Andres Knobel ■ Beneficial ownership registration in 2022: developing countries lead the way
The Tax Justice Network published today the 2022 update of its beneficial ownership registration report (previous editions are from 2020 and 2018). Based on the findings of the Financial Secrecy Index assessments of 2022 that covered 141 jurisdictions, the report shows that the world is galloping towards beneficial ownership transparency. Information on the “beneficial owners” (the natural persons who ultimately own, control or benefit from companies, trusts and other types of legal vehicles) must be “registered” (filed with a government authority) in close to 100 jurisdictions as shown by the next map.
Although the Financial Secrecy Index usually shows a dire picture of the state of play of global secrecy (truth be told, there is still a lot to improve and many loopholes to close), this report uses the same information but to look at the bright side of things. The half-full glass perspective shows that there is plenty to celebrate. Beneficial ownership transparency used to be one of the “boring” indicators of the Financial Secrecy Index back in 2015 because no country had made any progress. By 2022 beneficial ownership transparency has become so mainstream that it’s even featured in a comic by Infolaft’s Mario Hernando Orozco in which Santa Claus refuses to give a present to a kid until the kid declares who will be the beneficial owner of the present.
Even when considering just the 112 jurisdictions that were covered by the Financial Secrecy Index in 2018 (so, not considering the new 40 jurisdictions covered by 2022), the situation has completely reversed. As the next figure illustrates, by 2018 only 34 jurisdictions (in blue) had beneficial ownership registration laws compared to 78 countries (in red) that didn’t. By 2022 the situation is flipped: 79 had beneficial ownership registration laws and 33 didn’t.
The report showcases the global diversity in beneficial ownership frameworks, such as which authorities in charge of registration (eg the tax administration, the commercial register or a special beneficial ownership register among many other options) and what situations trigger registration (eg incorporation, being subject to tax, having a real estate, etc). Yet, there is one area that prompts particular celebration: the beneficial ownership definition.
As the next figure shows, many countries, especially developing ones, are moving away from the arbitrary and easily circumvented high threshold of “more than 25% of ownership” towards lower thresholds (including no threshold at all, represented by the “0” in the X axis). Some countries’ beneficial ownership definitions also add the element of “right to benefits” (eg dividends) as well as the power to appoint directors (in the figure below, 0 threshold= any director; 50= the majority of the board).
Facts to counter myths
a) Widespread of registration
Another goal of the report is to prove myths wrong. Although many of us celebrated back in March 2022 when the Financial Action Task Force (FATF) in charge of anti-money laundering recommendations finally reformed Recommendation 24 (on beneficial ownership transparency for legal persons) to require beneficial ownership registration, one could hardly consider this a radical move. As our report shows, by 2022 close to 100 jurisdictions had laws requiring beneficial ownership registration. The reform of Recommendation 24 didn’t go far enough either, and even left the door wide open for countries not to set up beneficial ownership registries but rather “alternative mechanisms”.
In the case of trusts, the reform of Recommendation 25 (on beneficial ownership transparency for trusts and other legal arrangements) is currently being discussed. It appears it will be less ambitious (if that’s even possible) because it won’t require registration, despite the fact that more than 120 jurisdictions already require some trusts to register (including 65 with beneficial ownership registration). This proves that most countries already have the legal infrastructure for trusts to register.
b) Public access
The report breaks another myth. Although public access is not required by either the Financial Action Task Force (FATF) or by the OECD’s Global Forum, many countries have set up public beneficial ownership registries, including for trusts, especially in the EU (as shown in blue in the next figure). After the cut-off date for the data collection for this report and the charts below, in November 2022 an EU Court of Justice ruling invalidated public access to beneficial ownership information for local legal persons in the EU in relation to the fight against money laundering. Although the ruling was a serious blow to growing momentum on public access, there are some silver linings. First, not all EU countries decided to close public access to their beneficial ownership registries, explaining that public access served uses beyond anti-money laundering. Second, the ruling explicitly recognised that the media and civil society organisations related to the fight against money laundering have a legitimate interest to access beneficial ownership information. However, many countries (the big sea of “red” countries in the figure below) still oppose public access in the case of beneficial ownership.
The best argument, or rather fact, against this opposition to public access is illustrated by the next figure. Many of the countries that fiercely oppose public access to beneficial ownership in the general framework, already give (or committed to giving) public access to beneficial ownership information for at least some types of companies, such as those involved in procurement or extractives:
For instance, the US opposed providing public access to beneficial ownership information for most companies under the Corporate Transparency Act of 2021, but it does require public access in case of some procurement companies. What’s more, it is widely known that the US hardly registers even legal ownership information. However, some US states show that another way is also possible. In Alaska, Connecticut and Kansas, it is possible to find online free public information on natural person shareholders owning more than 5 per cent of LLCs as the next figure illustrates.
By 2022 the world is, at least when looking at the letter of most countries’ laws, a much more transparent place. This transparency movement should ensure that no one is left behind, especially major financial centres and countries that are still in red (eg Switzerland, Canada, China, Russia, Australia or New Zealand). At the same time, the Tax Justice Network will keep analysing via the Financial Secrecy Index the effectiveness of these laws. At the end of the day, approving a law to establish a beneficial ownership register is a very important first step. However, it is also important to ensure loopholes won’t be left for criminals and others to exploit. Effective enforcement is a challenge even for perfect laws. For imperfect ones, even more so.
Criminosos na Amazônia lavam dinheiro nos EUA: the Tax Justice Network Portuguese podcast #55
The Tax Justice Network’s response to the open consultation on FATF Guidance on Recommendation 25 on beneficial ownership transparency for legal arrangements
30 uses for beneficial ownership (beyond anti-money laundering)
Uses and purposes of beneficial ownership data
14 November 2023