Legislating for effective beneficial ownership transparency reforms in the extractive sector
Introduction
Key resources are included at the end of this note to support further investigation. An increasing number of global standards and requirements are moving towards beneficial ownership (BO) transparency through implementing central registers. [1] Since 2013, the Extractive Industries Transparency Initiative (EITI) Standard has “recommended that implementing countries maintain a publicly available register of the beneficial owners of the corporate entity(ies) that bid for, operate or invest in extractive assets”. [2] Three years later, the EITI Standard introduced a landmark requirement, mandating the disclosure of beneficial owners of oil, gas and mining companies. As the EITI Standard was one of the first international standards to call for BO transparency through central registers, some early implementers focused on extractive sector-specific registers. In some cases, these were later incorporated into or superseded by full-economy registers. This guidance is relevant for economy-wide BO registers – which many jurisdictions are implementing to meet other international standards, such as those related to anti-money laundering (AML) – but is intended for countries developing such registers to meet requirements related to the EITI Standard.
Creating a BO register requires legal reforms to define the scope and parameter of disclosure, including identifying which individuals and corporate vehicles will be subject to reporting requirements; which agency will be tasked to collate such information; as well as how to mandate a range of data and systems-related considerations. Legislating for effective reforms is one of the key stages of the implementation of BO transparency, and it ensures the sustainability of the reforms by making them able to withstand potential legal challenges. [3]
Purpose of this guidance
This guidance aims to support those designing, drafting, advocating for and reviewing legislation to understand the various components that make up effective legislation, providing the foundation for a BO register. Legislation refers to the body of laws – including primary and secondary, or delegated, legislation – rules, policies and guidance emanating from parliament, the executive or other regulatory or lawmaking authority. It focuses on the technical characteristics of a good legislative framework for beneficial ownership rather than the external political, social, economic and cultural factors that are known to influence implementation and impact.
The process of creating an enabling framework for the effective collection, storage and sharing of BO information can be challenging, as it may involve new and technical concepts. Additionally, due to the differences in legal systems and contexts, there is no single best method. Consequently, this guidance focuses on identifying the minimum components for effective legislation. Those who seek to deepen their understanding of the full range of considerations when legislating for BO registers may consult Open Ownership’s legislative guidance, on which this technical guidance draws, and which includes examples of legislation. [4]
Box 1. The EITI Standard and its requirements related to beneficial ownership [5]
The 2023 EITI Standard contains a set of requirements that must be adhered to by countries implementing the EITI Standard and by extractive companies operating in them. Requirement 2.5 focuses on BO disclosure, while Requirements 2.2, 2.3 and 2.6 also contain provisions related to beneficial ownership. [6]
The objective of Requirement 2.5 is to enable the public to know who ultimately owns and controls the companies operating in the country’s extractive industries, particularly those identified by the multi-stakeholder group as high risk, to help deter improper and corrupt practices in the management of extractive resources and to help monitor the beneficial ownership of politically exposed persons (PEPs). Provisions under this requirement include the following:
- Implementing countries are required to request, and companies are required to publicly disclose, BO information of corporate entities that apply for or hold a participating interest in an exploration or production of oil, gas or mining license or contract.
- Implementing countries are encouraged to maintain a publicly available register of the beneficial owners of the corporate entities that apply for or hold a participating interest in an exploration or production of oil, gas or mining license or contract, including the identities of their beneficial owners (name, nationality, country of residence, whether the natural person is a PEP; the level of ownership; and details about how ownership or control is exerted).
- Implementing countries are required to request full disclosure of PEPs’ BO information regardless of their level of ownership.
- The multi-stakeholder group is required to:
- Document the government’s policy and its discussion on BO disclosure, including details on the relevant legal provisions; actual disclosure practices; and any reforms planned or underway.
- Agree on a definition of the term “beneficial owner”, in line with the EITI Standard, including an ownership threshold aligned with the type and level of risk the country aims to address (10% or lower is encouraged). It must also specify reporting obligations for PEPs.
- Disclose any significant gaps or weaknesses in reporting on BO information, including any entities that failed to submit all or some BO information.
- Assess any existing mechanisms for assuring the reliability of BO information and agree on an approach to assure the accuracy of the information they provide.
- Publicly listed companies (PLCs) and wholly owned subsidiaries are required to disclose the name of the stock exchange and include a link to the stock exchange filings where they are listed to facilitate public access to their BO information. The multi-stakeholder group is encouraged to review the comprehensiveness and reliability of ownership information disclosed in the stock exchange filings.
- State-owned enterprises (SOEs) are required to disclose the name of the states owning or controlling the SOE, the level of ownership and details about how ownership or control is exerted.
- Implementing countries are required to disclose the legal owners of the corporate entities, including share of ownership. Companies are encouraged to disclose their ownership structure.
