GOVERNANCE GOVERNANCE EQUITABLE GROWTH, FINANCE & INSTITUTIONS INSIGHT Beneficial Ownership Registers: Implementation Insights and Emerging Frontiers March 2024 © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes, as long as full attribution to this work is given. Attribution: Please cite this brief as follows: World Bank. 2023. “Beneficial Ownership Registers: Implementation Insights and Emerging Frontiers.” Equitable Growth, Finance & Institutions Insight. Washington, DC: World Bank. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202- 522-2625; e-mail: pubrights@worldbank.org. All dollar amounts are US dollars unless otherwise indicated. Cover photo: stock.adobe.com >>> Acknowledgements This was prepared by Till Hartmann (Governance Specialist, ESAG1) with guidance from Khuram Farooq (Senior Financial Management Spe- cialist, ESAG1) and with inputs from Ivan Kantardjiski (Advisor, GIZ) and Patrick Enaholo (Researcher, Pan-African University, Nigeria). The note benefited from the comments given by Jackie Peace (Senior Advi- sor, FCDO), Louise Russell-Prywata (Director of Policy and Advocacy, Open Ownership), Solvej Krause (Economist, EFNFS), Emile J. M. Van Der Does De Willebois (Lead Financial Sector Specialist, EFNFS), Stan- ley Achonu (Advisor, OGP), Tymon Kiepe (Head of Policy and Research, Open Ownership), Stephen Abbott Pugh (Head of Technology, Open Ownership), Jana Warkotsch (Advisor, GIZ), Sophie Frossard (Advisor, GIZ), Elyas Hashemi (Advisor, FCDO), Martin Fidler Jones (Senior Policy Advisor, Companies House), James Anderson (Lead Governance Spe- cialist, EEAG1), Zahid Hasnain (Lead Governance Specialist, EGVPA), Stephen Davenport (Senior Public Sector Specialist, EMNGU), Adrienne Hathaway-Nuton (Governance Specialist, EGVDR), Samuel Garoni (Gov- ernance Specialist, EGVPA), and Katherine Elizabeth Wolff Siess (Pro- gram Assistant, EGVPA). Cyrel San Gabriel (Consultant, EFIOS) provid- ed editorial services, and Sandrine Ribeiro Pinto (Consultant, EFIOS) was the designer for this note. Overall guidance for the note was provided by Arturo Herrera Gutierrez (Global Director, EGVDR) and Roby Senderow- itsch (Practice Manager, EGVPA). The note was made possible by the GovTech Global Partnership (GTGP) Multi-Donor Trust Fund. >>> Executive Summary This EFI Insight distills critical insights from the implementation of Beneficial Ownership Regis- ters (BORs) in Nigeria, North Macedonia, Kenya, and the United Kingdom. The experiences of these countries offer valuable lessons for similar reform efforts worldwide aimed at enhancing beneficial ownership transparency. The note caters to practitioners invested in establishing and maintaining effective BORs. By ex- tracting practical lessons and fostering an exchange of experiences, it aims to support reformers in navigating the dynamic landscape of beneficial ownership transparency reforms. The review of implementation experiences focused on three key areas: the legal and institutional framework, technical solutions, and the costing of reforms. Several key insights emerged: The enabling environment is a cornerstone for effective BOR implementation. This involves high-level political commitment, civil society advocacy, and pressure to align with global anti- money laundering (AML) and counter-terrorist financing (CFT) standards. Furthermore, multi- stakeholder collaboration and international partnerships have proven instrumental, notably in Nigeria, North Macedonia, and Kenya, where new BORs have been set up recently. Interoperability, demonstrated by the seamless integration of beneficial ownership data into existing systems, not only meets global standards but also represents an important measure against corruption. Standardized data formats, such as the Beneficial Ownership Data Standard (BODS), play a pivotal role in ensuring consistency and facilitating data exchange across differ- ent registers. To prevent inaccuracies and maintain up-to-date information in BORs, robust compliance en- forcement is necessary. This includes the application of sanctions and heightening awareness among reporting entities. While assessing the impact of BOR reforms remains a challenge, there is a clear need for im- proved outcome measurements. These assessments should focus on the effects of BORs in combatting corruption, reducing illicit financial activities, and bolstering tax compliance. Finally, embedding financial sustainability considerations into the design and implementation of BORs is vital for their long-term effectiveness. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 4 >>> Contents Introduction 10 Overview of Implementation Insights 13 Implementation Insights from Nigeria 14 Implementation Insights from North Macedonia 20 Implementation Insights from Kenya 26 Implementation Insights from the United Kingdom 32 Implementation Challenges and Emerging Responses 37 Data Standards 37 Data Accuracy 38 Compliance 39 Outcome Measurement 40 Reform Sustainability 41 Outlook and Future Topics 42 BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 5 >>> Abbreviations 4MLD Fourth EU Money Laundering Directive 5MLD Fifth EU Money Laundering Directive AML Anti-Money Laundering API Application Programming Interface UK Department for Business, Energy and BEIS Industrial Strategy BER Business Entity Register BO Beneficial Ownership BODS Beneficial Ownership Data Standard BOR Beneficial Ownership Register BOT Beneficial Ownership Transparency BPP Bureau of Public Procurement BRS Business Registration Service CAC Corporate Affairs Commission CBN Central Bank of Nigeria CFT Combating the Financing of Terrorism CRM Central Registry of North Macedonia CSO Civil Society Organization Designated Non-Financial Businesses and DFNBP Professions EFI Equitable Growth, Finance and Institutions EITI Extractive Industries Transparency Initiative BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 6 >>> Abbreviations EU European Union FATF Financial Action Task Force FCDO Foreign, Commonwealth & Development Office FIO Financial Intelligence Office FIRS Federal Inland Revenue Service FRC Financial Reporting Centre Deutsche Gesellschaft für Internationale GIZ Zusammenarbeit GLEIF Global Legal Identity Identifier Foundation KYC/CDD Know Your Costumer/Customer Due Diligence LEI Legal Identity Identifiers NFIU Nigerian Financial Intelligence Unit NIN National Identity Number NPR National Population Register OGP Open Government Partnership PPRA Public Procurement Regulatory Authority Persons with Significant Control (Nigeria) / PSC People with Significant Control (UK) UBO Ultimate Beneficial Owner UNCAC United Nations Convention Against Corruption BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 7 >>> Tables Table 1: Key Budget Items of Nigeria’s Persons with 18 Significant Control (PSC) Register Table 2: Key Budget Components of GIZ Support for 24 North Macedonia Beneficial Ownership Register >>> Figures Figure 1: Country Commitments to Establish Beneficial 11 Ownership Registers vs. Implementation Figure 2: Key Milestones of Nigeria’s Beneficial Ownership 15 Regime Figure 3: Nigeria Beneficial Ownership Register Workflow 17 Figure 4: Key Milestones of North Macedonia’s Beneficial 21 Ownership Regime Figure 5: North Macedonia Beneficial Ownership 23 Transparency System Figure 6: Key Milestones of Kenya’s Beneficial Ownership 28 Regime Figure 7: Overview of Kenya Registrar of Companies 30 Figure 8: Key Milestones of the UK’s Beneficial Ownership 33 Regime Figure 9: Visualization of Dataset Combining Beneficial 38 Ownership Data with Data on Politically Exposed Persons Figure 10: UK’s Proposed Identity Verification Mechanism 40 for Beneficial Owners BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 8 >>> Boxes Box 1: What is Beneficial Ownership Transparency 11 (BOT)? Box 2: Beneficial Ownership Data Standard (BODS) 16 Box 3: What Are Bearer Shares? 27 Box 4: UK’s Register of Overseas Entities 35 BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 9 1. >>> Introduction Beneficial Ownership Transparency (BOT) is recognized as a powerful tool to enhance transpar- ency and strengthen accountability for illicit financial flows (IFFs) involving corruption, money laundering, and tax evasion. As part of its renewed commitment to anticorruption as a develop- ment priority, the World Bank is currently augmenting its support for BOT reforms.1 BOT is an emerging area of engagement for the World Bank that also relates to GovTech.2 It involves creating electronic beneficial ownership registers, as well as improving IT systems, data management, and interoperability. Furthermore, BOT reforms align with the World Bank’s GovTech objectives of promoting transparency, accountability, and trust. While opportunities for corruption can be effectively reduced by enhancing efficiencies through digital public service delivery and strengthening controls through core GovTech systems such as e-procurement systems, integrated financial information systems, payroll, domestic revenue mobilization, and asset declaration systems, grand corruption often remains hidden by complex corporate structures that obfuscate beneficial ownership. Through the implementation of BOT reforms, countries can improve transparency and advance governments’ anticorruption efforts as well as improve their ability to detect money laundering and tax evasion more effectively. BOT measures are also an effective means to deter illicit activities associated with shell com- panies which are frequently used to conceal true owners and financial transactions. An analysis conducted by the World Bank examined 213 cases of grand corruption and found that in 70 percent of them, companies—many of which were shell companies—were used to launder the proceeds of corruption.3 Leaked documents, including the Pandora Papers4 and the Panama Papers,5 suggest that trillions of dollars are illicitly funneled through shell companies each year. Enhanced BOT contributes to deterring illicit activities associated with shell companies and fa- cilitates more effective investigation and prosecution of financial crimes. 