What’s in it for business? The US case: Lessons from private sector and civil society advocacy for beneficial ownership transparency reforms

  • Publication date: 22 May 2023
  • Authors: Julie Rialet, Mark Hays

Key lessons

Beneficial ownership transparency is in businesses’ interest

Understanding how BOT can support businesses to achieve their goals was key in driving greater private sector support for BOT reforms in the US. In summary, BOT can help in the following ways:

  1. Many private sector actors are required to comply with reporting obligations related to AML and KYC regulatory requirements; having access to high-quality BO data helps meet these regulatory requirements.
  2. Due diligence for operational, financial, and reputational risk is an important aspect of supply chain analysis and risk prevention for any business partnership. Anonymously owned companies are an obstacle to carrying out these checks. BOT helps companies know who they are dealing with and manage risk effectively.
  3. Anonymous companies are often used for criminal activities that harm companies both directly and indirectly. BOT is a tool to combat business-related criminal activity, such as counterfeiting, trademark infringements, theft of intellectual property, procurement fraud and corruption, patent trolls, and insurance fraud.
  4. Companies and their partners complying with BO disclosure requirements can increase customers’ trust in a business. The disclosure and use of BO information is increasingly being used in ESG indicator frameworks.

Partnerships are critical to laws being passed

The private sector is not a homogenous group of entities and individuals. This case study illustrates how diverse the industries, companies, and associations involved in both opposing and supporting BOT reforms in the US are. Understanding the variety of interests, goals, influences, and networks was key to rallying private sector actors to support BOT reforms in the US. This required both efforts by civil society to build links between various actors, and private sector actors to use their own influence and network to gather further support for common goals.

Whether it is civil society actors seeking to engage with the private sector or business leaders looking to build business coalitions in support of BOT reforms in their countries, the example of the US shows that investing time into comprehensive stakeholder and power mapping is worthwhile, and that partnering across sectors can add value by building greater momentum for reforms.

Effective reforms don’t stop at passing laws

Whilst legislating for BOT is an important step in early implementation, key implementation design decisions will also impact the effectiveness of the reforms. [29] The CTA lays the responsibility for the creation and management of a BO register with FinCEN. Here is a summary of elements that will be essential to consider, which private sector actors can help push for, as the US moves towards implementation:

  1. Continue consulting BO data users. From legislation to the development of a system to collect and publish BO data and ensuring compliance, policy makers can ensure reforms are rooted in the reality of those who will need to disclose and use the data (for example, businesses, banks, state agencies, etc.) through effective consultation on BOT reforms. [30] In line with this, as of 2021, the US government conducted public consultations to further define how to implement the CTA. [31]
  2. Review legislation. Private sector, civil society actors, and others can help by reviewing legislation to ensure effective implementation. This can be done as part of a public consultation process or by directly engaging the implementing agency. [32] For example, some of the benefits of BO reforms for businesses depend on who can access BO information, under what conditions, and in which format. If information is only accessible to authorities, many companies may miss out on a range of potential benefits, such as using the information to help manage risk. Nevertheless, even limited access by the authorities and financial institutions can help level the playing field by tackling fraudulent businesses.
  3. Systems that are fit for purpose. BOT reforms can only be effective if the information is collected, stored, and accessible as structured, high-quality data. A range of tools and guidance exists to help reformers with this. Consultation with businesses who will need to disclose their beneficial ownership can also help ensure that data collection forms are user friendly and minimise the input of incorrect information. There are a range of elements that influence whether the implementation of reforms to improve the BOT of corporate vehicles will lead to effective BO disclosure. These include, but are not limited to: [33]
  4. Machine-readable, interoperable, structured data. Structured data is data that is highly organised according to a predefined model. Collecting, storing, and making BO information available as structured and interoperable data improves its functionality. It reduces the cost of producing, using, and maintaining the information, and has a greater chance of meeting BOT policy goals. For example, it enables new types of analysis for both technical and non-technical users by allowing websites, apps, and other tools to readily process the data. The Beneficial Ownership Data Standard is a template for publishing structured data about beneficial ownership in a format that can be read and understood by computer systems around the world. [34]
  5. Verified and reliable data. To maximise the impact of BO registers, it is important that users and authorities can trust that the representation of ownership in a register reflects the reality of who owns or controls a particular corporate vehicle. Governments should put in place a combination of checks and processes to verify BO information to help ensure that BO data is accurate and complete at a given point in time. This can be done, for example, by cross-checking information with different authoritative sources. [35]
  6. Data accessibility. Open Ownership’s research on the use of BO information by financial intelligence units and law enforcement agencies shows that data is most useful when the information includes historical data and access is direct and unfettered, including for foreign authorities. [36] Broad access to BO data can help expand the user base to increase the impact of reforms, and it can also help improve data quality. Public access is one of the most effective ways to ensure that all user groups who can use the information to advance specific policy aims have access to the information. [37]

