It’s no exaggeration to say that anonymous corporate ownership is an international scourge; it enables corruption to flourish and national security of countries across the globe to be compromised. In just one recent example, concealed ownership of a midtown Manhattan office building allowed for funds to be raised and transferred to a bank wholly owned and controlled by the government of Iran. In another, a Russian arms dealer used shell companies incorporated in several U.S. states to illicitly send weapons to combatants throughout Africa, South America, and the Middle East.
Despite negative publicity and growing awareness of the dangers presented by anonymous shell companies, it’s still much too easy for these companies to be formed and used to funnel money through the financial system. There is a solution: for governments to require the collection of beneficial ownership information — information about the individuals who actually own or control a company — and to make that information available in public, searchable beneficial ownership registries.
Advancements in creating beneficial ownership registries have, however, been slow, and implementation has not been consistent across countries and jurisdictions. Yet the last ten years have witnessed substantial progress in beneficial ownership policy and execution. In 2016, the United Kingdom established the first beneficial ownership registry; by 2020, 81 countries had enacted laws around the registration of beneficial ownership information. One of these is the United States, which finally took an important step to combat financial secrecy by passing the Corporate Transparency Act on January 1, 2021.
Of the 81 countries with beneficial ownership laws on their books, 64 had made beneficial ownership registration mandatory by 2020. This requirement is more typical among Organisation for Economic Co-operation and Development (OECD) high-income economies; however, according to the World Bank, only 20% of East Asia and Pacific economies and 21% of sub-Saharan African countries ask companies for information on beneficial owners.
Still, there have been advancements in beneficial ownership information collection by a number of countries in Asia and Africa. Following is a selection:
In 2019, Nigeria became the first African country to publish a publicly-available beneficial ownership registry, although focused on the extractives sector. More recently, both Ghana and Kenya — two of Africa’s largest economies — have finalized plans for beneficial ownership registries that require local companies to declare their owners to national authorities.
Malaysia fleshed out beneficial ownership disclosure requirements in its Companies Act 2016, and the Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons came into effect on March 1, 2020. The transitional period for obtaining, recording, and updating beneficial ownership information was supposed to end on December 31, 2020, but was subsequently extended. Malaysia’s Registrar of Companies stated that it would conduct inspections during the extended period to ensure compliance with reporting requirements by all companies and limited liability partnerships.
In the last few years, both Myanmar and Kyrgyzstan have launched beneficial ownership initiatives focused on the extractives sector. Kyrgyzstan passed legislation in 2018 requiring companies to report their beneficial owners when applying for or holding an extractives license. In 2020, Myanmar’s government worked with Myanmar EITI (Extractive Industries Transparency Initiative) to create a beneficial ownership register for companies in this sector. The register includes a searchable database allowing users to find individuals with ownership shares of 5% or higher.
Beneficial Ownership Reporting in Latin America
Latin America and the Caribbean, as a region, have a higher percentage of economies than sub-Saharan Africa or Asia with beneficial ownership disclosure requirements — 35%, according to the World Bank. But the region continues to see additional progress.
In Nicaragua, the National Directorate of Registries of the Supreme Court of Justice announced that as of April 19. 2021, it would begin implementing the Registry of Beneficial Owners of Commercial Companies. Also effective on that date, the cycle for the declaration and updating of companies’ beneficial ownership information would commence.
Argentina has made notable efforts to expand financial and ownership transparency. A new General Resolution in October 2020 extended existing requirements to cover beneficial ownership information for domestic and foreign law trusts. The full ownership chain must be disclosed whenever the party to the trust is a foreign legal vehicle, and all beneficial owners of those legal vehicles must be identified as legal owners of the trust regardless of threshold. All beneficial ownership information will be held by the country’s tax administration; however, the information is not yet being made public.
The current number of countries indicating their commitment to improving beneficial ownership transparency is encouraging, especially in those regions outside Europe, which had been in the vanguard of beneficial ownership registry establishment prior to 2018. This reflects growing awareness that the benefits of these registries — such as better capability to recover stolen assets, prosecute criminals, contribute to sustainable development, and foster a fairer business environment — outweigh the inconvenience of fending off lobbying efforts by the business community to keep beneficial ownership information from being disclosed.
In the near future, eyes will be on countries like Canada and Japan, the last two G7 countries that haven’t yet implemented central or publicly accessible beneficial ownership registries (although Canada recently announced plans to do so).