1. Anderson, James et al. 2020. Anticorruption Initiatives: Reaffirming Commitment to a Development Priority. 2. The World Bank promotes GovTech as a whole-of-government approach to digitalization that promotes simple, transparent, and efficient government. GovTech supports digital transformation to deliver simple, transparent, and universally accessible services; promote civic participation, accountability, and trust; and modernize core gov- ernment operations. For more information, visit World Bank GovTech website. 3. Stolen Asset Recovery Initiative. 2011. The Puppet Masters. 4. International Consortium of Investigative Journalists. 2021. Pandora Papers. 5. International Consortium of Investigative Journalists. 2016. Panama Papers. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 10 BOX 1: What is Beneficial Ownership Transparency (BOT)? BOT refers to the practice of disclosing and making publicly available information about individuals or entities that ultimately own or control a company or asset. Beneficial owners are individuals who enjoy the benefits of ownership, such as receiving profits or exercising control, even if their names may not appear in official ownership documents. BOT aims to uncover the true identities of beneficial owners to prevent illicit activities such as corruption, money laundering, tax evasion, and terrorist financing. Owing to these benefits, governments around the globe have gimes. BORs serve as centralized repositories of beneficial pledged to foster BOT. Their commitments are driven by a ownership information and offer various advantages, including confluence of factors, including strong civil society advocacy real-time access to comprehensive data for law enforcement and the influence of international standards and agreements, and authorized individuals, improved quality assurance of the such as the United Nations Convention Against Corruption provided information, and simplified supervision of beneficial (UNCAC), the Financial Action Task Force (FATF), the Open ownership obligations. Government Partnership (OGP), the Extractive Industries Transparency Initiative (EITI), as well as the European Union’s Although more than 120 countries have made commitments Anti-Money Laundering (AML) Directives. to establish BORs, the implementation remains below 50 per- cent (Figure 1). Presently, about 70 countries have expressed The past five years witnessed a near-tripling of countries en- their commitment to establishing a BOR, but they have not acting beneficial ownership registration laws, surging from 34 yet taken the necessary steps to implement it. Consequently, in 2018 to 97 in 2022.6 Similarly, there is a growing world- development agencies are receiving an increasing number of wide trend toward establishing Beneficial Ownership Regis- requests from partner countries for technical assistance and ters (BORs), which are key components of effective BOT re- funding to support BOR implementation. > > > F I G U R E 1 - Country Commitments to Establish Beneficial Ownership Registers vs. Implementation Source: Open Ownership dataset, 2023. Note: Open Ownership does not proactively collect this information and therefore the data may not be comprehensive. Another useful source of data on beneficial ownership transparency is the Financial Secrecy Index published by the Tax Justice Network. 6. Tax Justice Network. 2022. Beneficial Ownership Registration Around the World. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 11 In response to this demand, the Governance Global Practice donor resources facilitated the successful launch of a BOR. of the World Bank has developed this Equitable Growth, Fi- Furthermore, the case of the UK is included because of its nance and Institutions (EFI) Insight to collect implementation prominent role in advancing BOT and to underscore the sig- insights and inform future support for BOT reforms as an ef- nificance of transparency reforms in the Global North—such fective means to combat corruption. as the launch of a Register of Overseas Entities in the UK—in combating global corruption and illicit financial flows. The note The primary objective of this note is to extract and dissemi- concludes with a discussion of remaining challenges in the nate insights from successful implementation experiences implementation of BORs and emerging policy responses. while identifying emerging challenges at the forefront of imple- mentation efforts. While comprehensive guides and toolkits The note draws primarily from the information submitted by the exist for building beneficial ownership frameworks,7 this note business registers of Nigeria, North Macedonia, and Kenya, specifically centers on country experiences in implementing a as well as from expert interviews conducted between April and BOR, placing emphasis on the institutional set up, technical June 2023. In the case of the UK, the information has been solutions, and costing. predominantly derived from desk research. The case selec- tion was based on countries’ prior experience in implementing The note first provides an overview of implementation insights, a BOR and the level of data accessibility, with additional cri- followed by the presentation of implementation experiences teria applied to ensure a balanced representation in terms of from four country cases. It highlights Nigeria, North Mace- income level and country size. donia, and Kenya as examples where effective utilization of 7. Existing guidance documents on beneficial ownership transparency include FATF. 2023. Guidance on Transparency and Beneficial Ownership; OECD/IDB. 2021. Build- ing Effective Beneficial Ownership Frameworks; and Open Ownership. 2021. Guide to Implementing Beneficial Ownership Transparency. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 12 2. >>> Overview of Implementation Insights The review of the implementation experiences of four countries in establishing BORs has yield- ed several insights that can inform similar reform efforts in other countries. Enabling environment: Country cases highlight the importance of an enabling environment conducive to the implementation of a BOR. Civil society advocacy, high-level political commit- ment to enhancing BOT, and compliance with FATF Standards and EU AML Directives were vital catalysts for BOT reforms in the countries reviewed. Multistakeholder processes: Engaging in multistakeholder processes and collaborating with international partners to leverage expertise, resources, and global best practices has been in- strumental in the successful development and launch of BORs in Nigeria, North Macedonia, and Kenya. Institutional home: The location of a BOR differs by country. For instance, Argentina, Colom- bia, and Ecuador manage their BORs through their tax authorities, while Indonesia and Spain oversee theirs under their Ministries of Justice. In the countries discussed in this note, the BOR is housed within their business registration authorities. While a particular policy goal may have influenced the choice of BOR placement, achieving other policy objectives through interoper- ability and real-time access is equally feasible. When deciding where to house a BOR, key factors to consider are enforcement powers, technical capacity, and the entity’s reach with key stakeholders. Interoperability: The countries examined have adopted custom-built software solutions for their BORs, emphasizing interoperability with existing government systems. For example, Kenya and North Macedonia have integrated beneficial ownership data into the public procurement system. This not only aligns with the updated FATF Recommendation 24 but also serves as a crucial anticorruption measure. Data standards: Using a standardized format like the Beneficial Ownership Data Standard (BODS) is crucial for ensuring consistency, enabling seamless data exchange and interoperabil- ity between different registers, and facilitating the international sharing of beneficial ownership information. Compliance: Insufficient enforcement can lead to inaccurate and outdated BOR information. Increasing compliance involves applying sanctions and promoting awareness of disclosure re- quirements among reporting entities. Outcome measurement: While there have been attempts to assess the impact of BOT reforms, particularly through UK government-commissioned evaluations, accurately gauging outcomes remains a challenge. To garner further support for BOT reforms, it is crucial to implement im- proved outcome measurements focusing on their influence in curbing corruption, illicit financial activities, and enhancing tax compliance. Reform sustainability: Finally, incorporating financial sustainability considerations into the design and implementation of a new BOR is crucial for its long-term effectiveness. In North Macedonia, for instance, the BOR is financially sustained through user fees, establishing a self- sustaining funding model. