The use of beneficial ownership data by private entities
Research questions and methodology
The research provides insights regarding the use and value of BO data within the private sector by addressing the following questions (see Annex 1 for further details and sub-questions):
- Which entities within the private sector currently use BO data?
- What are the different use cases for BO data amongst private entities?
- What are the primary drivers behind the use of BO data by private entities?
- What kinds of challenges do private entities have related to the use of BO data?
- What kinds of trends or emerging issues might shape the private sector use of BO data in the future?
The research was conducted through the following phases:
Phase 1. Rapid scoping of private sector entities
Researchers conducted a rapid scoping of private sector entities using BO data and classified these into three main groups based on their primary reason for interacting with BO data:
- Group 1 (“BO data service providers”): Private companies that are providers of BO data, or that rely upon BO data to provide products or services to other entities.
- Group 2: Private companies that are end consumers of BO data for internal business processes, such as AML/Know Your Customer (KYC) compliance. Industries in this group were mapped and scored to identify a subset of focus industries for the research (see phase 2).
- Group 3 (“investors and ESG stakeholders”): Private entities that use BO data to inform investment decisions regarding Group 2 private companies and other private entities, including stock exchanges and ESG reporting consultancy companies.
Phase 2. Secondary research to identify group 2 focus industries and sample of companies for each group
The research team conducted secondary research into 11 industries to identify a smaller set of industries on which to focus primary research. The mapping set out to find:
- industries for whom regulations mandate the use of BO data;
- industries where the risks that BO data use tries to mitigate are highest.
To do so, each industry was assessed according to the following dimensions:
| Dimension | Variables assessed | Assumption |
|---|---|---|
| Relevance of BO data | Composite score based on:- Presence of AML and other regulations requiring compliance- Voluntary codes and standards- Whether reputational or industry-specific risks encourage use of BO data | Industries for which BO data is of relatively higher relevance are industries where the use of BO data has substantial (potential) impact |
| Use of entities within the industry to obscure BO | Composite score based on:- Role of the industry in the money laundering chain (e.g. initial crime, layering, placement, etc.)- Prevalence of industry in corruption and human rights violations | Industries where obscuring BO occurs with greater frequency have a greater interest in using BO data as a result of regulations |
| Existing use of BO data | Subjective score based on company policies and documented examples of use of BO data | Industries already using BO data will provide better insights into current use of data |
| Potential impact of using BO data to mitigate risks in the industry | Composite score based on:- Direct or multiplier impact on mitigating ESG risks- Crowding out factor- Impacts of corruption and human rights violations on industry | Industries with relatively higher potential impact of using BO data will generate insights into emerging use cases |
Sources for the rapid scoping included industry reports, media reports, white papers, think-tank policy pieces, government directives, and companies’ annual and ESG reports (see Annex 3). These sources were also used to identify and validate results from primary data collection, trends, and emerging issues which may increase the demand for BO data.
Based on an assessment of the variables for 11 industries (Annex 2 and 3), the following three industries were selected as the focus for primary research for group 2:
- commercial banking;
- manufacturing and electronics;
- extractives (metals and mining).
To determine the sample of companies for each group, the researchers identified additional criteria that affected how and whether companies use BO data. A key factor is the jurisdiction in which a company is headquartered, operational or both. Researchers mapped the regulatory BO data requirements by jurisdiction to ensure that the sample would include entities in a variety of jurisdictions with different BO data requirements and availability, and entities with operations across multiple jurisdictions.
To assess regulatory BO requirements, researchers looked at whether the jurisdiction is a member of the Financial Action Task Force (FATF) or regional AML group, the European Union (EU), or Extractive Industries Transparency Initiative (EITI). Additionally, researchers looked at whether the jurisdiction is an EU high risk third country, has a US State Department designation, is on the FATF list of increased monitoring (grey list) or high risk jurisdictions (black list), or the US Commerce Department consolidated list. To assess data availability, relevance and quality in a jurisdiction, researchers looked at the Tax Justice Network’s 2020 Financial Secrecy Index, the World Bank Regulatory Quality and Control of Corruption indices, Transparency International’s Corruption Perception Index, and the Open Data Index. Jurisdiction mapping was factored into sampling as detailed in Table 2.
