: Denmark
The Danish Central Business Register (CVR) automatically cross-checks submitted information with various governmental registers, including the civil register and the Danish address register. The system prevents, for example, the registration of a deceased person. [3]
Checking supporting evidence
Certification or notarisation
Has someone authoritative (e.g. a lawyer or a notary) independently checked the documentary evidence that lies behind the data, and confirmed it is true? For example, can a notary certify a person’s birth date by guaranteeing the veracity of a passport scan?
Certification checks can be used for all three types of information. They involve third party natural persons that are impartial (often under oath) that stake their professional reputation on veracity claims and bear liability for false filings. Certification checks do require strict requirements and guidelines in order to not get diverging practices in the submission of information (see example below). For less technically advanced governments, notarisation as a means of verification is often a viable option, as can be seen in some lower income countries. [4] The use of notaries and lawyers may provide a cost-barrier to making changes, and would be relatively costlier for smaller companies, and may also require verification checks on that person (e.g. is this lawyer licensed to practice?).
Example: Slovakia
In Slovakia’s Register of the Partners of the Public Sector, third parties – lawyers, notaries, banks and auditors – are responsible for checking all information and can be held liable if found to be providing false information. Open Ownership’s review of submissions has shown that there can be a divergence in the quality of evidence supporting the means of ownership and control, as some notarised documents only provide a narrative description that does not provide sufficient clarity, while others include clear diagrams of company structures.
Example: Japan
In Japan, notaries are required to check the identity of the beneficial owner by examining the submitted articles of association and other documents. They also check identities against their own database on organised crime groups and international terrorists. [5]
Registrar checks
Has the registrar checked the documentary evidence and confirmed it is true?
Registrar checks can be used for all three types of information, and further increase confidence of supplied information. This shifts the cost burden away from companies compared with requiring certification by third party professionals, but registrar staff may need additional training on checking the veracity of documentary evidence. This also requires careful consideration of where liability lies.
Verifying the submitter
Verifying information about the person that submits a BO disclosure can provide an additional safeguard against submission of false information. Depending on the disclosure regime, this could be the beneficial owner, a representative of the disclosing company or a third party. Information about the submitter is essentially metadata, crucial for increasing reliability. The verification checks described above can be deployed to verify the identity of the submitter of information. In addition, it may be necessary to establish that the person is authorised to submit the information on behalf of the BO or company.
The systems above will reduce errors and deliberate falsehoods, and will help improve data quality. However, it will still be possible for somebody to disguise an actual beneficial owner. For instance, a real, authorised and verified person may submit information on behalf of a legitimate business and submit the information of a real and verified person that is not the beneficial owner, with the aim of disguising the real BO. There are additional verification mechanisms that can be deployed after submission to further improve data quality.
Footnotes
[1] FATF, “Best Practices on Beneficial Ownership for Legal Persons”. October 2019. Available at: https://www.fatfgafi.org/media/fatf/documents/Best-Practices-Beneficial-Ownership-Legal-Persons.pdf [Accessed 20 April 2020].
[2] Ibid.
[3] Ibid.
[4] For example, in Mali. See GIABA, “Anti-money laundering and counter-terrorist financing measures. Mali Mutual Evaluation Report”. November 2019. Available at: http://www.fatf-gafi.org/media/fatf/documents/reports/mer-fsrb/GIABA-Mutual-Evaluation-Mali-2019.pdf [Accessed 20 April 2020].
[5] FATF, “Best Practices on Beneficial Ownership for Legal Persons”.