What’s in it for business? The US case: Lessons from private sector and civil society advocacy for beneficial ownership transparency reforms
The journey of the US private sector in supporting beneficial ownership transparency reforms
How is beneficial ownership transparency relevant to the private sector?
The private sector includes diverse actors that generally engage in activities that seek to generate a profit, and that are not owned or managed by a government. [19] From large financial institutions and multinational companies, to cooperatives and small and medium-sized enterprises active in a range of sectors, it is important to highlight that private sector actors are not a homogenous group of institutions and individuals. However, many private sector actors are subject to similar or the same legal obligations.
A few arguments have repeatedly been used by some private sector actors across different countries to push back against BOT reforms. One of the most common arguments – and one used by one of the main opponents to BOT reforms in the US – is that imposing BO disclosure obligations on companies would create a costly and unmanageable administrative burden, especially for small businesses. [20] Another concern that is often raised relates to privacy and perceived risks of unwanted publicity or personal harm linked to the accessibility of personal and corporate affiliation information. [21] Whilst these concerns need to be acknowledged and accounted for, implementers have developed approaches to mitigate potential risks to privacy. Additionally, experience in the UK shows that the economic benefits of BOT outweigh the cost of compliance. [22]
In a global study by EY in 2016, 91% of the business executives surveyed thought knowing the beneficial owner of companies with which they do business was important. [23] Knowing and being able to trust quality business partners is key to protecting a company’s reputation and limiting major supply chain risks linked to fraud, corruption, counterfeiting, or modern slavery. [24] Direct access to this information by the private sector at large allows it to be integrated into a company’s due diligence processes, and for the processes to be automated. Yet, even in places where only authorised entities can access BO information, BOT reforms still have major advantages for businesses. For example, they make it more difficult for individuals to hide behind companies to win contracts unfairly or that they are not qualified for, at the expense of legitimate businesses. In countries with a strong framework to support the disclosure of and public access to BO information, such as Armenia and Nigeria, some private sector actors have praised the benefits of BOT for business interests and expressed the wish for greater involvement of the private sector to feed into existing processes to continue improving and sustaining BO reforms. [25]
It is important to acknowledge that transparency and privacy are two conflicting values. Many countries decide that, within their national and legal contexts, a degree of infringement on the right to privacy is justified by the broader public interest in access to BO information. However, to a degree, the infringement on privacy can be limited. For example, it is essential that BO reforms align with domestic privacy and data protection legislation. This may involve ensuring that the collection and publication of BO information has a solid legal basis, and that only the information that is necessary to guarantee all benefits of these reforms is made publicly available. For instance, whilst the name of a beneficial owner and their degree of ownership and control in a given company is essential to draw a full picture of ownership structures, sensitive information (such as a beneficial owner’s personal address or social security number) is not required for a company to conduct due diligence on a potential supplier. [26] Working with those who might be directly affected by potential privacy risks is essential to developing effective mitigation strategies. For example, in Nigeria, authorities in charge of developing BO reforms closely involved private sector representatives early on in order to ensure their concerns were acknowledged and addressed, and to provide space to identify common ground between public policies and business interests. [27]
Why did US private sector actors come to support beneficial ownership transparency reforms?
In 2016, as the US expanded due diligence requirements for banks to include BO checks of client companies, civil society organisations (including the FACT Coalition, Global Financial Integrity, Global Witness, and their political allies, philanthropic partners, and others), and increased their engagement with private sector actors to rally support to push for stronger BOT reforms. This engagement played a key role in the passage of the US BO disclosure rules. Civil society organisations’ reflections on this engagement also yield important lessons for private sector actors who want to play a leading role in ensuring reforms that promote transparency also benefit business.
Some of the main arguments that helped rally support from a number of private sector actors focussed on the benefits of BO data for business, including:
- access to BO data for designated financial institutions helps to comply with AML and KYC regulatory requirements;
- by using BO data, law enforcement can more easily investigate and prosecute fraudulent companies and protect legitimate businesses; and more generally,
- promoting access to BO data can help deter bribery over the course of public procurement and licensing, and ensure more equal opportunities for legitimate businesses.
