Rachel Etter-Phoya ■ Beneficial ownership transparency in Africa: The state of play in 2020
Leak after leak has confirmed what African citizens have long suspected: the elite hide their actions and identities to loot state resources and reduce taxes owed. A new study published today by the Tax Justice Network Africa and Tax Justice Network examines one of the steps African countries are taken to address this issue: beneficial ownership transparency.
Earlier this year, the International Consortium of Investigative Journalists investigated Africa’s wealthiest woman, Isabel dos Santos, who is the daughter of former Angolan President José Eduardo dos Santos, for allegedly moving millions in public assets and revenue out of Angola.
Comprising over 715,000 documents, the Luanda Leaks on the surface sounds like just another story of corruption in Africa. However, the leaked documents suggest that dos Santos and her husband were only able to move the ill-gotten gains thanks to a web of at least 94 secrecy jurisdictions across the world through an “archipelago of shell companies”.
Indeed, as Claudia Gastrow writes
“‘African corruption’ is only African as regards its victims, its perpetrators are institutions and individuals from across the globe who are willing to loot without conscience as they watch their offshore accounts grow.”Claudia Gastrow, Laundering Isabel Dos Santos, Africa is a Country
Financing Africa’s development is deeply undermined by global financial secrecy. Illicit financial flows exiting the continent dwarf overseas development assistance entering the continent, and erode the sovereignty of nations in raising revenues domestically for public expenditure and investment.
In 2015, in 30 African countries, capital flight averaged about two-thirds of gross domestic product and vastly exceeded external debt. While illicit assets abroad are private, debt is a collective liability of current and future generations of Africans.
Tackling illicit financial flows with beneficial ownership transparency
African countries are taking action to domestically address financial secrecy, including requiring the beneficial owners of companies, partnerships, foundations and trusts to register. Identifying, registering and disclosing the real people (beneficial owners) who ultimately own or control legal vehicles is a key policy for promoting and protecting domestic revenue mobilisation that may otherwise be eroded by illicit cross-border financial transactions including money laundering, tax evasion and avoidance, corruption and terrorist financing.
Beneficial ownership registration was placed squarely on the African agenda to address illicit financial flows in 2015, with the launch of the African Union and United Nations Economic Commission for Africa’s report of the High Level Panel on Illicit Financial Flows from Africa. The High Level Panel was emphatic that the year-on-year haemorrhaging of government revenues was a fundamental obstacle to achieving sustained human development, the fulfilment of basic human rights and the ending of poverty.
Beneficial ownership disclosure can allow better oversight by the public and their representatives, especially when entities are involved in extracting mineral resources that are vested in the state on behalf of the people or are bidding for public contracts. For example, beneficial ownership information is vital for monitoring compliance where countries have mineral and local content laws in place that require a certain proportion of mineral rights be held by indigenous groups, or nationally-owned or majority women-owned companies be prioritised in a mining company’s procurement of goods and services.
The state of play of beneficial ownership in Africa today
A new study published today by the Tax Justice Network Africa and Tax Justice Network examines the progress being made towards beneficial ownership transparency in 17 African countries. This draws on the data from the Financial Secrecy Index 2020 and complements a global study of beneficial ownership registration.
The study finds that seven jurisdictions have introduced legislation requiring the registration of beneficial ownership information. These are Botswana, Egypt, Ghana, Kenya, Mauritius, the Seychelles and Tunisia.
Botswana joins just three other countries worldwide (Argentina, Ecuador and Saudi Arabia) that have transparent measures for companies that can be interpreted as requiring all beneficial owners with just one share to register.
Across the world, 81 of the 133 countries assessed in the Financial Secrecy Index have laws and regulations for beneficial ownership registration. Of these countries, 68 countries have partial or complete registration of beneficial owners, and in some cases, this is not only for companies, but also for partnerships, foundations and trusts.
Effectiveness of laws is, however, limited in countries that continue to allow bearer shares and where updating information is not mandatory. No African country makes beneficial ownership information available online, for free, for all sectors, and for all legal vehicles.
The chart below shows the state of play for beneficial ownership registration of companies in Africa. For beneficial ownership registration to be effective, bearer shares must be cancelled, be made unavailable or be immobilised. All domestic companies must be required to register all of their beneficial owners in all cases, except for common exemptions for state-owned companies and listed companies. The effectiveness of beneficial ownership registration is also dependent on the information being updated along with the threshold set for registration; it should not be higher than the “more than 25% ownership” threshold. For the greatest transparency, all information should be available online, ideally for free and in open data format.
In 6 of the 17 assessed African countries, bearer shares have not been immobilised as shown in the first column of the chart below (Angola, Kenya, Liberia, Morocco, South Africa, Tanzania). The second column shows that of the 10 countries where bearer shares do not pose a risk, only Ghana, Botswana, Seychelles and Tunisia require the registration of all beneficial owners of all types of companies with a government authority, like the Registrar of Companies. The next column goes on to show that in only three jurisdictions – Ghana, Botswana and the Seychelles – does this information have to be updated. In none of the assessed countries does this information have to be online.
This year progress is expected for ending anonymous companies extracting solid minerals, oil and gas in Africa. Countries participating in the voluntary Extractive Industries Transparency Initiative are required to introduce public registries for beneficial owners of mining, oil and gas companies. Yet beneficial ownership transparency is required for all sectors.
The study makes practical recommendations on how countries can implement beneficial ownership registration and improve the effectiveness of disclosure. In summary:
- Beneficial ownership provisions should apply to all legal vehicles in all sectors, including companies, partnerships, foundations and trusts.
- All bearer shares should be prohibited or at least immobilised by a government authority.
- The definition of beneficial owner should not have a minimum threshold, ie, registration should apply to every shareholder holding at least one share.
- Legal and beneficial ownership information provided should be comprehensive, accurate and up to date and for the full ownership chain.
- Registered beneficial ownership information should be verified and non-compliance should be met with sanctions.
- Registries housing legal and beneficial ownership information should be made publicly available.
Such domestic action is critical for African countries. Yet the main providers of financial secrecy lie outside the continent. Thus furthering the global movement towards greater public beneficial ownership disclosure is required. Making information public across all jurisdictions will provide African governmental regulatory authorities and watchdogs, financial institutions, investors, journalists and civil society groups with access to information for investigations, asset recovery, public contracting, entering mining contracts, improving tax compliance, and more.
The continent must continue to stand united in requiring those most complicit, especially former colonial powers, to make this information publicly available.
30 uses for beneficial ownership (beyond anti-money laundering)
Uses and purposes of beneficial ownership data
14 November 2023