| Group | Industries or types of entities | Sampling criteria | Sampling method | Teams within companies targeted in survey | Target sample size | Responses |
|---|---|---|---|---|---|---|
| 1 | BO data service providers |
Ensure spread in: - jurisdictions from which the data is drawn; - target industries, industry use cases for BO data, and number of users; - types of products and services offered; and- costs charged for services |
- Review of industry guides (e.g. Gartner) - Referrals from companies surveyed in group 2 - Contacts through OO and partner organisations |
Sales, data, and data supply management teams | 3 | 4 |
| 2 |
Metals and mining Commercial banking Electronic manufacturing (Subtotal) |
Ensure spread in: - jurisdictions in which companies are headquartered/have operations; - type of ownership (publicly listed/privately owned); - signatories of voluntary codes or standards (yes/no); - company size and the degree to which companies are consumer facing/concerned with reputation; and - companies that engage in charitable giving or grants to not-for-profits (yes/no) |
- Contacts through OO and partner organisations - Paid searches in professional directories for different industries |
Compliance, risk, supply chain management and sustainability teams |
8 12 10 (30) |
6 6 5 (17) |
| 3 | Stock exchanges, ESG reporting consultancy companies, development finance institutions (investors and ESG stakeholders) |
Ensure spread in: - ESG service providers (e.g. Environmental Resource Management, KPMG)- ESG standards organisations (e.g. Global Legal Entity Identifier Foundation (GLEIF), Global Reporting Initiative (GRI), International Organization for Standardization (ISO), and Sustainable Accounting Standards Board (SASB)) - regulators (e.g. World Federation of Stock Exchanges, Sustainable Stock Exchanges Initiative) - investors (e.g. Abraaj, Apollo Global Management, Bain Capital, Bridge Capital, International Finance Corporation (IFC), JP Morgan) |
- Search engine - Contacts through OO and partner organisations |
Sustainability and ESG teams | 10 | 4 |
Phase 3. Primary research on companies’ use of BO data
Surveys were developed for group 1 and each group 2 industry (see Annex 4). Surveys were sent to respondents matching the sampling criteria in batches using SurveyGizmo (now called Alchemer). Researchers followed up with respondents who had only partially completed surveys to encourage completion. Follow-up telephone interviews were conducted with selected respondents to elaborate on specific survey responses. All group 3 companies were surveyed by phone.
The COVID-19 pandemic led to significantly lower response rates than originally anticipated (see below). Consequently, where possible, researchers confirmed findings with existing studies on the use of BO data by private sector entities. Where these validated the findings of the existing studies, this was noted.
Phase 4. Primary research to assess services provided by BO data providers
Researchers trialled BO data products and services offered by group 1 companies to supplement findings from the surveys and telephone interviews.
Challenges of primary data collection during the COVID-19 pandemic
Data collection through surveys was the primary method selected for this research. Although surveys – particularly those conducted online – often have low response rates, the response rates were even lower than expected, including for companies with whom this study’s collaborators had existing relationships. The researchers attribute much of this to the logistical, organisational, and individual impacts of the COVID-19 pandemic:
- there was an unexpectedly high turnover in some job functions, with a significant number of imminent departures and some vacancies. This was particularly the case in sustainability departments and also in compliance roles, as they are considered by companies as non-revenue-generating functions and, as such, are often among the first to be targeted when cutting costs;
- follow-up by phone was impeded by the fact that there was frequently no answer at office numbers listed for the survey-targeted individuals, likely as a result of government stay-at-home orders;
- the subject material of the survey may not have been deemed as important in the midst of the pandemic, whilst companies struggled with revenue, redundancies, and adjusting operations, and whilst individuals adjusted to new remote working situations;
- when surveys were completed, respondents overwhelmingly asked to remain anonymous. This could be because respondents felt less comfortable in conveying the information due to a heightened perception of personal or company risk;
- employees working from home presented additional challenges to the research team in verifying survey completion rates using anonymised survey completion data.
Whilst the sample was not large enough to draw more generalised and quantitative conclusions from the research, the responses still provide useful insights into private sector use of BO data that provide grounds for improving the utility of central and public BO registers.
A number of respondents only partially completed surveys, or completed surveys in several sessions over a range of dates. To guarantee the anonymity of respondents, it was not always possible to aggregate responses. Therefore, the findings are presented in ordinal rather than cardinal format, and it was not always possible to provide references to specific respondents.