Monday, 25 March 2019

Beneficial Ownership Asia and Pacific Regional Workshop – Day 2

EITI and Asian Development Bank and are hosting a 2-day workshop in Manila on beneficial ownership (BOT), with 12 EITI countries from the region represented.

This blog pieces attempts to capture some of the key messages of the second day of the workshop.

Clearly the main focus is on countries in the region implementing the BO requirements of the 2016 EITI Standard. However, it also extended to the broader BO context as well as experiences from beyond the Asian EITI.

The event comprised of a series of panels. Some of the messages from panellists were as follows:

The first session focused on the definitions of politically exposed persons (PEPs)

Emanuel Yosep Bria, NRGI Indonesia
Once you are appointed a Minister you stop being in a position of authority in businesses, but it is unclear as to what happens to shareholdings.

Aye Myat Mon, Anti-Corruption Commission, Myanmar
Mon set out the existing definition of PEPs in Myanmar, which is Deputy Minister and above. But the EITI definition goes much further to look at all politicians, and is therefore challenging.

Arpine Sargsyan, Ministry of Justice, Armenia
Fighting against corruption is a significant challenge in Armenia, and there are many anti-corruption measures already in law.
Armenia has a draft law on BO, including a definition of PEP covering all positions which could be envisages as a PEP, being all those who have to submit to the register of interests, being senior politicians and their advisors and family members.

Batbayar Ochirbat, Transparency International, Mongolia
The definition of PEP covers all public servants at all levels, as well as those working for state owned enterprises, together with those with whom they share a common interest.

Jose Aquino, SEC Philippines(from the floor) made a comment was made from the floor relating to Philippines. Anyone taking up high office is required to divest assets at that point. However, there is little governance over whether there is some interest retained, and whether that investment is returned to the individual after they leave office.

Oliana Valigura, EITI but representing Ukraine
Ukraine has a very robust beneficial ownership disclosure regime, but this does not place a requirement on PEPs to divest investments. Politicians are not afraid to disclose that they have interests in private businesses.
The PEP regime applies to the President, Prime Minister, judges and certain other senior politicians, but not all MPs.
Oliana then demonstrated the Ukraine PEP register, showing the depth of data made public.

Cari Votava, World Bank (from the floor)
A key challenge is to understand whether an overseas BO is a PEP. It would be very helpful if jurisdictions were to publish a list of positions that qualify as PEPs, to assist other jurisdictions.

The second session was on verification.

Cari Votava, World Bank
There is no standard for good quality verification. Important to recognise the red flags in the sector and the subsector.
One aspect is capturing data about the submission of data, such as exactly who submitted BO data, when it was supplied.
The verification process should be based on a risk assessment, using a traditional heat map plot of risk against impact. This will allow the efforts on verification to be targeted on areas of highest potential overall exposure. 
Licencing – The sanction is simple, being to not issue the licence
Licenced – There need to be regulatory sanctions for non-compliance.

Steve Webster, BEIS, UK
To describe verification as a grey area is being too generous.
There are three elements:
  • Data verification (sometimes called validation) – Ensuring that data is legitimate
  •  ID verification – Ensure the person, company or agent are who they say they are. This might involve copies of ID documents/passport/driving licence.
  •  Truth verification – Verifying that the statement is true.

There is no guarantee of truth, but these measures can provide an indication that someone is lying.
International best practice suggests some verification should be undertaken by:
  • The State and Regulated Entities
  • Others, including law enforcement, businesses and investors.

Sanction need to be appropriate to the offence and what the person stands to gain.

David Binks, ADB
Part of the ADB process for private sector engagement involves a multi-step process, including validation against publicly available resources and databases.
ADB looks at a 5% threshold for private companies and 10% for publicly listed companies.
The sanctions here are generally the contractual rights with the business. There are also sanctions of debarment in certain cases of misrepresentation.

Eldiyar Mukanov, Government of Kyrgyz Republic
There is a sanctions regime associated with non-reporting, which allows for a single failure to report, but if there is a failure after a second request, this can result in the revocation of licences.
There is also a regime requiring the divesting of investments by those taking political positions.
On the introduction of PEPs into the legislation there is consideration at the moment as to whether this should focus on listing interests, or divestment.
There is also a regime for dealing with false submission discovered at a later date. In this case there is no statute of limitations.
The same applies at the renewal stage, where if information is not supplied, renewal of licences can be denied.
Out of 2,500 licences, in the last 10 years Eldiyar has not seem any revoked licenses, and overall there have been a very small number. However there have been a small number of cases on the renewal of licences where companies have not provided information.