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 13 3. >>> Implementation Insights from Nigeria > > > Snapshot of Nigeria Beneficial Ownership Register Name Launch Beneficial owners registered Companies registered Access Website Persons with Significant Control Register 2022 1,313,033a 395,038a Public and free to use https://bor.cac.gov.ng/ aSource: Corporate Affairs Commission (CAC) as of June 5, 2023. Source: Branditechture, CAC Transparent PNG Logo. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 14 Context Nigeria has made significant progress in strengthening and Allied Matters Act (CAMA) which made it mandatory for BOT over the past few years. The push for BOT in Nigeria companies to disclose beneficial owners in a central register. originated in 2016 when the government, spurred on by civil Subsequently, the Corporate Affairs Commission (CAC) society, publicly committed to fighting corruption at the 2016 published regulations on persons with significant control, Anti-Corruption Summit in London8 and subsequently joined started collecting beneficial ownership data, and ultimately the Open Government Partnership (OGP). Building upon this launched the new register in May 2023. foundation, Nigeria embarked on the implementation of its First OGP National Action Plan (NAP) in 2017–2019, which The launch of the register represents the culmination of a included a specific commitment to establish a central register multistakeholder effort that spanned several years. Despite of beneficial owners of companies. Notably, Nigeria became significant challenges that persist, Nigeria has made the first African country to launch a digital beneficial ownership considerable strides in BOT through efforts in advocacy, register for the extractives sector in 2019.9 In 2020, Nigeria legislative reforms, capacity building, and the development of legislated for strengthened BOT through the Companies data capture and verification mechanisms. > > > F I G U R E 2 - Key Milestones of Nigeria’s Beneficial Ownership Regime May 2016 Dec 2019 Jan 2021 May 2023 CAC launches BOR President commits to BOT NEITI launches BOT portal CAC launches digital portal 2016 2017 2018 2019 2020 2021 2022 2023 Dec 2016 Jan 2017 Aug 2020 Dec 2022 CAC publishes Nigeria formally First NAP begins President assents to regulations on PSC joins OGP CAC begins implementation of BOR CAMA 2020 Note: BOR = beneficial ownership register, BOT = beneficial ownership transparency, CAC = Corporate Affairs Commission, CAMA = Companies and Allied Matters Act, NAP = National Action Plan, NEITI = Nigeria Extractive Industries Transparency Initiative, OGP = Open Government Partnership, PSC = persons with significant control. 8. Open Government Partnership. 2016. Full Text of Buhari’s Speech at the Anti-Corruption Summit in London. 9. In 2019, the Nigeria Extractive Industries Transparency Initiative (NEITI) launched the beneficial ownership register for extractive industries. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 15 Nigeria’s Persons with Significant Control Register Nigeria’s Persons with Significant Control (PSC)10 register This facilitates data sharing with other government agencies, is the product of joint efforts by the Nigerian government, including the Bureau of Public Procurement (BPP), Federal the World Bank, OGP, and other local and international Inland Revenue Service (FIRS), and the Nigerian Financial stakeholders. Intelligence Unit (NFIU), among others. The adoption of BODS will furthermore enable integration with other databases, such Nigeria is the first African country to structure beneficial as the extractive industries register, and link them to global ownership data using the Beneficial Ownership Data Standard beneficial ownership data repositories. (BODS), which allows the data to be easily shared, combined, analyzed, and visualized. BOX 2: Beneficial Ownership Data Standard (BODS) BODS establishes a standardized format and structure for capturing and organizing beneficial ownership data. It deploys the JavaScript Object Notation (JSON) format to structure and exchange beneficial ownership data. This allows for structured and readable representation of information using key-value pairs, providing flexibility in describing complex ownership structures, as it supports nested objects and arrays, making it suitable for capturing intricate relationships among beneficial owners, entities, and related attributes. Example of BODS JSON data visualization Un kno Person A Ow wn s1n % n o wn Unknown Unknown U nk Owns 99% Company 2 Company 3 Company 4 Company 1 Unknown Note: Such diagrams can be replicated easily by pasting a BODS JSON file into the BODS data visualizer developed by Open Ownership. 10. Person with Significant Control (PSC) is the term used in Nigeria for ultimate beneficial owner. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 16 Nigeria uses the following definitions11 to determine who is a on the CAC and on companies. At the same time, the lower beneficial owner of a company: threshold can yield more valuable data. In sectors deemed as high risk, such as extractives, this additional information offers • holds at least 5 percent of the issued shares in the legal clear benefits in enabling stakeholders, including investors, to person either directly or indirectly; learn how ownership and control are operating, allowing them • controls a customer and/or the natural person (but not to inform investment decisions and mitigate corruption risks. limited to) who: Nigeria has taken steps to reduce the administrative burden a exercises at least 5 percent of the voting rights in the resulting from lower disclosure thresholds, which include legal person either directly or indirectly, and software development for enhanced data collection and a b holds a right directly or indirectly, to appoint or remove database structure adopting BODS.12 majority of the directors or similar positions of the legal person; CAC sources the beneficial ownership data from companies • on whose behalf a transaction is being conducted; and/or through online forms. The data are shared with designated • exercises ultimate effective control over a legal person or government agencies and competent authorities by means of legal arrangement, and exercises significant influence or application programming interfaces (APIs). Before integrating control, directly or indirectly, over the legal person. with the CAC, requesting agencies must submit a formal request and undergo a security assessment. API access is A notable difference in the definitions used in Nigeria is the currently granted to agencies including NFIU, BPP, FIRS, lower disclosure threshold of 5 percent, compared with 25 and the Department of State Services (DSS), with others like percent in the UK and the US. The lower threshold results the Central Bank of Nigeria (CBN), Economic and Financial in a larger pool of beneficial owners subject to disclosure Crimes Commission (EFCC), and the Nigeria Mining Cadastre requirements, which leads to a higher administrative burden Office (NMCO) set to join soon (Figure 3). > > > F I G U R E 3 - Nigeria Beneficial Ownership Register Workflow 11. See guidance on ultimate beneficial owners of legal persons and legal arrangements issued by the Central Bank of Nigeria on January 12, 2023. See also Persons with Significant Control Regulations, 2022, pp. 12-13. 12. For a more in-depth discussion of disclosure thresholds, see Ime, Favour, and Louise Russell-Prywata. 2022. Beneficial ownership transparency and the fight against grand corruption in Nigeria. Open Ownership. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 17 To minimize data errors, pre-submission validation is Nigeria’s PSC register is cloud based and custom built. The conducted using national identity documents such as the CAC has an in-house technical team comprising software National Identity Number (NIN). This automated process engineers who serve as support staff for the electronic register. eliminates the need for manual entry, as relevant data from They form part of CAC’s Information and Communication the NIN is used to pre-fill the form. Technology (ICT) Department which has about 30 employees. Moreover, entities have the option to withhold personal details Anticipating expansion of the database, the CAC conducted of their beneficial owners or PSCs from public disclosure. a trend analysis to forecast the growth of data over the Sensitive information such as home addresses and phone next year. This proactive approach enables adequate numbers are currently accessible behind a paywall, ensuring resource allocation in advance. Leveraging the cloud-based privacy for those who choose not to publicly disclose such infrastructure, the system offers flexibility to fine tune and details. scale up resources as needed to accommodate the projected increase in data volume. By mitigating the risk of downtime, The CAC sanctions companies and individuals for this adaptive approach ensures uninterrupted service delivery nondisclosure of beneficial ownership information. When an and optimizes the system’s capacity to handle the expected individual becomes a beneficial owner, they are expected to growth in data. inform the company within seven days of acquiring that status. Subsequently, the company has a period of 30 days to notify The PSC register was built with financial support from the the CAC with this information. Failure to meet these deadlines World Bank financed Fiscal Governance and Institutions triggers a flagging mechanism within the