How the Panama Papers, EITI and a Global Register Could Change the Policy Impact of Beneficial Ownership Data

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The release of the Panama Papers has raised unprecedented global attention around issues of corruption and tax justice, and a number of the names revealed have connections to the extractive sector. Media coverage exploded, protests erupted, officials resigned. In addition to tax and corporate policy reform, citizens are demanding an end to the secrecy that has enabled high-ranking officials and their families to profit from opacity.

But, practically speaking, how can that change happen? Part of the solution involves beneficial ownership transparency – publishing the names of the actual, living, breathing people who own, benefit from, or control assets. Over the last few months, developments in the Extractive Industries Transparency Initiative (EITI) and also beyond the oil, gas and mining sectors have significantly increased the potential for such disclosures.

 A view of the skyline of Panama City. (Creative Commons image via Flikr/dronepicr)

In February, EITI’s board adopted the 2016 EITI Standard. One of the biggest changes in the new standard is that participating countries are now required to request (and companies are required to disclose) beneficial ownership information by 1 January 2020. By 1 January 2017, country-level stakeholder groups must develop roadmaps outlining how they will pursue such disclosures. Under the new standard, information about beneficial owners’ identities will have to include the name of the “natural person” who is a beneficial owner and his/her nationality, country of residence, and level of ownership; details about how ownership or control is exerted; as well as the identity of any politically exposed persons (PEPs) involved. Companies will have to assure the accuracy of the information they provide, and EITI reporting must name any companies that fail to submit all or part of the beneficial ownership information. The reporting requirements apply to all corporate entities that bid for, operate or invest in extractives assets in EITI countries.

EITI is not alone in this: the World Bank committed in 2015 to examine options for collecting and disclosing beneficial ownership information for entities participating in World Bank-financed procurements. And last week a new law in the UK came into effect that requires all companies to keep a publicly accessible register of their beneficial owners; starting in June the UK government will launch a free public register of companies’ beneficial ownership information.   

This week the Open Contracting Partnership and Open Corporates, two transparency NGOs, announced with a number of civil society organizations (CSOs) the intent to launch a global beneficial ownership register (GBOR). A global register is critical for several stakeholders: it would provide companies considering a joint venture with information about potential partner companies, give CSOs and journalists access to information on who is ultimately benefiting from extractives activities, and provide governments with more comprehensive information for law enforcement. The global register will offer public beneficial ownership details in an open data format on a platform where companies can self-disclose ownership information. For EITI-implementing governments the platform could serve as a location for centralized collection of data.  

Excuses, excuses

So how could these recent developments help tackle the types of scenarios exposed by the Panama Papers? Looking at how the individuals implicated in the leak have explained their actions is a good starting point for understanding the role that beneficial ownership transparency could play. The explanations fall into a few main categories, and there is a policy lesson to be drawn from each.

“What I did wasn’t illegal.”
A big part of what has created so much outrage around the Panama Papers has been the extent to which PEPs have been implicated. Although not always the case, PEP ownership and control of extractives companies (including offshore companies) can be the result of conflicts of interest during government contracting and licensing. It can also create avenues for bribery, money laundering, contract fraud and other types of financial crime. PEPs sometimes use secret ownership to help facilitate tax avoidance that may be perfectly legal, but that they prefer to keep concealed for reputational reasons. As noted in our briefing Owning Up, the disclosure of politically exposed beneficial owners – which is required by EITI – can help detect and deter both corrupt self-dealing and “legal” corruption, such as tax avoidance.

“The existence of the shell company was already publicly disclosed.”
The names of shell companies are sometimes made public in the course of extractives projects, but because the true owners are concealed, nothing looks suspicious. Disclosing beneficial ownership information through platforms like EITI can help connect these dots, because EITI reporting provides extensive contextual information about many aspects of a country’s extractives sector, such as information about how licenses are allocated. These collective EITI disclosures could help reveal when an oil company beneficially owned by a politician or other PEP receives a valuable license. For example, the DRC’s 2014 EITI report revealed that the beneficial owners of a company that had been awarded an exploration license were the family members of Dan Gertler, a PEP with connections to the country’s president.