There were also parallel panel sessions.  The first considered the role of investigative journalists and the second considered stakeholder engagement.

The panel on investigative journalists was a combination of journalists from the Philippines and Myanmar and civil society representatives from the same countries.  It was chaired by Gulnara Toreliyeva, a journalist from the Kyrgyz Republic.

The themes that emerged from the discussion were:
  • The need to make beneficial ownership relevant to ordinary people.  It is a difficult concept for many to understand and to many communities is an unfamiliar concept
  • Journalists have an important role to play in using beneficial ownership information and making it accessible to communities.  Strategies for this include linking it to other issues such as health and environment that people care about.  One intervention from the floor suggested that scandal was needed to demonstrate the relevance.
  • Challenges included data availability, data access and timeliness.  Data often needed collection from several sources and cross referencing, government agencies and companies may be reluctant to provide information and even where available, the cost of accessing it may be prohibitive to communities and organisations with limited budgets.  The Philippines example was cited where there is charge for accessing company data on the SEC website.

The second panel on stakeholder engagement was moderated by Eddie Rich and consisted of a CSO representative, a government representative and a consultant for OGP.

The discussion focussed on using beneficial ownership in real life situations.  Examples given included checking whether PEPs in the Philippines owned stakes in extractive companies (which is illegal) and for investigating transfer pricing.  The limited availability of publicly available beneficial ownership in many countries remains a limiting factor.  For example, in Indonesia which has legislated for the collection of such data but has to yet to make it public.       

Eddie Rich, EITI
Eddie gave a history of EITI BO, including highlighting the progress made since the global BO conference in Jakarta in 2017. There has been significant progress over those three years. 

Maria Teresa S Habitan – Government of Philippines
The current status of EITI implementation, and in particular on BO was set out. This included a description of the online reporting tool for EITI data, and the move to paperless information collection. 

Everyone was encouraged to push towards the EITI 2020 deadline on BO.

Wednesday, 20 March 2019

Beneficial Ownership Asia and Pacific Regional Workshop – Day 1

EITI and Asian Development Bank and are hosting a 2-day workshop in Manila on beneficial ownership (BOT), with 12 EITI countries from the region represented.

This blog pieces attempts to capture some of the key messages of the first day of the workshop.

Clearly the main focus is on countries in the region implementing the BO requirements of the 2016 EITI Standard. However, it also extended to the broader BO context as well as experiences from beyond the Asian EITI.

The event comprised of a series of panels. Some of the messages from panellists were as follows:

Ivygail Ong, OGP
OGP has seen progress on BOT across developing and developed countries and across regions. 20 countries have made 30 commitments. They are seeing progress, not just in the extractives sector. Some countries have started with extractives (such as Indonesia) but other have taken an economy wide approach.
The UK and Slovakia experiences have shown that public registers, using open data formats improve accessibility. The more people who use data, the more issues are identified with that data. 
This is a transnational problem. BOT is a global collective effort, so needs collective action. OGP also sees a need for more leadership to bring more countries into the fold. OGP is part of the work being done by UK Government to bring together leading countries in this field.
BO is not the silver bullet, and is a complex area. Nowhere has quite cracked the nut yet. So we need to work together to understand what gaps need to be plugged. It is vital to work together.
There is no such thing as perfect data, but the sooner there is visibility, the sooner we can see what info is not there, allowing us to push forward. 

Jose Aquino, Philippines SEC
Jose set out progress in the Philippines, where new regulations now require disclosure of beneficial ownership of companies. The regulations will be fully implemented in June 2019. But this has not gone without complaints, including from businesses who will be required to file.
The filing takes place through the General Information Sheet (GIS), which is filed annually by all companies with the SEC. There are also new corporate codes requiring companies to retain information on BO.
Philippines is currently running education programmes to inform the public on the need and use of BO. This is generating useful feedback which can be incorporated into clarifying provisions.