A crucial step to securing greater private sector support for BOT reforms was to develop a strong understanding of the business landscape in the US. This included not only understanding who was in favour of or against potential reforms, but also understanding the level of awareness and knowledge of BOT among private sector actors, what influencing power various actors had on policy makers, and what relations existed between various businesses.
This level of analysis allowed advocates to identify a number of key influential actors. The table below covers a number of these, and summarises their profile, influence, and position on BOT reforms at the time.
| Private sector actors | Influence and positioning regarding BOT reforms in the US |
|---|---|
| Conservative small business trade associations, including the National Federation of Independent Business (NFIB) |
• NFIB is a trade group that self-describes as representing US small businesses. The most vocal among conservative small business trade associations, NFIB was ideologically opposed to BOT and ostensibly concerned about the regulatory burden and costs of new BO rules for businesses. • NFIB and its sizable constituency of business members was identified as being influential on Congressional Republicans. • Despite engagement with private sector and civil society advocates, NFIB remained an opposing voice to BOT in the US. |
| Other small business trade associations (for example, Small Business Majority) |
• Small Business Majority is a national organisation with a network of over 85,000 small businesses and 1,500 business and community organisations that aims to deliver resources to entrepreneurs and advocate for public policy solutions that promote inclusive small business growth. • Several small business associations were key voices in efforts to counter NFIB’s and other opponents’ arguments, and they supported BOT reforms. • These actors perceived the value of BOT reforms in helping law enforcement to investigate and prosecute individuals behind companies that defraud legitimate small and medium-sized businesses and underbid them over the course of public procurement. |
| US Chamber of Commerce |
• The US Chamber of Commerce is a large business organisation, including small businesses, chambers of commerce across the country, industry associations, and global corporations. • It initially opposed BOT reforms for many years, raising concerns about reporting burdens and the stifling of business innovation and capital formation. • After engagement with some influential representatives from large banks who are members of the US Chamber of Commerce and companies sitting on their Board of Directors, the US Chamber of Commerce did not itself become a vocal advocate in favour of BOT, but provided backing for new BOT rules. [28] |
| BPI and the financial sector |
• BPI is a nonpartisan public policy, research, and advocacy group, representing the leading and largest banks in the US. BPI and financial service providers’ willingness to develop a more comprehensive understanding of BO – with support of civil society actors – led BPI to understand the benefits of BOT for business, specifically its value in meeting regulatory requirements and interests, and to support the BO disclosure legislation to members of Congress. Some member organisations of BPI became engaged themselves, including lobbying the US Chamber of Commerce. • The financial services sector held some influencing power over congressional committees responsible for passing BOT legislation. • Support from BPI and a variety of small, medium, and large financial sector actors played a role in both softening the US Chamber of Commerce’s opposition to BO disclosure legislation and creating a supporting environment for passing the legislation. |
| The National Foreign Trade Council (NFTC) and anti-counterfeiting organisations |
• NFTC is a national business organisation that advocates for the international and public policy priorities of its members (for example, international trade, investment, tax, and export finance). • Sustained engagement with civil society activists helped NFTC as well as member companies and anti-counterfeiting organisations to develop a better understanding of BOT and its potential to prevent business losses due to counterfeit products and smuggling, especially for large brands. • As a result, a number of Fortune 500 corporations provided public support. |
| Real estate sector |
• Anticipating that AML and due diligence obligations might expand to the real estate sector, some of the largest trades in this sector saw both practical and political value to lending some support to BO disclosure. • However, not all real estate professionals supported the reforms, with some actors being worried about a potentially increased regulatory burden. |
This case study illustrates two major factors to ensuring effective private sector support for BOT reforms:
- private sector’s understanding of BOT and its benefits for business interests; and
- civil society’s understanding of the power relationships between businesses, industry, and trade associations, and sustained engagement with a variety of actors.
Sustained engagement with a group of civil society activists allowed the BPI and financial service providers to reflect on common arguments used to push back against reforms and to see that enhanced BOT would likely contribute to reducing the regulatory burden for banks if they could easily access BO data by reducing the time and effort to carry out mandatory checks. Tacit and mild support from BPI in particular became proactive and engaged support for BOT, influencing the US Chamber of Commerce’s position; providing support that outweighed NFIB’s opposition; helping to rally other business groups and industries; and ultimately pushing for the passage of new BOT rules. Securing support for BOT among a variety of actors, including well-known and influential ones as well as across a range of industries, was part of a layered approach that helped to create a sense of momentum and gather further support. For example, besides engagement with businesses and business associations themselves, reformers also secured support from several investment management firms whose clients’ assets collectively amounted to a total of USD 740 billion. A civil society organisation representative also stated that engagement with the Secretaries of State who were initially opposed to the reforms to take a neutral position was also critical in securing the passage of the legislation.
