Learning the lessons from the UK’s public beneficial ownership register
A model of best practice
In setting up the public register, the UK has set standards for what a good register of beneficial ownership look like that should be replicated.
Publishing as open data
Open data is digital “structured” or “machine-readable” data that is made available with the technical and legal characteristics necessary for it to be freely used, reused, and redistributed by anyone, anytime, anywhere. Any user of open beneficial ownership data should be able to access the data, search it freely and/or download it as structured data - for example a spreadsheet - and use it for any purpose. The UK register has adopted this approach, making the data searchable for free, and making the whole register available to access and use as open data.
This comes with clear benefits for users, as well as implications for the policy goals of stemming corruption and encouraging business integrity:
- Open data can be more easily linked with global beneficial ownership data: As the World Bank has noted, when corporate structures are used to launder money, this often involves adding layers of “legal distance” between the beneficial owner and their assets. These layers are placed strategically in a number of jurisdictions because of the difficulty to investigators of accessing information that crosses national boundaries.[12] That is why the ability to link beneficial ownership information from around the world is essential to realizing beneficial ownership data’s potential to expose transnational networks of illicit financial flows.
- Open data can be linked with other useful data sets: This linkability doesn’t just bear fruit when it’s across borders, but also across different areas of government. For instance, linking beneficial ownership data to procurement is a powerful way to track who wins public contracts and for how much. This would bring needed transparency to the area of government that is also its highest corruption risk.[13] A similar benefit would accrue if beneficial ownership was linked with licensing data and processes.
- Open data can improve data quality and data usage: In the UK, company registry data use has grown exponentially to over 2 billion data searches a year [14] since the data was made free and open. This compares with just over 6 million access requests a year for paid information during 2014-15.[15] As a result of this massive increase in users, the number of people looking at the data has increased by several orders of magnitude leading to quality improvements using the ‘many eyes’ principle. Moreover, Companies House’s “overall attention to technological innovation and efficiency has yielded significantly lowered company registration costs, contributing to a steady upward growth in company registration.”[16]
The more people use the data, and the simpler it is to compare it with other datasets, the more likely inconsistencies or potential wrongdoings will be identified. In a discussion of the publication of income and asset declarations of public officials, the World Bank has noted that “public disclosure of AD [asset declarations] information enables an AD system to enlist civil society in supporting the verification of declarations, potentially enhancing enforcement, and thereby increasing the credibility of the system as well.”[17]
All beneficial ownership data should be published as open data
Case-by-case exemptions for personal security
Increasingly, data protection and security of beneficial owners have being cited as arguments for not publishing beneficial ownership data.[18] To address these concerns, the PSC register provides the public with a limited amount of information to identify an individual: the month and year rather than the full date of birth of the person, and a contact address for the company.
Additionally, there is a rigorous process for exempting information for publication. This process works on a case-by-case basis, where individuals apply for their data not to be published, and offers no blanket exemptions for any group of people. Individuals are only able to claim an exemption from publication where they can provide evidence proving a serious risk of violence or intimidation due to the nature of their company’s operations. Of over one million companies that had provided beneficial ownership information in the first six months of the register’s operation, only 270 individuals applied to have their information withheld on the basis that it would put them at risk, and of these only 5 had been granted.
Procedures should be put in place to allow exemptions from publication, assessed on a case-by-case basis on the basis of evidence.
Providing & updating the information
Before the register was introduced, some commentators questioned the compliance burden that would be placed on businesses in identifying their beneficial owners. However the findings from the first 1.3 million companies that filed beneficial ownership information shows that only 2% of them struggled to identify their beneficial owners (see the Annex for the UK’s beneficial ownership tests).[20] This mirrors the government’s own estimates that for 99% of UK companies their beneficial owners are the company shareholders,[21] and demonstrates the ease of compliance for most businesses that do not have complex ownership chains.
Initially companies only had to provide information about any changes in its beneficial ownership on an annual basis, as part of the company’s annual confirmation statement. However, as part of the implementation of the Fourth Anti Money Laundering Directive companies are now required to update the central register within 28 days of any change to its beneficial ownership.[22] The move to event-driven reporting for companies has given a major boost to proactive compliance and the ability for UK authorities to follow up on companies failing to report or taking too long to identify their beneficial owners.
Companies should be required to update any changes to their beneficial ownership within a short timeframe to ensure the register is accurate.
Collaboration with registry users
Companies House adopted a collaborative approach to working with end users, including civil society, to ensure that the register was effective and met users’ needs. This included establishing a data users’ reference group and an online community developers’ forum which regularly updates technical users on development schedules. The Companies House technical team regularly fields questions from the developer community in an open and collaborative manner. Companies House also collaborated with Global Witness in the data analysis of the registry undertaken in November 2016, including actively supplying additional data products that are not readily available from their website to support this project.
The agencies holding beneficial ownership registers should collaborate with users to ensure the register meets users needs.
Penalties
To ensure effective compliance with the register, there are significant potential penalties for non-compliance. Failure to provide accurate information on the register and failure to comply with requests for information from a company are both criminal offences and may result in a fine and/or a prison sentence of up to two years.[23] It is very likely that these would not be the first response to companies that fail in their obligations to Companies House, but it is vital that these strong sanctions are available and enforced against repeat offenders.
Robust sanctions are required to ensure effective compliance.
Footnotes
[12] Emile van der Does de Willebois, et al, “The Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It,” Stolen Asset Recovery Initiative (2011).
[13] Chris Taggart and Gavin Hayman, ‘How a global register of beneficial ownership can help end secrecy’, (2016).
[14] Companies House, “Annual Report and Account 2016/2017” (2017).
[15] Companies House, “Annual Report and Accounts 2014/15” (2015).
[16] Companies House Official Statistics, “Incorporated companies in the UK: October to December 2016” (2016).
[17] Ruxandra Burdescu, et al., “Income and Asset Declarations: Tools and Trade-offs,” Stolen Asset Recovery Initiative (2009).
[18] Examples below for the UK and Germany. Robert Lee, Tax-News.com, ‘UK Register of Companies Raises Privacy Concerns’ 18 June 2015. Die Familienunternehmer, ‘Familienunternehmer fordern Augenmaß beim Transparenzregister’, 7 February 2017.
[19] Global Witness Freedom of Information request - 304/12/16 Question about security exemption applications.
[20] November 2016 analysis of PSC register data by Global Witness, DataKind UK, OpenCorporates, Spend Network and OCCRP.
[21] HM Treasury/DTI, ‘Regulatory Impact Analysis - Disclosure Of Beneficial Ownership Of Unlisted Companies’, July 2002.
[22] Companies House – news story: ‘Changes to UK anti-money laundering measures’, last updated 23/6/17.
[23] Companies House, ‘Guidance: PSC requirements for companies and limited liability partnerships’, last updated 23/6/17.