What legislation and regulation is required for beneficial ownership transparency
Whilst the policy making process varies between countries, there are a number of aspects that need to be considered when designing a legal framework for beneficial ownership transparency. These are:
The types of legal entity and natural persons covered, and whether information about Politically Exposed Persons is to be collected.
- The definition of beneficial ownership
How beneficial ownership is defined in law, for example through shareholdings, voting rights and rights to appoint/remove directors; the granularity of beneficial ownership interests that need to be declared, and whether thresholds or banding are to be used; where beneficial ownership is exerted indirectly, the extent to which ownership chains are described.
If a new policy is being implemented, when companies will be required to submit beneficial ownership information; whether historical data will be kept and published.
Steps taken to verify the information that is submitted, and analyse submissions to identify suspicious entries for investigation.
What sanctions will be put in place for non-compliance against the beneficial owner and/or legal entity for failing to declare, or declaring false information.
Our Policy Reviewer tool works through each of these areas in turn, and helps implementers to identify specific decision points around what data is to be collected and what is to be published, and helps identify the legal changes necessary to achieve this. The Policy Reviewer does not prescribe a particular policy approach, but is designed to help implementers to explore the relevant areas. For OpenOwnership’s recommendations of good practice, please see our briefing on Characteristics of Effective Beneficial Ownership Data, and other content throughout this guide.
OpenOwnership’s experience suggests that as with many policy areas, once an initial beneficial ownership transparency policy is in place, further changes to legislation or regulation may be needed to refine it and improve effectiveness over time.
Which agencies should be involved in developing the legal framework?
Putting in place an effective legal framework for beneficial ownership transparency may require involvement from a number of government departments/agencies and non-government agencies. Whilst a single agency (e.g. Ministry of Justice) should lead the legal reforms, involving other departments such as the Ministry of Finance, Financial Intelligence Unit, or Mining Licence Agency will help ensure that your legal framework responds to policy needs.
Similarly, involving stakeholders such as companies and civil society in developing the legal framework will help ensure that your legal framework is workable in practice, and that a community of people are able to use the data to achieve your intended policy impact.
Who will use the beneficial ownership register, and what data do they need to achieve your intended policy impact?
To drive impact, beneficial ownership data needs to be used by stakeholders. Stakeholders can include government departments and agencies, civil society, journalists and businesses.
Understanding how people and organisations can use beneficial ownership data will help you identify what they need from it (for example, which fields of information are most useful) and what kind of access they need (e.g. online access to individual records or automatic sharing via an API or bulk download as .csv). You can find OpenOwnership’s recommendations for how to publish data in the Publish section of this guide. You can view real use cases from our work with Ukraine (see country report, pages 13-14) and Kyrgyz Republic (see country report, pages 10-11).
What is open beneficial ownership data, and why should this be included in law?
Open data is digital “structured” and “machine-readable” data that is available free of charge and can be used and reused by anyone. Making the beneficial ownership data that you publish available as open data means it is easier for people and organisations to use it for public benefit. Structured data makes is possible to link beneficial ownership information with other related datasets and improves the quality of the data. This helps ensure that your beneficial ownership register fulfills your policy goals.
To realise these benefits, it is advisable to enshrine in law that the data you publish will be available as open data. Whilst enshrining in law public access to the data is of course important, open data goes further, removing barriers to use that can unlock additional policy impact. For example, you could include reference to publishing data “in accordance with the globally accepted principles and standards for open data in the Open Data Charter”.
The graphic below shows how open data differs from information that is simply publicly available.
You can read more about the benefits of open data beneficial ownership information in our briefing - the case for open data registers. In addition, OpenOwnership is drafting guidance on what to consider when deciding which type of open data license to use for beneficial ownership data. This will be available in the coming months.
Is beneficial ownership transparency compatible with privacy and data protection provisions?
Public disclosure of beneficial ownership information is needed to achieve legitimate policy goals and as such, is generally compatible with data protection provisions. However, because beneficial ownership data includes information about people, governments need to ensure that their beneficial ownership register operates within relevant data protection and privacy laws.
The data that is published should be limited to that necessary to identify beneficial owners of companies, and be proportionate to any potential harms. Further information on how this looks in practice can be found in the Systems section of this guide.
For more information about why public beneficial ownership registers are compatible with privacy and data protection law, and how to protect people from potential harms, see the following resources:
- Privacy or Public Interest? Making the Case for Public Information on Company Ownership - OpenOwnership, The Engine Room & BTeam (Executive Summary or full report)
- View slides from The Engine Room’s presentation Beneficial Ownership Transparency, Privacy & Data Protection, given at International Anti-Corruption Conference 2018.
What international standards and guides are relevant to beneficial ownership transparency?
Beneficial ownership is referenced in several international standards and guidelines developed in recent years. In the coming months, OpenOwnership will publish a report summarising the beneficial ownership requirements of international standards and guidance including Extractive Industries Transparency Initiative (EITI), Financial Action Task Force (FATF), G20 and Organisation for Economic Cooperation & Development (OECD), and how the Beneficial Ownership Disclosure Principles build on these.
How can I draft legislation that embeds ways to verify the data?
Verification is critical to generating high quality beneficial ownership information, but the term is used to mean many different types of checks and processes. Based on our research, we break down verification into three steps, to be taken together: authentication and authorisation, validation and truth verification. Understanding these steps can help design effective legislation.
Authentication & authorisation - ensure the person submitting the information is who they say they are and that they are authorised to make the declaration
Validation - ensure that the data submitted is a legitimate possible value
“Truth” verification - identify potential mistakes and irregularities in the data, which may indicate that the statement made is not true, and publish the data openly so that others can also do so.
Whilst some verification activities are likely to require legal mandate whilst others can be adopted by making technical, system design or workflow changes. We will shortly publish a working paper, What We Really Mean by Verification and How It Can be Done, which will provide practical examples that can be applied at each of the three steps.
How should the legal framework specify what information should be collected and published?
We have created a template form that includes the information that we believe companies should complete when declaring their beneficial ownership to a national register. This form can be adapted to collect information using paper forms, or it can be transferred to an electronic system (see Systems section).
Some of the information collected should only be for government use and should not be published (for example, a taxpayer number to check identification). Other information should be published openly (for example, name of the beneficial owner). However, there is no one-size-fits-all approach to beneficial ownership transparency and the information you collect will depend on the intended policy impact and wider legal framework.
How can the legal framework facilitate investigations into suspicious activity?
In addition to publicly available beneficial ownership data, you may be able to increase policy impact by sharing additional non-public data with investigating authorities. This may require legal mandate, for example to share data automatically or link non-public fields in the beneficial ownership register with other government datasets. Involving agencies who may use beneficial ownership data, such as the Financial Intelligence Unit or Anti-corruption Agency in designing your legal framework, can help ensure the relevant data can be efficiently shared with investigating authorities.
What is good practice for evaluating and improving the legal framework?
Beneficial ownership transparency is a relatively new policy area, and the initial legal framework put in place should be evaluated regularly to maximise policy impact in the long term. Evaluation should seek to measure systemic and long term impacts of beneficial ownership transparency as well as shorter term outcomes. An effective evaluation framework will allow stakeholders including civil society to contribute, and will recognise that systemic evidence is likely to take several years to fully emerge.