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Andres Knobel ■ Beneficial ownership in the investment industry: A strategy to roll back anonymous capital

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Tax justice reports
Tax justice reports

Beneficial ownership in the investment industry: A strategy to roll back anonymous capital

The paper shows how the stock market and listed companies are not within the scope of beneficial ownership registries. Allowing high net worth people to hide their patrimony behind “stock market confidentiality” rules and several schemes including, collective investments vehicles, funds and assets. OECD’s Common Reporting Standard (CRS) for automatic exchange of information are not enough because there are several loopholes. Therefore, investment funds and financial assets involve many intermediaries, all with partial information, but ultimately holding and trading assets worth trillions of dollars. However complex and sophisticated the industry may be, neither the public nor the authorities have a full picture of all existing financial assets and who ultimately owns them, let alone whether they are paying the corresponding taxes or whether they are part of money laundering schemes.

The paper shows how the stock market and listed companies are not within the scope of beneficial ownership registries. Allowing high net worth people to hide their patrimony behind “stock market confidentiality” rules and several schemes including, collective investments vehicles, funds and assets. Rules on control and decision making is not the only point for regulators. Not only does reporting about 3 or 5 per cent rely on self-reporting by the investor (and so is hard to enforce), but even a much lower ownership may still be extremely relevant in the case of big corporations when it comes to inequality measures. OECD’s Common Reporting Standard (CRS) for automatic exchange of information are not enough because there are several loopholes. Complete transparency may eventually be achieved through a global asset registry. Beneficial ownership transparency for the whole investment industry may sound too general a rule for intermediaries and types of investment funds that may be very different from each other. The paper describes different proposals, from the most ambitious and comprehensive (lowering beneficial ownership thresholds and identifying the beneficial owners of all financial assets, investment funds and all intermediaries involved in the ownership chain), to only identifying the beneficial owners of financial assets (without disclosing how they own them) or beneficial owners of investment funds (without disclosing which underlying securities they ultimately hold) . Given that interests in investment funds and in financial assets may be part of securities traded by algorithms where securities are held for just a few seconds, ownership could be reported as of the end of each business day.Therefore, investment funds and financial assets involve many intermediaries, all with partial information, but ultimately holding and trading assets worth trillions of dollars. However complex and sophisticated the industry may be, neither the public nor the authorities have a full picture of all existing financial assets and who ultimately owns them, let alone whether they are paying the corresponding taxes or whether they are part of money laundering schemes.

Key findings

  • there is no public information on the Beneficial owners of investment funds or companies listed on a stock exchange
  • Complete transparency may be achieved through a global asset registry.
  • It is necessary to determine the ownership of all financial assets, including especially companies listed on a stock exchange.
  • the rationale for exclusions of Beneficial ownership rules for these ones, is that companies listed on a stock exchange and retail investment funds are already subject to high regulation and other disclosure requirements, including publishing a prospectus, appointing an independent auditor and so on. But this is clearly no replacement for identifying the individual investors ultimately owning or benefitting from financial assets through investment funds
  • legal vehicles such as companies and trusts may be creating secrecy in the investment industry in three different instances: companies, funds and assets.

Key recommendations

  • Complete transparency may eventually be achieved through a global asset registry.
  • It is necessary to determine the ownership of all financial assets, including especially companies listed on a stock exchange.
  • the paper proposes lowering Beneficial ownership thresholds and identifying the Beneficial owners of all financial assets, investment funds and all intermediaries involved in the ownership chain.

Additional resources