Diani Sadia Wati, Indonesia
Indonesia is progressing on BO via G20, EITI and OGP commitments.  These efforts have resulted in progress on legislation, in particular on tackling corruption and money laundering. Indonesia had separate action plans for each initiative, but has now brought all actions plans together into a single action plan, which has just been presented to the President.
Work on BO involved 19 ministries. Ministry of Mines has developed database for BO, and any companies not disclosing this information cannot progress with licence applications.
Expect to be ready to meet 2020 EITI target, but still face challenges.
  • Integrating BO data, as the Ministry of Law & Human Rights will hold the overall register 
  • Verification

Enkhbayar Nemekhbayar, Mongolia
Mongolia is mid-way in implementing BO, and has identified 7 objectives [these were not then listed].
In 2017 134 out of 184 companies provided BO information> Compared to 2014 this was a significant increase.
Mining plays big role in economy. 70% of FDI and 90% export revenues.
There is a process of continual reform:
  • Fiscal
  • Accountability, responsibility and transparency
  •  Improving the business environment

Process started more than 10 years ago.
The small population of Mongolia mean everyone knows everyone else.
BO is just one tool for increasing the value of the economy.
As well as focus on the obligations facing companies, we should focus more on the economic benefits of BO. More transparency leads to more investment. It helps to gain social licence to operate.

Ekmet Baipakpayev, Kyrgyz Republic
Kyrgyz Republic has adopted a definition of BO very much aligned to EITI Standard, taking advice from international experts.
Publication of BO data has become obligatory, and if false info provided, mining licence can be terminated. There has been work to improve ease of reporting and enforcement through amendments to legislation.
Kyrgyz Republic is keen to drive an attractive and appealing investment environment, but built upon transparency and a commitment to beneficial ownership disclosure requirements. This will help in building trust with local communities.
Kyrgyz Republic is also working towards including rules for revealing politically exposed persons (PEPs). There are PEPs intent on hiding their involvement and wealth.

Eranki Venkata Bhaskar, OECD
Eranki set out the OECD Global Forum position on BO, with the requirement for companies and trusts to know their beneficial owners, and to make that information available to competent authorities, being tax authorities.
This can extend to companies, partnerships, foreign companies and trusts.
The EU 4thAnti-Money Laundering Directive (AMLD4) requires delivery of BO information to a central registry. Eranki presented an anonymised example of legislation put forward to implement the EU BO requirement, which the Global Forum have found to be reasonable.
Data can be improved through good stakeholder awareness and guidance, combined with checks by supervisory authority, and a penalty regime for failures.

Renata Fontana, ADB
There are lots of challenges for companies around definitions.
Renata argued that best practice is to stick to the FATF definition. It is important to talk about “natural persons”, and state that clearly. There should also be a clear three level approach:
  • BO via ownership
  • BO via control
  • Catch-all BO being senior management of the company (if neither of the others apply)

There is no prescribed standard threshold, but 25% is the most common. For FATF, 25% is the maximum. But it is a common mistake to apply the same threshold to trusts, whereas the FATF requirement is that there is a zero threshold for trusts.

 Steve Webster, BEIS
Steve set out 6 key questions:
  • Who provides the information?
  • What information is collected? How is the company going to get this information?
  • What are the sanctions? Purpose of sanctions is to give teeth to the regime. But it is important that the information collected provides law enforcement with the information to trace an owner if necessary.
  •  Who owns the information? Information about individuals is being collected and then made public. There are data protection or privacy regulations which need to be considered before getting to BO legislation.
  • Privacy and protections
  • Who can access data?

Best practice should allow different parts of government to share information, to identify anomalies.
UK was an early adopter of a public register. Since publishing all info online, access to info has grown exponentially. Currently running at 2.2 billion times a year. This of itself given more confidence in the data, as it increases error correction, but also the amount it is used in evidence of the value. Anecdotally, overseas law enforcement say the UK register is the first place they go when looking at a UK company.
Open source data allows CSOs to download and integrate data, which again provides BEIS with info they wouldn’t otherwise find. Examples identified by Global Witness of circular ownership. Companies House and Global Witness now partnering on an algorithm to identify circular ownership.
Really key to have robust IT. Systems need to receive information, but also be accessible and searchable. It needs to make links between different interests of a particular individual.
You might build a perfect system, but if it doesn’t talk to other people, it can’t get better.
For example, link between BO register and that which controls issuing of passports.
No information about a BO should be put on UK register without that BO knowing. Expectation is that company informs BO of the information intended to be submitted.
All offences under the register are criminal offences.
Still learning.

Altynai Sydykova, Kyrgyz Republic
Important for information to be useful:
  • For CSOs, so comply with EITI standard and provide as much information as possible
  • For business 
  • For law enforcement, to enable tackling money laundering and corruption.

Important to ensure retention of data. So a change in BO doesn’t overwrite the historic BO data.
OO BO Data Standard established the data which should collected and format, including unique data identifiers, facilitating inner-operability.

The final session of the day was a case study of the work on beneficial ownership in Azerbaijan supported by ADB. More details of this project can be found in a subsequent blog piece.