Implementing beneficial ownership transparency in the Kyrgyz Republic extractives sector — findings and recommendations

Introduction and scope

In recent years, global society has come to understand the importance of corporate transparency, particularly in key sectors such as extractives. High-profile corruption, tax avoidance and evasion scandals involving extractives companies have caused a radical shift in the what we think of anonymous companies. It is clearer than ever that anonymity is often a cloak for nefarious or criminal activities such as corruption and money laundering.

Increasingly, forward looking governments, law enforcement agencies, and socially responsible businesses agree that making information about who owns companies public is critical to tracking the flows of illicit financial flows and tackling corruption. is is particularly important in certain sectors where there are high corruption risks, like extractives. Within the extractives sector, the Extractive Industries Transparency Initiative (EITI) Standard [1] requires member countries to publish publicly information about the beneficial owners of all companies applying for or holding extractives licenses. e deadline for meeting this requirement is 1 January 2020. To date over 20 countries have committed to establishing central public registers of beneficial ownership in their EITI beneficial ownership roadmaps.[2]

The Kyrgyz Republic, one of the first countries to commit to the EITI Standard, has taken significant steps to implement its EITI beneficial ownership roadmap.[3] In April 2018 Parliament the new law “On Subsoil” was adopted, and this requires companies to disclose their beneficial owners when they apply for or hold an extractives license. The Kyrgyz Republic’s commitment to establishing a public register of beneficial ownership linked to extractives licenses that is freely accessible online, will, once implemented, make the country a leader among EITI countries on beneficial ownership in the extractives sector. This is a natural next step, given that the Kyrgyz Republic already publishes other information about extractives licenses openly via an online portal.[4]

In August 2018, SCIESU signed a Memorandum of Understanding with Open Ownership to participate in the Open Ownership Pilot Programme. This enables the Kyrgyz Republic to receive in-kind technical assistance from Open Ownership, with the goal of producing high-quality beneficial ownership data that is truly fit for purpose to tackle corruption and improve the environment for business. The end result is for the Kyrgyz Republic to publish open data in a standardised format – the Beneficial Ownership Data Standard – and for this data to be shared automatically and regularly with the Open Ownership Register.

To understand the technical assistance that SCIESU requires, and identify how Open Ownership can best support the publication of open data beneficial ownership information, a scoping visit was undertaken in September 2018. The findings and recommendations from this visit and follow up activities are presented in this report. Our intention is for this report to lay the groundwork for a beneficial ownership regime that flows cohesively from submission of company data, to processing of license applications, to storage of that data, to user engagement and enforcement as necessary. Ultimately, the goal is to see a sustainable and effective beneficial ownership transparency regime in the Kyrgyz Republic’s extractives sector, which delivers on the government’s vision to become a leader on beneficial ownership transparency in the extractives sector, and prevents the misuse of companies to facilitate corruption.

During the time that this report was being drafted, revisions were taking place to the draft regulations that describe how the beneficial ownership requirements in the subsoil law are implemented. Therefore, the recommendations in this report that relate to the legislative and regulatory framework articulate overall principles and features that are required to effectively deliver the Kyrgyz Republic’s policy goals.

Our recommendations do not prescribe processes but set a direction for future conversations, based on what we know about the particular circumstances in the Kyrgyz Republic’s extractives sector. Following a brief introduction to Open Ownership, we begin by explaining why a public, open data beneficial ownership register is the only kind of register “fit for purpose” for stemming corruption in the section on background that follows. Then, we briefly document the methodology we followed in compiling this report. We follow that by discussing our findings, which we assess and analyse against our knowledge of international best practice and our own expertise, and discuss our recommendations in each area. Finally, we outline our proposed next steps, and a timeline for supporting SCIESU to implement the recommendations.

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