system, which is Project and a grant from the OGP Multi-Donor Trust Fund activated during subsequent filings made by the company. In (MDTF), totaling $550,000 over a span of two years. such cases, the defaulting company will be subject to a penalty as prescribed by the system. The enforcement of this penalty The World Bank financed key components of the register is ensured, as nonpayment would render the application with a $400,000 allocation (Table 1). Additional budget items or filing invalid. By establishing these clear timelines and included user research, data management, policy compliance, penalties, the CAC encourages timely and accurate reporting stakeholder consultations, user trainings and outreach events of changes in beneficial ownership. dedicated to the PSC Register launch, and implementation support by World Bank staff and consultants. > > > T A B L E 1 - Key Budget Items of Nigeria’s Persons with Significant Control (PSC) Register Item Cost ($) PSC Register System Phase 1 Registration Module, BO Register Admin Modul, e-Disclosure Module, Search Module, BO Register $95,537 Management Information System Module PSC Register System Phase 2 $35,975 Enterprise Service Bus (ESB), System Integration PSC Register System Phase 3 Administrative Review, Complaints Module, Prior Review Module, Security Module, System $30,836 Management and Backup Infrastructure Module, Management Information System Update Operations and Support Services $33,507 Cloud Services $71,971 Training Programs $25,961 Work Station Equipment $87,527 60 Laptop Computers Total $381,315 BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 18 Results Since making a commitment to strengthen BOT in 2016, now hinge on the extent to which internal and external users Nigeria has taken significant steps in implementing reforms. utilize it to uncover fraud and corruption. Further studies These include the establishment of an extractives register, will be necessary to investigate the usage of the register the introduction of a legislative framework for BOT, and the and its correlation with expected anticorruption and AML/ development and improvement of a national PSC register. CFT outcomes. Key indicators such as the frequency of As of June 2023, the PSC register includes almost 400,000 interaction, measured through weekly or monthly visitor traffic, companies and has identified about 1,300,000 beneficial the number of data downloads or API calls, and other relevant owners. While Nigeria has laid down the foundational statistics, can serve as an initial point for understanding user elements, it is important to note that the full impact of these needs and behaviors on the platform. Moreover, the number reforms in combating corruption and illicit financial flows is yet of corruption cases and prosecutions informed by BOT data to be fully realized. within a specified period could serve as a metric for assessing the register’s value to Nigeria’s anticorruption efforts. The platform’s effectiveness as an anticorruption tool will Lessons and Outlook The experience of Nigeria in implementing BOT reforms While Nigeria has made significant progress in implementing highlights as key enabling factors sustained commitment at the BOT reforms, a recent assessment commissioned by the World highest political level, advocacy by civil society organizations Bank has identified several ongoing challenges that impede the (CSOs), and financial and technical support from development register from reaching its full potential.13 One major challenge partners. is the effective enforcement of disclosure requirements and compliance by companies. Despite the establishment of Political leaders, notably former President Muhammadu a beneficial ownership register, there is a need for robust Buhari, have publicly endorsed and prioritized the issue mechanisms to verify the accuracy of the information provided of beneficial ownership, leading to its prominence on the and to address potential noncompliance. Additionally, the government’s agenda. CSOs in Nigeria have demonstrated a capacity of government agencies, such as the CAC, needs longstanding commitment to driving policy changes, engaging to be strengthened to effectively manage and analyze the with government agencies, and mobilizing public support large volume of data collected. Another challenge is the need for transparency and accountability. Collaboration with to enhance interagency coordination and interoperability to international partners, such as the World Bank and the Open enable information sharing and facilitate the effective use of Government Partnership, has further facilitated the exchange beneficial ownership data for investigations and enforcement of expertise, resources, and global best practices. Collectively, actions. Lastly, sustained political commitment is necessary these factors have been instrumental in the recent advances to ensure the continued prioritization of BOT reforms and to made in BOT in Nigeria. address any potential resistance or pushback from vested interests. Overcoming these challenges will be crucial in realizing the full potential of Nigeria’s BOT system. 13. Patrick Enaholo. 2023. Journey to Nigeria’s Beneficial Ownership Register (draft report). BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 19 4. >>> Implementation Insights from North Macedonia > > > Snapshot of North Macedonia Beneficial Ownership Register Name Launch Beneficial owners registered Companies registered Access Website Register for Beneficial Owners January 2021 71,000a 75,000a (92.5 percent fulfillment rate) Public and fee-based www.crm.gov.mk aSource: Registry of North Macedonia (CRM), May 30, 2023. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 20 Context In North Macedonia, previous money-laundering risk entities, the required data fields, process for verification, and assessments had shown that one constant area of concern other relevant aspects related to the AML/CFT framework; was the lack of transparency of ownership structures in the (2) Law on Personal Data Protection,16 which transposes private sector.14 In 2017, the country began addressing this relevant EU law on data protection to ensure safe usage and by establishing a Beneficial Ownership Register (BOR) that processing of personal information; and (3) Law for a Central is fully integrated and compliant with international standards. Registry,17 which provides the legal basis for the Central Registry of North Macedonia (CRM) to lead the register. In view of the upcoming mutual evaluation process by MONEYVAL—a permanent monitoring body of the Council The 2018 AML/CFT Law establishes the following definitions of Europe—in 2022, the government placed significant of who constitutes an UBO in North Macedonia: emphasis on enhancing compliance with Financial Action Task Force (FATF) Recommendations 24 and 25 and fulfilled • a natural person who is the owner of the entity or controls commitments related to beneficial ownership outlined in the the entity through direct ownership of over 25% of shares Open Government Partnership action plan and the National or stocks, voting rights or other rights within the entity or AML/CFT Strategy of 2018. This was reinforced by the country’s the ownership of 25% plus one share; determination to adopt the EU Acquis Communautaire on this topic, especially the 4th EU Anti-Money Laundering and • a natural person who controls the entity through indirect Countering the Financing of Terrorism (AML–CFT) directive. ownership of over 25% percent of shares, stocks, voting rights or other rights within the entity or ownership of 25% For the legislative groundwork upon which the BOR was built, plus one share, including shares of bearer or voting right the jurisdiction introduced the concept of an ultimate beneficial or other rights in the legal entity; or owner (UBO) in 2018 in the following legal acts: (1) Law on Preventing Money Laundering and Financing of Terrorism,15 • a natural person who exercises control over the entity in which sets out the obligations to create, host, and define other ways. parameters of the BOR registration of the UBO for the obliged > > > F I G U R E 4 - Key Milestones of North Macedonia’s Beneficial Ownership Regime Jun 2018 Dec 2019 Jan 2021 March Obligation to develop BOR is Technical design of BOR is CRM launches 2022 inserted into Law on Preventing completed digital portal on Registration rate ML/FT BOR passes 92% 2017 2018 2019 2020 2021 2022 2023 November 2017 January 2020 April 2021 Late 2023 National Strategy on Inserting BO data in Development of Grace period for free AML/CFT sets a specific goal each public system begins registration has to develop a BOR procurement process ended Note: AML/CFT = anti-money laundering/countering financing of terrorism, BO = beneficial ownership, BOR = beneficial ownership register, CRM = Central Registry of North Macedonia, ML/FT = money laundering/financing of terrorism. 14. Council of Europe. 2014. Report on Fourth Assessment Visit. 15. The AML/CFT Law was adopted in 2018 and published in the Official Gazette of the Republic of Macedonia, No. 120/18 (in Macedonian). Definitions are listed on page 9. 16. Official Gazette of the Republic of Macedonia, No. 42/20 and 294/21, Law on Personal Data Protection, 2020. 17. The obligation to establish a BOR was inserted into the 2018 AML/CFT Law. