Beneficial ownership

By: Kwame Gyasi

On Thursday, February 2, 2017, and Friday, February 3, 2017, the Ghana Integrity Initiative, the Ghana chapter of Transparency International, hosted a workshop on supporting new beneficial ownership transparency champions.

The workshop brought together delegates and consultants from many countries including the United Kingdom, United States, Nigeria, Kenya and Ghana. The workshop was addressed by His Excellency Dr. Alhaji Mahamudu Bawumia, the Vice-President of the Republic of Ghana. Also present was Mrs. Jemima Oware, the acting Registrar-General.

The workshop, which was funded by UKaid was part of a project supporting the realisation of the commitment made by Ghana, Kenya and Nigeria at the UK Anti-Corruption Summit held in May 2016 and hosted by the United Kingdom on establishing public beneficial ownership registers, by building the capacity of key stakeholders from civil society, government, business and law enforcement to collaborate and facilitate plans on how to collect, share and use the information to tackle corruption.

Beneficial ownership is a term used in international commercial legislation referred to anyone who enjoys the benefits of ownership of a security or property, and yet does not nominally own the asset itself. Webster’s defines a beneficial owner as “one who enjoys the benefit of a property of which another is the legal owner.

According to the Financial Action Task Force on Money Laundering (FATF), an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering and terrorist financing, the term beneficial owner refers to the natural person(s) who ultimately owns or controls a legal entity and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.

The terms ‘ultimately owns or controls’ and ‘ultimate effective control’ refer to situations in which ownership/control is exercised through a chain of ownership or by means of control other than direct control. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorism financing (CFT) standard.

Beneficial ownership gained prominence in the light of the Panama Papers. The Panama Papers are 11.5 million leaked documents that detail financial and attorney–client information for more than 214,488 offshore entities. The leaked documents were created by Panamanian law firm and corporate service provider Mossack Fonseca, some date back to the 1970s.

The leaked documents contain personal financial information about wealthy individuals and public officials which had previously been kept private. While offshore business entities are legal, reporters found that some of the Mossack Fonseca shell corporations or so-called phantom companies were used for illegal purposes, including fraud, kleptocracy, tax evasion, and evading international sanctions.

The records were obtained from an anonymous source by the German newspaper Süddeutsche Zeitung (SZ), which shared them with the International Consortium of Investigative Journalists (ICIJ). The ICIJ then shared them with a large network of international partners, including the Guardian and the BBC.

The documents show the myriad ways in which the rich can exploit secretive offshore tax regimes. Twelve national leaders are among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens

Because of the amount of data, SZ asked the ICIJ for help. Journalists from 107 media organisations in 80 countries analysed documents detailing the operations of the law firm. After more than a year of analysis, the first news stories were published on April 3, 2016, along with 150 of the documents themselves.

The project represents an important milestone in the use of data journalism software tools and mobile collaboration. The documents were quickly dubbed the Panama Papers. The Panamanian government strongly objects to the name; so do other entities in Panama and elsewhere. Some media outlets covering the story have used the name “Mossack Fonseca papers”.

Anonymous shell companies and trusts or phantom companies – play a central role in laundering and channeling funds, concealing behind a veil of secrecy the identity of corrupt individuals and irresponsible businesses involved in activities including tax evasion and avoidance, terrorist financing, and the trafficking of drugs and people. This robs governments, in both developed and developing countries, of resources that might otherwise be invested in improving public services and stimulating inclusive economic growth.

The rationale for tackling Phantom Firms is obvious. Evidence from the World Bank demonstrates the role that such elusive entities play in facilitating corruption and money laundering, with more than 70% of corruption cases analysed found to involve anonymous shell companies.

At a country level, by way of example, the Africa Progress Panel found that the Democratic Republic of Congo lost over $1.3bn – the equivalent of almost twice its combined health and education budgets – between 2010 and 2012 as a result of five dodgy deals in the mining sector, with those deals facilitated by Phantom Firms incorporated in the British Virgin Islands, along with other companies based in Bermuda, New Jersey, Gibraltar and the UK.

Preventing the abuse of anonymous shell companies and trusts can play an important role in stemming the huge volumes of illicit financial flows that rob Africa of the resources that are needed if the continent and its people are to make sustainable progress in the fight against poverty.

The Panama Papers, the largest ever leak of documents from a secrecy jurisdiction covering nearly 40 years of record and 210,000 companies in 21 offshore locations, are headline news across the world. When heads of state, presidents, prime ministers, politicians and business people are linked to secretive offshore assets, one can’t help but wonder what happens when they do business with each other. Especially, when their governments are giving out public contracts.

Making sure that contracts are awarded based on prior performance, best value for money, and in the interest of the taxpayers, requires a fair and open selection process. It can be difficult to see who the real winners of public contracts are and where the money goes.

Given that public contracting is government’s biggest corruption risk, it is critical to bring open contracting data and beneficial ownership information together to make sure we can identify who won which public contracts, for how much, and whether those services were actually delivered.

Two things have been identified as crucial for stopping corruption before it starts:

An open contracting process starting at the planning stages. Each contract needs a unique ID so it can be tracked across its lifecycle: from planning, to tender, to award, to contract, to implementation, and completion.

A global beneficial ownership register of companies that the government is making deals with. This registry must include unique IDs for each company, its formation details and information on its beneficial owners. It should also act as the bridge to all public contracts.

Today, a new collaboration is in progress to crack this global shell game drawn from an expert team involving Open Corporates, the B Team, Transparency International, Global Witness, the Web Foundation and the ONE Campaign, working on developing a global register of beneficial ownership transparency, where the true owners of companies can be properly identified, eliminating the ability to use anonymous shell companies to hide illegal or corrupt activities.

An open and global register will accelerate this, combining public beneficial ownership data, and providing a platform for companies to self-disclose ownership information and encourage more companies to adopt this standard of transparency. The workshop was part of the scheme towards the implementation of a global beneficial ownership register of companies.

E-mail: macgyasi@gmail.com