In addition, the 2023 EITI Standard has reinforced the connection between licensing and BO information, helping ensure that licenses are granted to transparent and accountable entities. Requirements 2.2 on Contract and license allocations and 2.3 on Registers of licenses state:
- “Where licenses are awarded through a bidding process, the government is required to disclose the list of applicants, including their beneficial owners in accordance with Requirement 2.5, and the bid criteria.” [7]
- “Implementing countries are encouraged to link publicly available license registers to other government platforms that disclose or hold information in accordance with Requirement 2.5 on the legal and beneficial owners of oil, gas and mining companies.” [8]
The 2023 EITI Standard also encourages, under Requirement 2.6.e), for SOEs to disclose the identity and beneficial ownership of their agents or intermediaries, suppliers or contractors for material transactions, which can help close avenues for corruption.
Under Requirement 1.2.b), both EITI supporting companies and reporting companies are expected to publish an anti-corruption policy setting out how they manage corruption risk, including their use of BO data. Such information can help the private sector to actively tackle risks by identifying with whom they are doing business.
This guidance is aimed at drafting effective BO transparency legislation, and may not be the only way to comply with the EITI Standard. It should be read together with, and does not serve as a replacement for, the EITI Standard.
How to use this resource
The potential impact of a BO disclosure system will largely depend on the policy, legal, systems and technological aspects of its implementation. Open Ownership has developed a policy framework for considering the elements that influence whether the implementation of reforms to improve the BO transparency of corporate vehicles will lead to effective BO disclosure. Effective disclosure generates high-quality, reliable data that is usable, useful and used. The various aspects of this framework cover disclosure and collection; storage and auditability; and quality and reliability. They are covered in primary and secondary legislation to varying extents. [9]
This technical guidance will discuss the various approaches to legislative reform, including considerations for including provisions either in primary or secondary legislation, and subsequently discuss the various components of effective legislation, grouped together based on where they may commonly be found in legislation.
For each component, this guidance provides a brief background, including its relevance to the EITI Standard and the extractive sector, as well as a checklist of what should be included in effective legislation. In addition to the EITI Standard, this guidance and the checklists are informed by the Open Ownership Principles for effective beneficial ownership disclosure (OO Principles) and international standards set by the Financial Action Task Force (FATF) and the United Nations Convention Against Corruption (UNCAC). [10] The aspects covered by the checklist are a component of effective reforms and not necessarily exhaustive, and they should be covered by the whole body of legislation.
Footnotes
[1] Central registers refer to any register that centralises BO information, including sector-specific registers and those that are not sector-specific.
[2] EITI, The EITI Standard 2015 (Oslo: EITI, 2015), https://eiti.org/sites/default/files/attachments/english_eiti_standard.pdf.
[3] For more information on how legislating for BO transparency reforms fits within the broader implementation journey, please see: Open Ownership, Guide to implementing beneficial ownership transparency (s.l.: Open Ownership, 2021), https://www.openownership.org/en/publications/guide-to-implementing-beneficial-ownership-transparency/.
[4] Favour Ime and Tymon Kiepe, Guide to drafting effective legislation for beneficial ownership transparency (s.l.: Open Ownership, 2024), https://www.openownership.org/en/publications/guide-to-drafting-effective-legislation-for-beneficial-ownership-transparency/.
[5] EITI, The EITI Standard 2023 – Part 1: Principles and requirements (Oslo: EITI, 2023), https://eiti.org/sites/default/files/2023-06/2023%20EITI%20Standard.pdf.
[6] EITI, The EITI Standard 2023 – Part 1, 19–21, 15–16, 17, 21–22.
[7] EITI, The EITI Standard 2023 – Part 1, 16.
[8] EITI, The EITI Standard 2023 – Part 1, 17.
[9] The Open Ownership Principles (OO Principles) are intended to support governments implementing effective BO transparency reforms and guide international institutions, civil society and private sector actors in understanding and supporting reforms. They are a tool to identify and separate issues affecting implementation, and they provide a framework for assessing and improving existing disclosure regimes. If implemented together, the OO Principles enable disclosure systems to generate actionable and usable data across the widest range of policy applications of BO data. For more information, please see: Open Ownership, Open Ownership Principles for effective beneficial ownership disclosure (s.l.: Open Ownership, updated 2023), https://www.openownership.org/en/principles/.
[10] Open Ownership, Open Ownership Principles; FATF, The FATF Recommendations: International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation (Paris: FATF, updated 2023), https://www.fatf-gafi.org/content/dam/fatf-gafi/recommendations/FATF%20Recommendations%202012.pdf.coredownload.inline.pdf; UNODC, “Conference of the States Parties: 9th session - resolutions & decisions: Resolution 9/7 — Enhancing the use of beneficial ownership information to facilitate the identification, recovery and return of proceeds of crime”, 2021, https://www.unodc.org/corruption/en/cosp/conference/session9-resolutions.html#Res.9-7; UNODC, “CoSP10: Resolutions and Decisions”, CAC/COSP/2023/L.10/Rev.1 (future reference number 10/6) Enhancing the use of beneficial ownership information to strengthen asset recovery, 2023, https://www.unodc.org/documents/treaties/UNCAC/COSP/session10/resolutions/L-documents/2325375E_L.10_Rev.1.pdf.