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 21 Regarding the technical and legal enabling environment, at At the outset of reforms, there were very few international best a national level, the jurisdiction utilized the Macedonian IT practices that could be leveraged, as jurisdictions globally Interoperability Framework, enabling secure transmission of were still in the process of developing registers. Those that encrypted data between public and private entities. At the existed at the time were modest in capabilities and had organizational level, the CRM possessed medium to high few results to show. GIZ decided to extend support for the technical capacity, which included a solid, in-house hosting development of the BOR based on the strong commitment server and advanced protocols and services such as single of stakeholders, clearly defined objectives, existing legal and sign-on function, digital ID and signature, e-certificates, e-mail technical capacities, national strategic importance, and the distribution system, and API capability. Furthermore, the added value of enhancing transparency inside the private CRM had staff capable of learning the new tool, testing it to a sector. satisfactory level of performance, and integrating it within the existing framework. North Macedonia’s Register for Beneficial Owners Through its Global Program Combating Illicit Financial Flows, • The second stage of software development and testing GIZ supported a comprehensive multistakeholder process to was conducted by an external service provider. The set up the BOR. The primary stakeholders, which encompassed testing phase was an intensive process for the primary both the CRM and the Financial Intelligence Office (FIO), were stakeholders, which resulted in a vetted and fully functional the end-product owners and provided human and technical product. The second stage lasted one year. resources throughout the whole implementation process. The secondary stakeholders provided supportive functions such • The third stage entailed the launch of the register along as primary legislation amendments, where necessary, and with a public outreach process and lasted four months. connections to the national databases—National Population Register (NPR) and Business Entity Register (BER)—for The register consists of two modules—REVIS for registrations cross-data validation. and SORIS for analytics (Figure 5). REVIS is the segment hosted by the Central Registry that performs all the tasks The implementation of the BOR can be divided into three described above. The host institution of the SORIS module is stages. The stages were designed to overlap where feasible, the FIO. SORIS has analytical capabilities, such as performing resulting in a total process duration of two years: a basic risk profile analysis accessible to the FIO. Hence, this pre-defined module for analytics in the core structure of • The first stage involved a detailed technical design the BOR already foresees potential usage of the data set by process (requirement specification). This stage, which authorities and adds a pillar toward the risk-based supervision spanned nine months, involved procuring an external process essential to the FATF standards. service provider through an open-market bidding process. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 22 > > > F I G U R E 5 - North Macedonia Beneficial Ownership Transparency System Note: BER = Business Entity Register, DNFBPs = designated non-financial businesses and professions, NPR = National Population Register. The main functional capabilities of the final BOT system in law enforcement agencies, and other relevant stakeholders place are that it is a fully electronic, online system that enables such as investigative journalists and the general public. registration of UBOs via a public portal and with a structured and The register adapts the dataset published per each user standardized set of information such as name and surname of group according to national and international data protection the UBO, unique citizen identification number, tax identification standards. number, date of birth, nationality, and residential address. The data are entered by the obliged entity or their authorized The BOR software is custom built, with a user-centric registration agent in the system, which then cross-references approach, utilizing (or integrating with) the existing registry the identity of the UBO via the NPR and business entity in systems (business registry and register of other legal entities, parallel with the BER before connecting their relationship into National Population Register, address register) as data one dataset hosted at the CRM. The verification of the UBO sources and other common systems and components within is performed by the financial institution (bank), which acts as CRM (distribution system for ordering and issuing information the primary bank of the business entity and offers financial from the registries, certificates and receipts issuing system, services to it. The system cross-references data on state- email notification system). The BOR is hosted within the CRM owned entities and lists the designated executives as UBOs. datacenter private cloud. The technical design is based on a The BOR also issues certificates of registration to the entities standard three-tier architectural pattern for web applications and can issue chronological changes in UBOs on demand. with the following technologies: (1) front-end presentation layer—JavaScript, HTML, CSS, and Angular; (2) back-end Crucially, the BOR allows for real-time access to beneficial business layer—WCF, C#, and .NET Framework; and (3) data ownership data to obliged entities (financial and nonfinancial), layer—databases developed with T-SQL and hosted on MS BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 23 SQL server. System maintenance such as software warranty bug fixes was initially provided for one year by the service provider that The data governance arrangements in place are twofold. The developed the software tool. After the handover of the software first is on the internal state level, across authorities, which is to the end-product owners, the BOR relies on a revenue stream based on the primary legal framework that allows access to generated by fees for accessing the data from the side of the sensitive data in line with national data protection legislation. obliged entities that use the data for know-your-customer/due The second part of the data governance arrangement is with diligence (KYC/CDD) purposes. The CRM maintains the BOR external parties entitled to access the dataset in a limited with its own human, technical, and financial resources and manner to fulfill their law-mandated obligation but is also in has shown that the implementation model is self-sustaining. accordance with national data protection legislation. The digital Both the CRM and FIO now retain full ownership of the BOR security element was tested by an external cybersecurity with source code and all other system elements. auditor to confirm that the exchange of data will be performed in a safe environment with minimal risk, in accordance with International Organization for Standardization (ISO) and cybersecurity standards. > > > T A B L E 2 - Key Budget Components of GIZ Support for North Macedonia Beneficial Ownership Register Item Budget 1. IT expertise for technical design $1,600 2. Development of software solution, external service provider $153,000 3. Development of public relations materials (video production) $12,000 4. Cybersecurity testing element $13,000 Total $179,600 Results The rollout of the BOR was followed by a high turnout, the UBO within 15 days of the incorporation or change in resulting in about 75,000 registered entities by mid-2022, ownership of the business entity results in a fine. which is 92.5 percent of the entire pool of entities required to submit their UBO status. The data are constantly being Additionally, for the public interest, limited data access is updated as ownership changes, with about 71,000 natural allowed with certain preconditions. Journalists have free persons identified as UBO, and leveraged by private sector access to a limited personal dataset (name/surname of obliged entities such as financial institutions or designated owner, country of residence, month and year of birth, and full non-financial businesses and professions (DNFBPs) such beneficial ownership indicators data) according to the data as legal professions, accountants, and auditors, which by protection law on a case-by-case basis. No bulk access to law must use the information in their KYC/CDD processes. data is possible for further analysis by an external party except In general, data usage is high, given the estimated 85,000 by FIO. Civil society organizations and any member of the individual requests for data via the integrated web services of public can request access per individual entity with a simple the BOR to date. The dataset also generates revenue for the request, followed by a fee for receiving the information. Via the CRM that so far ensures full autonomy of the register, long- e-confirmation system designed for the public, about 20,000 term sustainability, and resources for system and/or personnel individual requests for data were granted and issued to date. upgrades of the BOR. Noncompliance to register or update BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 24 Lessons and Outlook The main challenges during the implementation period can plays a significant role in this process. Establishing basic be divided into two broad categories. First, the development principles for compliance and