[29] For more information on the different aspects of implementing BOT reforms, please see: Kadie Armstrong and Peter Low, Guide to implementing beneficial ownership transparency (s.l.: Open Ownership, 2021), https://openownershiporgprod-1b54.kxcdn.com/media/documents/oo-guidance-implementation-guide-2021-07.pdf.

[30] For more guidance on how governments can run effective consultation processes, please see: Thom Townsend, Effective consultation processes for beneficial ownership transparency reform (s.l.: Open Ownership, 2020), https://www.openownership.org/en/publications/effective-consultation-processes-for-beneficial-ownership-transparency-reform/. Both the FACT Coalition and Open Ownership responded to FinCEN’s public consultations. See, for example: FACT Coalition, “CTA 2nd Rulemaking Comment”, 14 February 2023, https://thefactcoalition.org/wp-content/uploads/2023/02/FACT-Coalition-_-CTA-2nd-Rulemaking-Comment-Final.pdf; and Open Ownership, Official comment on Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities (s.l.: Open Ownership, 2023), https://www.openownership.org/en/publications/beneficial-ownership-information-access-and-safeguards-and-use-of-fincen-identifiers-for-entities/.

[31] FinCEN, “Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities”.

[32] See, for example: “31 Civil Society Organizations Send Letter to FinCEN in Support of Strong Beneficial Ownership Implementation”, FACT Coalition, 21 October 2021, https://thefactcoalition.org/31-civil-society-organizations-send-letter-to-fincen-in-support-of-strong-beneficial-ownership-implementation/.

[33] To see which other elements affect the implementation of effective reforms, please see: Open Ownership, Principles for effective beneficial ownership disclosure, https://www.openownership.org/en/principles/.

[34] Open Ownership, Beneficial Ownership Data Standard (v0.3) (s.l.: Open Ownership, n.d.), https://standard.openownership.org/. For more information on structured BO data, please see: Tymon Kiepe and Jack Lord, Structured and interoperable beneficial ownership data (s.l.: Open Ownership, 2022), https://www.openownership.org/en/publications/structured-and-interoperable-beneficial-ownership-data/.

[35] For more information on verifying BO information, please see: Tymon Kiepe, Verification of beneficial ownership data (s.l.: Open Ownership, 2020), https://www.openownership.org/en/publications/verification-of-beneficial-ownership-data/.

[36] Tymon Kiepe and Alanna Markle, Who benefits? How company ownership data is used to detect and prevent corruption (s.l.: Open Ownership, 2022), https://www.openownership.org/en/publications/who-benefits-how-companyownership-data-is-used-to-detect-and-prevent-corruption/.

[37] For more information on making BO information public, please see: Tymon Kiepe, Making central beneficial ownership registers public (s.l.: Open Ownership, 2021), https://www.openownership.org/en/publications/making-central-beneficial-ownership-registers-public/.