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

The Utility of Public Beneficial Ownership Information

It is the engagement of people and organisations using the data that transforms beneficial ownership data collection from a tick-box exercise to having genuine impact on corruption and creating a better environment for business. These users improve data quality by flagging missing information and inconsistencies, making it more difficult for corrupt individuals to hide behind lies or omissions. Public, open data beneficial ownership can be linked with other useful datasets, such as procurement data, sanctions lists and land registries, and with beneficial ownership datasets from other jurisdictions. Beneficial ownership transparency thus becomes a means to hold corrupt individuals accountable and a deterrent for unethical behaviour, and increases companies’ confidence in undertaking business in the country in question.

Below, we outline three use cases for the beneficial ownership information that will be published by the Kyrgyz Republic. These are intended to assist SCIESU in considering who will use the data and how, in order to inform the next stages of implementation.

Public sector users

Beneficial ownership information collected through license applications has several potential uses within SCIESU. It provides valuable information for undertaking due diligence when assessing license applications and will increase SCIESU’s awareness of the true beneficiaries of the licenses that it awards, and the potential connections between applicants and holders of different licenses. This is necessary to stem corruption risks in the Kyrgyz Republic’s extractives sector. Where the license is awarded by auction, the submission of beneficial ownership information will enable SCIESU to identify situations where apparently competing bidders have the same beneficial owners and are potentially distorting the market by artificially reducing the cost of a license. For active licenses, beneficial ownership information could assist SCIESU in dealing with environmental or health and safety issues, by identifying the natural persons who own or control the responsible companies. If the same beneficial owner applied for another license through a different legal entity then their record on environmental or labor safety might influence the decision over a new license.

Beneficial ownership data in easy, shareable, open data format will also be useful for law enforcements and other Government departments. It can be linked with existing data such as the Ministry of Justice tax information, and can be used to assist Financial Intelligence Service investigations, providing valuable additional information to detect corruption in the extractives sector.

Private sector users

The requirement for open beneficial ownership data can increase the confidence of extractives companies wishing to do business in the Kyrgyz Republic. Companies can better vet prospective partners, clients or suppliers in the extractives sector, or use the data to enhance due diligence and manage risk exposure, for instance in foreign direct investment. For these reasons, company representatives in the Kyrgyz Republic EITI Multi-Stakeholder Group were supportive of the overall requirement for beneficial ownership transparency. This echoes international findings that over 90% of senior executives believe it is important to know the ultimate beneficial ownership of the entities with which they do business.[5]

The corruption risks associated with the global extractives sector make this need particularly relevant to extractives companies. Publicly accessible beneficial ownership information will assist compliance officers and agents acting on behalf of companies or investors in ensuring that they are not exposing themselves to undue financial risk, reputational risk or US Foreign Corrupt Practices Act (FCPA) / UK Bribery Act risk. Certain private sector users, such as credit reference agencies, benefit in particular from having beneficial ownership data downloadable in bulk and combinable with their existing datasets. A cost-benefit analysis conducted in the UK calculated that beneficial ownership disclosure (across all sectors) would bring over £50 million back into the economy, mostly due to reduced rates of fraud and other types of financial misconduct based on the availability of the data to credit reference agencies.[6]

Civil society users

Journalists and others in civil society use beneficial ownership data to conduct investigations of interesting cases or patterns that come to their attention. The result is often a complementary relationship between civil society and law enforcement, wherein civil society conducts preliminary investigations, helping to open a law enforcement case. Greater use of the data also highlights inconsistencies and errors, increasing the quality of data, and could be particularly important in the Kyrgyz Republic context if limited verification is undertaken by SCIESU.

For example, civil society investigators in Slovakia used data from the national beneficial ownership register to uncover that a company had submitted inaccurate information about their beneficial owners. They submitted the results of their investigation to the state, leading to a productive partnership that resulted in the world’s first official censure for reporting inaccurate beneficial ownership data.[7]

Next page: Methodology