effectiveness, particularly process took longer than expected due to the complexity and regarding FATF Recommendations 24 and 25, is crucial for lack of global best practices to learn from. This was combined ensuring the success of the register. with limited human resources that then required extraordinary commitment from the partners along with pending legal Another lesson learned is the importance of making key framework amendments essential to the functions of the decisions as early as possible during the implementation software. Second, the COVID-19 pandemic brought changes process. These decisions include selecting a suitable in collaboration and communication while developing register host or custodian with the appropriate technical and the software tool. This in turn extended the timeframe of human resources, defining the precise data fields that need implementation. to be registered, determining the entities that fall under the obligations, and establishing avenues for possible data After one year of operation, features of the system for issuing exchange while clearly defining the limits of the framework. data and interconnecting with public procurement processes Making these decisions early on helps create a solid foundation needed an update, which shows that even with the most for the register’s effectiveness and functionality. detailed planning, the BOR is never in a “final state.” Initially, features related to chronological data publication needed Adopting a user-centered service design has emerged as further development. More importantly, it was decided that essential from this experience. By placing the needs and the beneficial ownership data should be included in the experiences of the end users at the center of the design process, public procurement system, entailing development of another it becomes possible to develop a register that is intuitive and technical service interconnected with the Public Procurement user-friendly, and effectively meets the requirements of all Bureau, along with legal framework amendments to allow for stakeholders. Considering the perspectives and requirements integration of data. of the entities providing the data and the authorities utilizing the data ensures that the register is accessible and efficient, The experience of implementing the BOR in North Macedonia and maximizes its utility. offers valuable lessons that can inform future endeavors in similar contexts. These lessons emphasize the importance of Finally, establishing a multidisciplinary compact team is key understanding the register’s role within the national AML/CFT to the successful implementation of the beneficial ownership framework, making key decisions early on, adopting a user- register. Such a team brings together diverse expertise centered service design, and establishing a multidisciplinary from relevant disciplines, including legal, technological, and team. operational domains. The collaboration and synergy of this team enable comprehensive perspectives and effective One crucial lesson derived from this case is the need to problem solving throughout the implementation process. This understand how the beneficial ownership register fits within multidisciplinary approach ensures that all aspects of the the broader framework related to AML/CFT measures and register, including legal considerations, data management, FATF Standard implementation in the country. It is essential and operational procedures, are carefully addressed. to identify the main actors who will utilize the data and those who need to provide the data. Understanding the existing By incorporating these lessons, future efforts can navigate data available for cross-referencing and checks is vital. challenges, enhance effectiveness, and promote transparency Additionally, appealing to the private sector’s sense of social and accountability by introducing beneficial ownership responsibility in safeguarding the national financial system disclosure systems. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 25 5. >>> Implementation Insights from Kenya > > > Snapshot of Kenya Beneficial Ownership Register Name Launch Beneficial owners registered Companies registered Access Website Business Registration Service (BRS) Beneficial Ownership Register 2020 53,000a 133,000a closed https://brs.go.ke/companies-registry-statistics/ aSource: Business Registration Service (BRS), May 30, 2023 BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 26 Context Over the past decade, Kenya has made progress in its anti- The OGP commitment to establish a BOR was subsequently money laundering/countering financing of terrorism (AML/ reaffirmed in the 2018–2020 Action Plan. CFT) efforts. When the country’s first mutual evaluation in 2010 had revealed significant deficiencies,18 Kenya took CSO advocacy raised awareness and promoted BOT reforms urgent action to address them. Initially listed for strategic AML/ in Kenya by emphasizing the importance of transparency CFT deficiencies by the FATF in 2010, Kenya was removed and accountability in beneficial ownership. CSOs’ efforts from the list in 2014 because of the progress made. However, drew attention to the need for reforms and helped create following a more recent evaluation published in 2022, Kenya’s an environment conducive for change. The other central system was found to be deficient on several issues and as enabling factor was the political will toward BOT reforms, a result was recently (February 2024) again identified as a which led to the issuance of Executive Order Number 2 of country with strategic AML/CFT deficiencies. Although some 2018. The executive order provided a strong mandate for the of the deficiencies listed relate to collection of beneficial implementation of BOT reforms, signaling the government’s ownership information, the report did note that “BO and basic support and dedication to combat corruption and enhance information filed by companies [to the BOR] is adequate, transparency in the country. accurate and up to date, and is subjected to authentication and verification.19 As for legislative enablers, the Proceeds of Crime and Anti- Money Laundering Act (POCAMLA) of 2009 played a pivotal The establishment of a BOR was first mentioned in the role in driving BOT reform.21 The act imposed obligations commitments of the 2016 OGP Action Plan.20 This coincided on reporting entities, including financial institutions and with the London Anti-Corruption Summit, which played a designated non-financial businesses and professions significant role in expediting reforms. Kenya affirmed its (DNFBPs) to implement AML/CFT measures, such as commitment to combating corruption during the summit, customer due diligence, verification of beneficial ownership leading to the adoption of national commitments and initiatives. information, and reporting suspicious transactions. BOX 3: What are Bearer Shares? Bearer shares are physical share certificates that represent ownership of shares in a company. Unlike registered shares, bearer shares do not have the owner’s identity recorded in the company’s records. Instead, the person who holds the physical share certificate is considered the legal owner and has the rights associated with the shares. Bearer shares can be transferred by simply handing over the physical certificate, allowing for anonymity and potentially making them vulnerable to misuse for illicit purposes such as money laundering or tax evasion. Many jurisdictions have implemented regulations to restrict or eliminate the use of bearer shares due to these concerns. The legislative framework underwent further changes, paving In 2019, Kenya introduced the Data Protection Act,23 which the way for the establishment of a BOR. The 2015 Companies regulated the collection, processing, storage, and use of Act22 enhanced transparency in company ownership by personal data, including beneficial ownership data. It also abolishing bearer shares. In 2017, an amendment to the established guidelines for secure data handling, protected Companies Act introduced a requirement that companies keep data subject rights, and outlined obligations for data controllers a list of beneficial owners alongside the list of shareholders. and processors. 18. ESAAM (Eastern and Southern Africa Anti-Money Laundering Group). 2011. Mutual Evaluation Report: Anti-Money Laundering and Combating the Financing of Terror- ism – Republic of Kenya. 19. ESAAM. 2022. Mutual Evaluation Report. 20. Open Government Partnership. 2016. The Republic of Kenya Open Government Partnership: National Action Plan II (July 2016 – June 2018) 21. National Council for Law Reporting. 2016. Proceeds of Crime and Anti-Money Laundering Act, No. 9 of 2009. 22. National Council for Law Reporting. 2021. The Companies Act, No. 17 of 2015. 23. National Council for Law Reporting. 2019. The Data Protection Act, No. 24 of 2029. