Beneficial ownership in law: Definitions and thresholds

Operationalising definitions and thresholds

When seeking to apply these principles to drafting BO definitions and thresholds in practice, it is important for implementers to set concrete plans for periodic review and assessment of threshold levels, and potentially also the BO definition, to see whether these serve policy goals. Illicit actors will continue to seek new ways to evade disclosure requirements, including by reducing their shareholdings in order to move below threshold levels. Once systems for gathering and publishing data are established, implementers should conduct a detailed assessment of initial disclosures, assessing data quality and coverage and evaluating whether the definition and threshold level has proved adequate to yield disclosures that support their policy goals. Authorities may consider using such an evaluation to determine what loopholes exist in the definition. As part of the iterative design process on which BO reforms are ideally based, authorities may also assess the potential benefits and trade-offs involved in lowering the threshold. Downward revisions of thresholds should also be considered in cases where significant money laundering activities have been detected, as highlighted in the Russian Laundromat case above. Frequent alterations to other aspects of the BO definition should not be required if the original law is formulated along the lines explained earlier in this briefing.

It is also critical that governments provide companies with clear guidance on how to identify qualifying beneficial owners and how to calculate indirect ownership percentages. It can be helpful to test the disclosure forms and process with a number of the target companies prior to fully rolling out disclosure requirements. This can alert implementers to any issues companies may have in understanding the disclosure requirements, and will help judge whether the chosen threshold enables sufficient information to be collected. Producing detailed guidance and visual tools to help companies understand and comply with disclosure regulations will be a vital component of such efforts. [49]

In order to maximise the utility of the data, it should be as clear and granular as possible. Governments should require the disclosure of, and publish the way in which, an individual exercises BO over a company, including the exact percentage of ownership and control, and a statement of whether the interest is held directly or indirectly, where applicable. Not doing so hinders interpretation and use of the data. For example, currently the UK’s disclosure regime requires only the selection of bands – over 25% and up to 50%, more than 50% and less than 75%, and 75% or more [50] – which severely limits interpretation and linking of the data with other registers. Where governments have implemented different thresholds for different sections of the economy, it will also be important to ensure that users of the BO data understand the thresholds on which the BO disclosures have been determined so that they may interpret the data correctly.

Finally, governments should apply reporting requirements for firms where no person falls within the threshold or definition of BO. It is possible for no individual to meet the criteria for disclosure outlined within a legal definition of BO, even if the definition is robust and the thresholds are low. In such cases, it is recommended that countries require the disclosure of the name of a natural person in a senior role with managerial responsibility for the company in question. Many countries – including Argentina, the Republic of Korea, and EU member states under AMLD5 [51] – require the submission of names of senior managing officials of the relevant entity instead (e.g. the directors, CEO or board members). The EITI, in its work on BO disclosures for mining, oil, and gas firms, has held up the example of Liberia as a case study in good practice. In that country, where no natural persons meet the definition of BO, the reporting entity must declare the identity of those individuals with the five largest stakes in the firm. [52]

Whilst it is important to note that these people are not necessarily beneficial owners, for law enforcement purposes it is preferable to have the name of somebody who has real responsibility for the company rather than having no name at all (or the names of formation agents). Where this is the case, it should be recorded in the published data that these individuals have been disclosed because there are no others that qualify as beneficial owners under the country’s legal definition.

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