Guide to drafting effective legislation for beneficial ownership transparency
Common pitfalls
There are common pitfalls that can undermine the clarity, coherence, and effectiveness of legal provisions for BOT. This section aims to highlight these pitfalls and suggest ways to avoid them. By understanding and addressing these pitfalls, legislators can enhance the quality of their legal drafting, resulting in more effective legislation that better advances the policy objectives for implementing BOT.
Rushing the process
Legislative reforms are a time-intensive process, requiring informed policy analysis and decision-making, stakeholder consultations, and consensus-building. This is particularly the case for a relatively new, evolving, and technical policy area like BOT. Drafting effective legislation for BOT requires careful consideration of different perspectives through consultations, rigorous scrutiny of legal frameworks, and deliberative decision-making processes. A diverse range of stakeholders throughout the legislative process should be consulted, and this not only includes government departments and regulatory agencies, but also CSOs, industry associations, legal experts, and other relevant stakeholders. It is therefore important to factor in sufficient time for the process, and not rush through certain stages. Legislation should be context-specific, and legislative drafters should avoid copying provisions from other contexts verbatim, without adapting this to the domestic legal context.
Planning inadequately for a transition period
The technical nature of BO legislation means that it may take time for reporting entities to digest and understand what the law requires of them. To secure and maintain the buy-in of those who need to comply with the requirements, there should be a grace period to allow reporting entities and their agents to understand the new framework and prepare to comply before sanctions are enforced. Countries can build in a moratorium period for awareness-raising and sensitisation efforts. This could be phased over a period of time in a staggered approach and therefore not put unnecessary administrative burdens on the registrar. In addition to providing a grace period for noncompliance, countries should organise robust public awareness campaigns to ensure that reporting entities and stakeholders understand their obligations under the new legislative framework. Public education efforts can help demystify new legal requirements, increase awareness of compliance deadlines, and foster a culture of transparency and accountability. Such targeted and sustained engagement with all relevant role-players, stakeholders, and end-users could facilitate the transition phase to implementation phase.
Drafting legislation that is inaccessible and difficult to comprehend
Legislation may be difficult to understand, and this can be a barrier to compliance, particularly for smaller businesses that may rely less on service providers. It is therefore important to explain the legislative framework by developing accompanying guidance that can help those reporting understand their obligations and how to comply with them, tailored to different corporate vehicles and scenarios. Countries such as Denmark and Kenya have designed and published guidance that explains in detail, with the use of diagrams, how to identify a beneficial owner in a variety of cases. [128] Additional information, such as answers to frequently asked questions, can be useful in giving the public a succinct overview of what the law prescribes. Many countries also provide an overview of and shortcuts to all relevant legislation on the register website. [129]
Designing systems and services through legislation
Implementing BOT involves the development or transformation of services provided by government, usually including digital services. These are best designed and managed when they centralise user needs – both those users who need to comply with requirements and users of the information – through an agile rather than a linear or sequential approach to delivery. [130] Legislators should avoid inadvertently designing systems and services through the legislative drafting process. A typical example of this is including forms or other specific technical requirements in legislation, or prescribing specific wording, or wording that is not technology neutral, where this is not necessary. For example, language that is not technology neutral may recommend specific software to use, while technology neutral language may specify the minimum functionality the software should have. [131] This may lead to unnecessarily legalistic language being used, making services less user friendly. Instead, governments should draft legislation in a way that enables a user-led approach to systems design. For example, by defining policy intentions rather than legal requirements where possible, or only setting minimum requirements for data collection and including clauses that allow the registrar to collect additional information if necessary, provided this is not personal data.
Taking a siloed approach
Effective BOT reforms must adopt a whole-of-government approach. Governments should recognise the need for interagency collaboration and coordination in implementing BOT reforms, particularly where multiple government agencies are involved in collecting, verifying, and sharing BOI. Governments should establish clear lines of communication and cooperation mechanisms to streamline processes; minimise duplication of efforts; and enhance the efficiency of regulatory oversight.
Approaching BOT as a one-off reform process
BOT is a relatively nascent and dynamic policy area, and international standards relating to BOT are still evolving, reflecting the changing nature of the risks that corporate vehicles pose. Governments should not approach BOT as a one-off reform process. Rather, it should be approached as an iterative process that may need subsequent amendments. Countries should build in processes to assess the effectiveness of BOT legislation, gather evidence, and learn lessons from implementation, including through feedback from those covered in the scope of disclosure requirements and data users, and apply those to improve BOT’s legal framework.
Endnotes
[128] For Denmark, see: Ehvervsstyrelsen (Danish Business Authority), Vejledning om: Reelle ejere (Guidance on: Real owners), updated 1 November 2017, https://erhvervsstyrelsen.dk/vejledning-reelle-ejere. For Kenya, see: Business Registration Service (BRS), Guide on Disclosure of Beneficial Ownership Information (Nairobi: BRS, n.d.), https://brs.go.ke/wp-content/uploads/2023/03/Guide-on-Disclosure-of-Beneficial-Ownership-Information.pdf.
[129] See, for example: Slovakia: Ministry of Justice of the Slovak Republic, Register partnerov verejného sektora (Register of public sector partners), n.d., https://www.justice.gov.sk/sluzby/register-partnerov-verejneho-sektora/; Luxembourg: Luxembourg Business Registers, “Legislation and jurisprudence”, n.d., https://www.lbr.lu/mjrcs-rbe/jsp/webapp/static/mjrcs/en/mjrcs-rbe/legislation.html?FROM_MENU=true&time=1712249018569&pageTitle=menu.item.geninfolegislation¤tMenuLabel=menu.item.geninfolegislation&CURRENT_TIMESTAMP_ID=.
[130] UK government, “Agile and government services: an introduction”, n.d., https://www.gov.uk/service-manual/agile-delivery/agile-government-services-introduction.
[131] Legislation should avoid referencing specific technologies, brands, or types of systems to allow for the adoption of new and evolving technologies without requiring legal amendments.