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 27 Finally, international support in the form of technical and information that aids investigations into financial crimes, financial assistance provided by GIZ played a crucial role in especially serving as a valuable tool to prevent and detect implementing the BOR in Kenya. GIZ’s decision to collaborate corruption; and and support BOT reforms in Kenya was grounded in the expected benefits that such reforms would bring. In the case • fostering international cooperation in combating financial of Kenya, the highlighted reform benefits included crimes by sharing information through secure channels, facilitating collaboration on investigations and asset • creating a business enabling environment that attracts recovery efforts, and identifying cross-border connections. foreign direct investment due to increased transparency of public procurement processes; In summary, CSO advocacy and political will led Kenya to commit to global AML/CFT standards and to pass legislation • promoting transparency by providing a centralized that paved the way for the implementation of the BOR. During repository of information on individuals who ultimately the implementation process, international support, particularly own or control legal entities; from GIZ’s Global Program Combating Illicit Financial Flows, played a significant role in enabling the BOR’s successful • providing law enforcement agencies with access to critical development and launch. > > > F I G U R E 6 - Key Milestones of Kenya’s Beneficial Ownership Regime 2018 October 2020 Q1 2019 Legislation is adopted and Q3 2022 Government issues executive Amendment of key register goes online Guide for registration of order providing a strong legislative acts has begun BO data is published mandate for reform on BO 2016 2018 2019 2020 2022 2023 March 2019 February 2022 2023 2016 Ongoing outreach Commitment to develop Development of Publication of BO to process to Beneficial Ownership registry software concludes public procurement practitioners on BO is added to Open contracts Government Partnership Action Plan Note: BO = beneficial ownership. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 28 Kenya’s Beneficial Ownership Register Implementation of the BOR required legislative amendments with government contracts is publicly available through the that were achieved through a multistakeholder process Public Procurement Information Portal. Furthermore, law involving CSOs, authorities, and international partners. In enforcement agencies can access the BOR for investigative 2019, the Companies Act was amended to introduce Section purposes. 93A, which mandated companies to prepare and maintain a BOR separate from the register of shareholders. This Other institutional stakeholders involved in enhancing amendment took effect with the enactment of the Companies BOT in Kenya include the Office of the Attorney General, Regulations of 2020.24 the Financial Reporting Centre (FRC), and sector-specific regulatory authorities. The Office of the Attorney General In accordance with the current applicable regulations, developed and reviewed legislations and amendments to Kenya defines “beneficial owner” as any natural person who improve BOT. The FRC, as the central agency for receiving, individually or jointly satisfies any one or a combination of the analyzing, and disseminating suspicious transaction reports following criteria:17 (STRs) and financial intelligence, collaborates with relevant authorities to cross-reference beneficial ownership data with • Directly or indirectly holds at least 10 percent of the issued AML/CFT information. Verification of the beneficial ownership shares of the company, information is done by the BRS, utilizing resources at its disposal related to access to national databases. Finally, • Directly or indirectly exercises at least 10 percent of the sector-specific regulatory authorities, including the insurance voting rights in the company, regulatory authority and the Central Bank of Kenya, play an active role in implementing BOT by ensuring adherence to • Directly or indirectly has a right to appoint or remove a sector-specific regulations, providing guidance on reporting director of the company, or requirements, and overseeing the implementation process. • Directly or indirectly exercises significant influence or The final technical solution was a custom-built software control over the company. developed by a local external service provider that followed BRS requirements. Development of the software was financed To ensure a timely BOR implementation, GIZ and authorities with funds from GIZ. Local contracting at market-level salaries agreed to start developing the software solution even before allowed for cost efficiency with a budget of approximately the legislative amendments were officially enacted. This $16,500, covering all necessary tasks, including system approach carried a certain degree of risk, considering that design, database design, user interface design, software the legislative process could have been prolonged or could development, interoperability development (APIs), training experience unforeseen changes. However, coordination support, and initial maintenance. between authorities and GIZ led to the completion of a solid software solution that was ready for public rollout once the The software solution is hosted on the BRS servers, and the legislative acts were passed in October 2020. system is now in full ownership and maintenance by the BRS. Since there is no dedicated budget on an annual basis for The government sought to further enhance transparency the maintenance and service of the system, the BRS relies by enabling the Public Procurement Regulatory Authority on sending individual budget requests when necessary. This (PPRA) to publish beneficial ownership information for entities is planned to be addressed in upcoming amendments in the participating in bidding with public entities. This was mandated governance setup around the BOR to ensure a more stable through an amendment of the Companies Regulations in and dedicated funding. February 2022.26 Regarding data governance, the Companies Act mandates The BOR in Kenya is maintained by the Business Registration each individual company to uphold an internal account of Service (BRS) and linked to the central business register beneficial owners, placing the responsibility on them to collect, to support data verification via unique company identifiers. verify, and keep this information up to date. Concerning data A direct link is also maintained with the PPRA’s Public privacy and usage, the Data Protection Act sets forth rules and Procurement Information Portal27 to ensure that all companies principles to safeguard and regulate the handling of personal bidding for government tenders have registered their beneficial data, which the BOR adheres to. owners. Information on beneficial owners of companies 24. National Council for Law Reporting. 2020. The Companies (Beneficial Ownership Information) Regulations, 2020. 25. Business Registration Service. 2023. Guide on Disclosure of Beneficial Ownership Information. 26. Parliament of Kenya. 2022. The Companies (Beneficial Ownership Information) Amendment Regulations, 2022. 27. 18. See Kenya’s Public Procurement Information Portal. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 29 Results One of the key results indicators of a BOR is the number Currently, the register is not open to the public. Only the of companies that have submitted information about their FRC and law enforcement agencies have access to the ultimate owners. According to the BRS, there are currently register. However, access may be granted to an applicant about 133,000 companies and 53,000 beneficial owners who has submitted a request with legitimate interest to a registered in the BOR (Figure 7). The compliance rate out court, which then can issue an order for publication of data. of the entire pool of entities obliged to register is about 40 Alternatively, every public-awarded contract has beneficial percent. The foreseen sanction according to the Companies ownership information available (name and surname, national Act in Section 93A(5) and 93A(6) makes failure to disclose identification/passport number in redacted form, voting rights beneficial owners an offense and provides for punishment of a percentage) on the public procurement information portal, fine not exceeding $3,600 upon conviction and an incremental which is open to the public. fine of $360 for each day the company continues to be in default. > > > F I G U R E 7 - Overview of Kenya Registrar of Companies Source: Business Registration Service (BRS). Note: Overview as of May, 2023 Lessons and Outlook Implementation of the BOR in Kenya encountered several incomplete information in the register. Sanctions are noted challenges revolving around compliance rates, enforcement above, but enforcement is difficult and takes up significant mechanisms, awareness and understanding of beneficial resources from multiple parties. ownership disclosure requirements among obliged entities, and verification of foreign legal persons. However, these However, weak enforcement mechanisms are in place. Each challenges provide valuable lessons for addressing unresolved penalty requires a conviction, which in turn requires a separate issues and improving the functioning of the BOR. court process, placing significant burden on both BRS and judicial resources. The lack of robust enforcement measures During BOR implementation, one of the main challenges hinders the ability to ensure compliance and accountability. encountered was the low rate of compliance among companies Without adequate enforcement, the effectiveness of the and entities. Many entities struggled to fully adhere to the BOR is compromised, as stored information is not always beneficial ownership disclosure requirements, leading to accurate and up to date. Revising and strengthening the legal BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 30 framework, potentially including the provision of administrative ensuring that all the key stakeholders identified form a sanctions, could