Long-term engagement helped actors build a more comprehensive understanding of business relationships. For example, some civil society actors erroneously assumed that the main financial services and trade associations worked closely together in a coordinated way. In terms of engagement strategies to ensure the greatest number and most influential members of the business community would come out in support of BOT, reformers first engaged trade associations, which helped gain support from their members. In other instances, engaging with a key member of an association helped rally support from the association’s staff and leadership and ultimately gather further support from other members.
These examples illustrate how coordination and partnerships between civil society organisations and private sector actors could secure a solid understanding of the business landscape and serve common interests to ensure effective BOT reforms. Civil society organisations pushing for reforms should engage as many private sector actors as possible and sustain this engagement even when first interactions are not fruitful. In turn, business leaders can help build mutually beneficial alliances by signalling their willingness to engage with civil society actors around this topic and being proactive in rallying fellow business leaders.
The Financial Crimes Enforcement Network headquarters in Vienna, Virginia. Source: CoStar
Notes
[19] OECD, Private Sector Peer Learning – Peer Inventory 1: Private Sector Engagement Terminology and Typology (s.l.: OECD, 2016), https://www.oecd.org/dac/peer-reviews/Inventory-1-Private-Sector-Engagement-Terminology-and-Typology.pdf.
[20] “Beneficial ownership”, Independent Electrical Contractors, n.d., https://www.ieci.org/advocacy/legislative-affairs/beneficial-ownership.
[21] Testimony before the United States Congress on behalf of the National Federation of Independent Business (NFIB): Hearing on “Outside Perspectives on the Collection of Beneficial Ownership Information”, Before the United States Senate Committee on Banking, Housing, and Urban Affairs, 20 June 2019 (statement of Karen Harned, Executive Director of NFIB Small Business Legal Center), https://www.banking.senate.gov/imo/media/doc/Harned%20Testimony%206-20-19.pdf.
[22] Department for Business, Energy & Industrial Strategy (BEIS), UK government, Review of the implementation of the PSC Register – BEIS Research Paper Number 2019/005 (London: BEIS, 2019), https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/822823/review-implementation-psc-register.pdf; BEIS and Companies House, UK government, Valuing the User Benefits of Companies House Data – BEIS Research Paper Number 2019/015 (London: BEIS and Companies House, 2019), https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/833764/valuing-benefits-companies-house-data-policy-summary.pdf.
[23] Rob Haden, “EY’s Global Fraud Survey 2016”, LinkedIn, 21 April 2016, https://www.linkedin.com/pulse/eys-global-fraud-survey-2016-rob-haden?articl.
[24] Ramesh Moosa, “Why third-party risks are a threat to consumer supply chain integrity”, EY, 4 August 2021, https://www.ey.com/en_id/forensic-integrity-services/why-third-party-risks-are-a-threat-to-consumer-supply-chain-integrity.
[25] Sarah Dickson, “Four Ways Beneficial Ownership Transparency Can Benefit the Extractive Industries and Beyond”, Open Government Partnership, 8 April 2021, https://www.opengovpartnership.org/stories/four-ways-beneficial-ownership-transparency-can-benefit-the-extractive-industries-and-beyond/.
[26] For more information on balancing BO disclosure and data protection, see: The B Team, The Engine Room, and Open Ownership, Data protection and privacy in beneficial ownership disclosure (s.l.: Open Ownership, 2019), https://www.openownership.org/en/publications/data-protection-and-privacy-in-beneficial-ownership-disclosure/.
[27] Dickson, “Four Ways Beneficial Ownership Transparency Can Benefit the Extractive Industries and Beyond”.
[28] “US Chamber of Commerce Offers Historic Backing of Beneficial Ownership Legislation”, FACT Coalition, 29 June 2020, https://thefactcoalition.org/us-chamber-of-commerce-offers-historic-backing-of-beneficial-ownership-legislation/.