Andres Knobel ■ How authorities, banks and researchers from around the world are verifying beneficial ownership information
We have recently blogged about the first call of the new Advisory Group to promote beneficial ownership verification that we are co-developing together with the Financial Transparency Coalition, Transparency International, Global Witness, Global Financial Integrity, OpenOwnership, The B Team and the World Economic Forum’s Partnering Against Corruption Initiative (PACI).
We have now held three calls with the Advisory Group, the most recent of which mapped various strategies currently being used to verify beneficial ownership information. These strategies ranged from manual approaches to more advanced and technological ones. All three calls have been very promising for a number of reasons.
First, it involves a diverse multi-stakeholder approach. The organisations participating in the calls have included global and local civil society organisations, journalists and researchers, government authorities from developed and developing countries (especially in Europe, Latin America and Africa) and international organisations (some acting in an observer status), including the World Bank, the IMF, the EU Commission, Europol, the UNODC, the Inter-American Development Bank, the Inter-American Center of Tax Administrations (CIAT), EITI, Open-Government Partnership (OGP), and the German Corporation for International Cooperation (GIZ), among others. However, even more interesting may be the wide participation from the private sector, including banks and other financial companies (Citi, HSBC, Bank of Montreal, PayPal), and compliance and data companies such as Kroll, Ofido and Refinitiv.
What’s great about this wide spectrum of participants, is not just that we all got together to discuss beneficial ownership verification, but that there is an agreement about the most common loopholes, challenges and risks in relation to beneficial ownership transparency as described by this summary of our second call. Most, if not all, participants agree on the importance of public access to beneficial ownership information and the need to verify the information.
Another remarkable aspect is the wide interest in this topic. The first exploratory call to get feedback on the concept note and the second call to discuss common loopholes and challenges, each brought together close to 50 people in a virtual call. In our third and most recent virtual group call, held on 15 May, the number of attendees jumped to more than 90 people representing organisations from 24 different countries including Argentina, Armenia, Canada, Colombia, Costa Rica, Denmark, Ecuador, Germany, Italy, Kenya, Latvia, Nigeria, Norway, Panama, Peru, Slovakia, South Africa, Spain, Switzerland, Tanzania, UK, Ukraine, Uruguay and the US.
Having started delivering virtual conferences more regularly in December 2019 before the Covdi-19 pandemic, we used our learning on how to make virtual conference interactive and engaging to encourage contributions on innovative approaches to beneficial ownership verification. The first call was an exploratory meeting and provided everyone with opportunities to give their feedback in a very horizontal way. Everybody, from department heads of policy-setting international organisations to community activists from the global south, was on an equal footing. The second call featured virtual breakout sessions where participants held discussions in small groups and then shared the outcomes and findings of their discussions with the rest of the participants once the small groups reconvened. During our third call, we heard 15 brilliant elevator-pitch presentations (4 minutes each) from participants on what is happening in their corner of the world in terms of verification.
The 15 inspirational presentations were delivered by 4 authorities from Denmark, Spain, the UK and Uruguay, 1 journalist from Argentina, 4 activists and researchers from Ecuador, Italy, Germany and the UK, 2 global banks, 3 global data IT and compliance companies and 1 practitioner from Slovakia.
Here’s a snapshot of what we learned:
Verification in some cases requires intense manual work, involving case by case checks, audits, sanctions and the intervention of notaries or lawyers to ensure someone will be held liable for the truthfulness of the registered data. Uruguay and Spain involve notaries. In the case of Spain, Mariano Garcia Fresno, Head of Analysis and Reporting Unit of the General Council of Notaries, described how notaries do thorough checks on the information before they allow a company to be registered. Ines Cobas, from Uruguay’s National Internal Audit Office (AIN), also audits companies’ beneficial ownership registered data by doing integrity and quality checks which may involve obtaining all underlying documentation from a company. Andrej Leonitev exemplified how Slovakia has a very advanced system to ensure a local Slovak intermediary, a lawyer or other professional, will check and be held liable for the beneficial ownership identification and online publication for any company involved in procurement or other receipt of public fund/assets.
Intense manual work was also required by researchers including Tax Justice Network-Germany. Christoph Trautevetter described how, by researching about beneficial owners of investment funds who own Berlin real estate, he found inconsistencies between the information provided by the beneficial ownership registries of Germany, Luxembourg and Denmark (including between Luxembourg’s commercial register and beneficial ownership register). Andres Arauz from EcuadorPapers.org also found the case of politician’s owning offshore entities in violation of their country’s laws.