“The company holds no assets or is not engaged in any transactions.”
Here we begin to see the importance of complementary global frameworks to help advance sector-specific efforts like EITI or real estate-specific efforts in the US, and where the value of a global beneficial ownership register becomes clear. Often the role played by a shell company could be very minimal, with assets just passing through temporarily. It will be hard for sector-specific efforts which center on a project, as in EITI, or an asset, as in real estate, to capture everything. With a global register, you’d still need to be able to “connect the dots,” but the broader scope of disclosure could help capture a more comprehensive range of red flags.

Connecting the dots

Thus, we see several reasons that a global beneficial ownership register could complement the EITI beneficial ownership requirement by serving as a platform to collect and publish EITI beneficial ownership information: 

Beneficial ownership information should be open by default.
Beneficial ownership data should be public and open by default so that it can utilized by CSOs, journalists and companies, not only government itself. It should be considered a part of the public data infrastructure in the same way as company registers, contracts, license information and land registers. At NRGI we are pleased that the new EITI Standard affirms that beneficial ownership data must be public.

A global register could obviate costly technological solutions.
A global beneficial ownership register removes the potentially costly technical challenge of countries having to procure, design, develop and maintain these registers from scratch. It would serve as an affordable solution for the governments of countries seeking to enforce beneficial ownership regulations. Removal of this technical barrier could be a game changer, as multiple countries within EITI will be juggling limited resources. A global register could allow EITI countries to focus on what is important—collecting and analyzing highly accurate, granular data from companies.

Cross-sector and cross-country interoperability should be built to scale.
In many resource-rich countries, corruption in the extractives sector involves multiple country jurisdictions and occurs in conjunction with corruption in other sectors (e.g., telecoms, infrastructure, sports). The Panama leaks have once again confirmed that a culture of corruption often spans countries and sectors. Although it makes sense to prioritize beneficial ownership disclosure in high-risk sectors like the extractives, it is a principle that should be implemented across all sectors. With a global register, EITI countries could implement beneficial ownership for extractives as a first step, and later expand reporting obligations to all companies without needing to build multiple beneficial ownership information systems within the government. A global register could serve as a joint platform, helping reduce the risk of developing data silos with poor quality data of limited coverage.

Countries should embrace the “many eyes” principle.
Even in a world with perfect technical guidance on data collection, EITI countries will still differ in reporting practice and data quality. This is why the centralized repository could play a critical role as it enables more governments, citizens, CSOs, journalists and investors to access, review and use the data. At the end of the day it will be much easier to use the data from a centralized source than from dozens of different websites with slightly different formats and functionalities. More eyes on the data will over time encourage governments to produce data of higher quality as errors are identified and flagged by data users. In contrast, multiple country websites housing beneficial ownership data of various quality will make analysis of data difficult and reduce the immediate opportunities for using the data.

What’s next

NRGI has been providing support to countries on beneficial ownership transparency, and we see several opportunities for continued collaboration.

Assist in EITI roadmap roll-out.
With 51 EITI countries heading towards their first beneficial ownership disclosure deadline—roadmaps need to be published by 1 January 2017—all hands must be on deck to help country stakeholders in their planning around how beneficial ownership disclosure will be done in ways that address the local context. NRGI will continue supporting EITI countries in their planning for beneficial ownership disclosure, ranging from providing technical advice on legal reforms that backstop such disclosures to facilitating the use of open data tools like the global register.

Facilitate a robust feedback loop between platform developers, publishers and users.
Feedback will be critical to ensure a successful global register. As NRGI engages with partners and stakeholders in EITI countries we will help facilitate the critical feedback loop between users, publishers and platform developers as the work progresses.

Use the data.
At NRGI we are eager to dive into public beneficial ownership data and help make it a meaningful tool for CSOs, governments, companies and journalists. Using the project and contract repositories we host—resourceprojects.org and resourcecontracts.org—we will work with EITI countries and the new global register to ensure data interoperability within the extractives data ecosystem in order to maximize the potential for beneficial ownership data to contribute to broader policy analysis and public debate.

Erica Westenberg is a senior governance officer and Anders Pedersen is an open data officer at NRGI.