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Andres Knobel, Markus Meinzer, Moran Harari, Miroslav Palansky ■ The state of play of beneficial ownership registration in 2020

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The state of play of beneficial ownership registration in 2020

This paper examines the registration and disclosure requirements of the ownership of legal entities and arrangements across 133 jurisdictions as of April 2020 and provides the most comprehensive and in-depth analysis of the current state of play. 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, it is increasingly acknowledged that registration of all legal owners is also required as a prerequisite for the integrity of ownership data. 

Beneficial ownership transparency has become one of the leading tools to tackle illicit financial flows related to tax evasion, money laundering, corruption and the financing of terrorism. It involves identifying the “beneficial owners”, who are the individuals (natural persons) who ultimately own or control the legal vehicles such as companies, partnerships, trusts or foundations that operate in the economy by opening bank accounts, holding real estate, or providing goods and services. Without beneficial ownership transparency, criminals are able to engage in illegal activities by hiding behind legal vehicles or nominees. Beneficial ownership transparency means revealing who is behind an entity. The Tax Justice Network, through its Financial Secrecy Index, has been assessing the way countries establish central government-held registries of beneficial ownership information for all types of legal vehicles. Ideally, information on the beneficial owners of every type of legal vehicle should be available to the general public and accessible online, for free and in open data format. In the last five years considerable progress has taken place, especially in Europe and a few countries in Latin America, South-East Asia and Africa: laws requiring beneficial ownership to be registered with a government authority have been approved in a total of 81 jurisdictions. Nevertheless, no country achieves the ideal level of beneficial ownership registration for every type of legal vehicle. Approving a law that requires beneficial owners to be registered with a government authority does not mean that the law itself will be effective and loophole-free. Some of the recently approved laws suffer from various shortcomings (eg loopholes in the definition of a beneficial owner, no public access to beneficial ownership information, etc) and many countries don’t even require the registration of updated legal ownership information. Legal ownership refers to the first tier of ownership, the direct and immediate owner of an entity (who may be different from the individual who ultimately -and indirectly- controls it). While legal ownership registration (the first tier) cannot replace beneficial ownership registration (the last tier), both are necessary. Still, many countries fail to register even these legal owners, or to require that such information be updated, e.g. in the case of a transfer of shares in a company, or the appointment of a new beneficiary of a trust. On top of this, some countries allow bearer shares without requiring their registration by a government authority. This report, based on the Financial Secrecy Index, describes the state of play of both legal and beneficial ownership registration in 133 jurisdictions for four types of legal vehicles (companies, partnerships, trusts and private foundations). It describes the registration level in each country, and it also weighs the risks based on the number of registered vehicles. For example, if both countries A and B offer secretive companies, and 1 million companies have been created in country A while no company has been created in country B, then the risk created by country A is much worse in practice than that of country B.

Key findings

  • There is no jurisdiction that meets the ideal transparency situation where all types of available legal vehicles have to register ownership information both at the legal and beneficial ownership level, and where information is publicly available online, for free and in open data format
  • Ecuador is the best available case. Although its online register is not in open data format (and navigating it is 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)
  • Compared with the Financial Secrecy Index 2018 results, many more jurisdictions now require beneficial ownership information to be registered, including for trusts and private foundations that were the big laggards. Public access to beneficial ownership information is also increasing, as acknowledged by the Financial Action Task Force paper on best practices on beneficial ownership for legal persons
  • Nevertheless, registration triggers are still limited, especially for foreign companies operating in a country or owning real estate, or for any domestic law trust regardless of where it is registered.
  • While many countries have made improvements in their beneficial ownership registration, issues on legal ownership and bearer shares still remain, as well as on the scope of legal vehicles subject to beneficial ownership registration (eg limited partnerships, companies listed on a stock exchange, etc.)

Key recommendations

  • Given that beneficial ownership registration in itself does not guarantee the accuracy of information (especially if no verification takes place and if no effective sanctions are imposed), authorities should require the registration of all legal owners as a prerequisite for the integrity of ownership data.
  • Implement proper verification and validation mechanisms of beneficial ownership registration.
  • Improve registration triggers, especially for foreign companies operating in a country or owning real estate, or for any domestic law trust regardless of where it is registered.
  • Improve public access to beneficial ownership registration, especially to trust information.
  • Extend the scope of legal vehicles subject to beneficial ownership registration (eg limited partnerships, companies listed on a stock exchange, etc.).

Additional resources