What is clear though, is that digitalisation is a basic need to facilitate verification of information, especially automated cross-checks and more sophisticated mechanisms. Ricardo Brohm from La Nacion Data in Argentina described how he has been collecting (and sometimes also scrapping) data from a wide range of public sources to create ownership and network maps that enabled him to discover a full story (about the comprehensive list of people and companies related to a conflict of interest case) from a whistleblower mentioning one company obtaining illicit subsidies. Andres Arauz also scrapped Ecuador’s legal and beneficial ownership data to allow searches to be made. Transcrime and its spin-off Crime&tech are also creating their own tool to investigate illicit companies, including redflags that could indicate that a company has been infiltrated by the mafia.
Nienke Palstra from Global Witness described how digitalised and structured information available in open data format, as offered by the UK’s Companies House, is what enabled them to do the well-known analysis of the UK beneficial ownership information and identify many redflags. Global Witness’ findings have helped campaigning in the UK to improve data accuracy. In relation to this, Stephen Webster from BEIS described the current discussions in the UK to implement improvements and add verification mechanisms to Companies House’ beneficial ownership data.
Digitalised and structured data enables automated cross-checks. In addition to the manual checks described above, Uruguay runs some cross-checks between data from tax authorities and the beneficial ownership register to detect cases of non-compliance and impose sanctions. Spain’s notaries register also includes automated cross-checks to identify inconsistencies on a beneficial owner’s shareholdings. However, Jesper Bertelsen from the Danish Business Authority described that Denmark has taken automated cross-checks and verification to a whole new level, including machine-learning and verification of non-resident beneficial owners (about whom Denmark doesn’t have much data). What’s more, they have been inspired to keep working on improving their system after reading our paper on beneficial ownership verification. Interestingly, the Danish Business Authority proved us wrong. We had hoped these checks would become a reality in about five years or so, but Denmark shows that it’s possible to do these checks now. Countries have no time to lose.
As for adopting the latest technologies, Francesco Cardi from Onfido described how they use machine learning to safely confirm the online identity of individuals. Che Sidanius from Refinitiv discussed how they use data and the latest technologies to untangle the complex network of company ownership for the purposes of identifying sanctioned entities and enable organisations to meet their other global regulatory obligations. Another case of machine learning and big data, but also combining banking data on account holders to detect money laundering was illustrated by Howard Cooper from Kroll.
Finally, Juan Reyes from Citi and Ben Trim from HSBC described the procedures undertaken by their banks to perform customer due diligence to determine beneficial ownership of their clients and some of the potential benefits of registers that were verified.
To sum up, all around the world and among different stakeholders (authorities, journalists, researchers and activists, practitioners, banks and compliance/data companies), diverse but related verification strategies are taking place. There is no perfect mechanism, but a combination of various approaches is likely the best way to ensure data accuracy.
We hope that this first mapping approach has inspired participants to make use of mechanisms that have not tried before, so as to create synergies and learn from each other’s practices and lessons.
In principle, our goal was to have a demand-driven approach, where we would find one or two countries interested in implementing a short-term pilot to verify beneficial ownership information. For this reason, we have been carrying out bilateral calls with four countries already, and are planning to keep reaching out to more countries with the help of Open Government Partnership (OGP) and the Extractive Industry Transparency Initiative (EITI).
However, until a pilot takes place, we are looking at different ways to channel the energy, interest, knowledge and experience already present in our multi-stakeholder community on beneficial ownership verification. We are exploring different approaches to include more stakeholders and to put the collective experience to practice.
Tax Justice Network proposal to FATF’s consultation on beneficial ownership for legal persons
Rethinking Limited Liability: Beneficial Ownership Transparency to Reform the Liability System, working paper
Indonesia launches investigation following ‘Macao Money Machine’ report
Pandora Papers and (South Dakota) trusts: Why do criminals and the rich like them so much?
Pandora Papers: law firms must disclose clients’ names (like they’ve started doing in the US of all places)
Isle of Man banking data leak reveals how sharing data can identify offshore strategies and improve beneficial ownership
Isle of Man banking leak: Analysing banking data to reveal offshore strategies
29 September 2021