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Transparency International (TI) says that public registers of beneficial ownership should be the norm. In a new report titled Who is behind the wheel? Fixing the global standards on company ownership the organisation says that uncovering the identities of the real owners of companies is a crucial step in the fight against corruption.
“For instance, if there are suspicions that a bank account belonging to a company is being used to handle the proceeds of crime, authorities should have the power to quickly find out who the person behind that company is”, the report notes.
In 2016 the world discovered just how widespread the concealment of true ownership of assets was, when the Panama Papers broke and revealed more than 140 public officials who were using more than 214 000 offshore entities to hide the ownership of their assets.
It’s just one of several major investigations, TI says, that have shown “how easy it is to set up and manage a legal entity without having to provide information about its beneficial owner – the real, natural person who ultimately owns and controls it and on whose behalf transactions are conducted”.
When various aspects of the fake firm stretch across borders, the matter is further complicated – the company may be registered in one country, with the support of professionals in another, while bank accounts and assets may be held in a third country, with the real owner sitting pretty in yet another country not connected to any of the three others.
The global anti-money laundering standard, to which more than 180 countries – including South Africa – have signed up, is the 40 recommendations of the Financial Action Task Force (FATF). These include measures on tackling the abuse of anonymous companies. The FATF standards do not, however, prescribe how access to beneficial ownership information should be guaranteed.
TI’s study encompassed a detailed qualitative analysis of FATF mutual evaluations of 26 countries, focusing specifically on measures related to company ownership both in law and in practice. The countries under scrutiny are Albania, Australia, Austria, Bahamas, Botswana, Canada, Cayman Islands, Finland, Ghana, Greece, Hong Kong, Isle of Man, Italy, Latvia, Lithuania, Macao, Mauritius, Mexico, Panama, Peru, Seychelles, Singapore, Spain, Trinidad and Tobago, the UK and the US.
They were selected according to two criteria:
- diversity of results, to illustrate the different levels of compliance with Recommendation 24 (non-compliance, partially compliant, largely compliant and compliant) and of effectiveness of Immediate Outcome 5 (low effectiveness, moderate effectiveness, substantial effectiveness);
- the country’s importance as a company formation centre.
The study made the following key findings:
- There are significant weaknesses in terms of beneficial ownership transparency across the global network of FATF countries;
- The great majority of competent authorities do not have timely access to beneficial ownership information, as they rely only on one source – usually reporting entities;
- Countries with beneficial ownership registers perform better;
- The lack of beneficial ownership information hinders cross-border investigations.
This analysis, says TI, leads to the conclusion that it is time for FATF to review its standards and guidance documents, and provide more detailed recommendations on what is necessary to ensure competent authorities have access to reliable and accurate information on beneficial ownership in a timely manner.
The organisation makes the following recommendations:
- FATF should revise its recommendations and guidance documents to require member countries to establish beneficial ownership registers.
- FATF should encourage countries to establish public beneficial ownership registers as a way of improving transparency and accountability, as well as accuracy of the data.
- Register authorities should be mandated and resourced to independently verify the information in the register.
- Reporting entities should be required to report inconsistencies in company data to authorities or to the company register.
- FATF should require a multi-pronged approach to beneficial ownership transparency. In addition to beneficial ownership registers, FATF should require reporting entities and companies themselves to maintain accurate and reliable beneficial ownership information.
- FATF should significantly strengthen its ongoing support, evaluation, monitoring and sanctioning systems for member countries, to provide clearer and more regular incentives for progress.
For more details, download the report.
