Tax Justice Network ■ The state of play of beneficial ownership registration in 2020

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By Andres Knobel and Moran Harari of the Tax Justice Network.

A new report on the state of play of ownership registration of companies, partnerships, trusts and private foundations was published today by the Tax Justice Network. Based predominantly on the results of the latest edition of the Financial Secrecy Index published in February 2020, the report updates the “State of play of beneficial ownership registration” report published in 2018. The new report covers more jurisdictions, reaching a total of 133, including all OECD and EU member states. Although the Financial Secrecy Index was published in February 2020, this report includes a preliminary assessment of the new beneficial ownership registration laws approved by six jurisdictions between December 2019 and April 2020: Argentina, Colombia, Egypt, Malaysia, Panama and Seychelles.

Beneficial ownership transparency is widely considered to be a key policy for tackling illicit financial flows that encompass cross-border financial transactions for money laundering, tax evasion, corruption and the financing of terrorism. By identifying, registering and disclosing the identities of natural persons who ultimately own or control legal vehicles, the abuse of corporate secrecy can be prevented. Yet, for the verification of beneficial ownership data in cross-border settings, and for successfully tackling investment and hedge fund opacity, it is increasingly acknowledged that beneficial ownership information alone (the last layer of  ownership) is not enough. Rather, registration of all legal owners (first layer, and ideally all intermediary entities in the ownership chain) is a prerequisite for the integrity of ownership data.

The analysis of ownership registration as presented in this report and the importance of improving transparency and harmonising ownership registers was recently upheld by the European Union in a new study “Improving Anti-Money Laundering Policy”, which proposed beneficial ownership registries as a way to reduce the number of letter box or shell companies across countries.

On the bright side, the new report on the state of play of beneficial ownership as of 2020, found that 81 jurisdictions already have laws requiring beneficial ownership to be registered with a government authority, up from 34 jurisdictions mentioned in the 2018 report. This two fold increase proves that the “registry approach” (the mechanism of ensuring beneficial ownership transparency by having a centralised beneficial ownership register) is becoming mainstream around the world.

Countries with beneficial ownership registration laws

Public access to beneficial ownership information has also increased (especially if looking at countries’ legal obligations under Directives and other commitments), as acknowledged by the Financial Action Task Force (FATF) paper on “Best practices on beneficial ownership for legal persons.”  

Comparing companies’ effective beneficial ownership (Y axis) and legal ownership (X axis) registration between 2018 and 2020

However, no jurisdiction has effective legal and beneficial ownership registration for all available types of legal vehicles, let alone with information available online.

Out of all 133 jurisdictions assessed in this report, Ecuador is the best available case. Although its online register is not in open data format (and navigating it is rather complex), it does offer a trove of valuable information, including the ownership chain, the history of share transfers and sufficient identification details (eg passport number and address). Other relevant cases, such as Denmark, Bulgaria, the UK and New Zealand, are examples of very user-friendly online portals offering information, although only for some legal vehicles and for some level of ownership, either legal or beneficial.  

Another important improvement is that more countries are establishing lower thresholds in their beneficial ownership definitions (instead of the “more than 25 per cent of ownership” threshold), meaning that more individuals will be identified as beneficial owners. Positively, four jurisdictions are already requiring anyone with  just one share to be identified as a beneficial owner: Argentina, Botswana, Ecuador and Saudi Arabia.

However, progress hasn’t reached acceptable levels yet. Even though many more beneficial ownership registration laws have been approved, this doesn’t mean that even more basic issues, such as legal ownership registration has been solved. On the one hand, there are many countries where bearer shares may pose risks (at least 46, as shown in the figure below on companies’ legal ownership registration). Second, having legal ownership registration requirements doesn’t mean that information will be updated, let alone published in an online registry:

Lastly, the report draws attention to the risks in practice, by combining countries’ transparency levels with the number of registered entities in each country. This suggests how many entities may be subject to abuse by exploiting the country’s secretive ownership framework. The following chart depicts this risk for companies based on their legal ownership transparency:

References: -1 = Not registered or registered but not updated; 1 = Registered and updated (but not online); 2 = Online (Cost); 3 = Online (Free); 4 = Online (Open data).

If you’ve enjoyed these charts, you should read the whole report. It offers detailed visualisations (and identification of each country’s status) not only on ownership registration for companies, but also for partnerships, private foundations, domestic law trusts and foreign law trusts that have a local trustee.

It also provides a summary of the latest policy recommendations (including all of our  blogs since the last state of play report about beneficial ownership transparency), and an Annex written by Andres Arauz  from EcuadorPapers.org describing Ecuador’s online beneficial ownership register.

We hope this report will prove to policymakers around the world that there is an unstoppable trend toward beneficial ownership transparency (so they shouldn’t lag behind), while also warning them that a new beneficial ownership law will not in itself solve all issues, especially if legal ownership continues to suffer from loopholes or if the new law applies only to companies but not to other legal vehicles, especially to trusts.

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