establish a more effective deterrent against core team along with the technical assistance provider is a noncompliance and impose consequences for companies or significant success factor for the process. This approach also entities providing inaccurate or misleading information to the allowed for parallel development of the technical system and beneficial ownership register. the legal framework, which shortened the implementation process to about one year. Furthermore, there is a lack of understanding among entities regarding the requirements for beneficial ownership disclosure. Second, leveraging existing data to bring added transparency This lack of understanding contributes to noncompliance to public procurement processes and the spending of taxpayer and hinders the accuracy and completeness of the register. funds is of great significance for extracting public benefit from It is therefore essential to educate and create awareness registering beneficial ownership data. With certain jurisdictions among entities about their obligations and the importance opting to restrict public access to their registers, it is essential of transparently disclosing beneficial ownership information. that public procurement be considered a foundational aspect To this end, GIZ supported the BRS in developing a guide for initiating the publication of data. on disclosure of beneficial ownership information, which was published and shared with practitioners.28 BRS is conducting Third, a key takeaway is the need to conduct a risk assessment an outreach campaign in 2023 among these practitioners so as on legal entities and arrangements before proceeding with to reach all those involved in the incorporation and registration the process of legislative changes and system design and of legal persons and arrangements. development. This assessment informs the development of effective measures and processes to address those risks, The verification of foreign legal persons poses an additional ensuring the integrity and effectiveness of the BOR. This challenge. Conducting thorough verification procedures for approach would tackle issues related to verifying beneficial foreign legal persons is challenging due to differences in ownership of foreign entities and provide guidance on effective legal systems and potential cross-border complexities. The enforcement measures throughout the entire process, starting absence of a comprehensive risk assessment compounds from conceptualization of the register to its implementation. this challenge, as it is necessary to identify and mitigate risks related to money laundering associated with foreign legal Kenya introduced in October 2020 a full-economy central persons. Conducting a risk assessment for legal entities digital BOR, one of the first in Africa, along with amendments and arrangements is crucial to identify and mitigate money to its Companies Act in 2020 and 2022; and the country is now laundering risks effectively. This assessment would provide preparing to disclose certain beneficial ownership information insights into the specific vulnerabilities and threats associated to the public. To aid in this endeavor, the World Bank will with different entities, enabling targeted measures to address provide expertise, capacity building, and technical assistance those risks. to Kenya, building upon previous support from GIZ in setting up the BOR. The focus of this assistance will be on leveraging Implementing the beneficial ownership register in Kenya beneficial ownership data in Kenya, particularly in the areas has generated lessons learned that are useful for partners of procurement and taxation, as well as on implementing undertaking similar processes. First and very important, the improvements in beneficial ownership disclosure, as multistakeholder approach remains essential to any process highlighted in Kenya’s recent FATF mutual evaluation and related to BOT, as the topic itself is intertwined with various other relevant government commitments. government and private and public sector elements. Hence, 28. See Kenya’s Business Registration Service website. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 31 6. >>> Implementation Insights from the United Kingdom > > > Snapshot of UK Beneficial Ownership Register Name Launch Beneficial owners registered Companies registered Access Website aSource: Companies House. Companies register activities: Statistical release 2022 to 2023 spreadsheet (accessed June 29, 2023). Register of People with Significant Control 2016 6,124,308a 4,645,402a Public and free to use https://find-and-update.company-information.service. gov.uk/ BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 32 Context The UK has been at the forefront of promoting BOT. In 2013, The subsequent 2018 EU Fifth Money Laundering Directive during its Group of Eight (G8) presidency, the UK released an (5MLD)32 expanded the scope of entities covered by action plan29 that included the establishment of a beneficial beneficial ownership disclosure requirements, mandating ownership register. In 2015, the European Union (EU) the interconnection of beneficial ownership registers across adopted the Fourth Money Laundering Directive (4MLD),30 EU member states to facilitate cross-border information which called for the establishment of registers of beneficial sharing and improve transparency. Although the UK left the owners; and the UK passed legislation31 requiring companies EU in 2020, it incorporated the provisions of both the 4MLD to keep a register of people who have significant control of a and 5MLD into its domestic legislation. As a result, the PSC company. The register, known as the People with Significant register in the UK aligns with the standards set forth by these Control (PSC) register, became operational in 2016, allowing EU directives and meets its requirements. For example, data free and unrestricted access for the public without the need for stored in the PSC register is easily accessible, facilitating registration. The stated objectives of the register were to make cross-border information sharing and integration with global it easier for the public and law enforcement to ascertain who repositories of beneficial ownership information such as the ultimately owns and controls UK companies, to foster trust Open Ownership Register.33 among the businesses, and to enable better intelligence for criminal investigations. > > > F I G U R E 8 - Key Milestones of the UK’s Beneficial Ownership Regime G8 Action Plan PSC Register Launch Small Business, Register of Overseas Enterprise and Money Laundering Entities Launch Employment Act Regulations 2013 2015 2016 2017 2018 2022 2023 EU Fifth Money EU Fourth Money Laundering Directive (5MLD) Laundering Directive (4MLD) Economic Crime and Corporate Transparency Bill The implementation of the PSC register in the UK embraced readable format and accessed via an API.34 The ease of a digital-first approach, allowing companies to register and access has contributed to high usage numbers from a wide update their beneficial ownership information online. The range of stakeholders. Companies House, the host of the PSC data are made accessible to the public through a website register, reported that the register was accessed some 10.2 that offers advanced search functions. Furthermore, the data billion times in 2020–2021.35 can be downloaded as bulk data in a structured, machine- 29. Government of the United Kingdom. 2013. Policy paper: UK action plan to prevent misuse of companies and legal arrangements. 30. Document 32015L0849, Euro-Lex, Access to European Union law (accessed 15 May 2023). 31. Government of the United Kingdom. Small Business, Enterprise and Employment Act 2015. 32. Document 32018L0843, Euro-Lex, Access to European Union law (accessed 15 May 2023). 33. See Open Ownership Register. 34. The full list of PSCs (people with significant control) is updated every morning before 10 a.m. GMT and made available as a downloadable data snapshot on the Com- panies House website. 35. Government of the United Kingdom, Department for Business, Energy & Industrial Strategy. 2022. Corporate Transparency and Register Reform White Paper: Policy overview and response to final consultations. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 33 The UK’s People with Significant Control (PSC) Register The UK’s People with Significant Control (PSC) register is or control over the activities of a trust or firm that is not administered by Companies House, which is an executive a legal entity but would itself satisfy any of the first four agency of the UK government’s Department for Business, conditions if it were an individual. Energy and Industrial Strategy (BEIS). Companies House is responsible for collecting, maintaining, and providing public Most of the information pertaining to PSCs submitted to the access to the PSC register. PSC register is accessible online to the public. The residential address of PSCs and their day of birth will not be published The UK defines a PSC as an individual that meets one or and only be accessible to law enforcement and specified more of the following conditions: public authorities (SPAs). • Directly or indirectly holds more than 25 percent of shares, In unique situations, there is a mechanism in place to safeguard certain or all information related to PSCs from public • Directly or indirectly holds more than 25 percent of voting disclosure. This mechanism is referred to as the Protection rights, Regime. Exceptional circumstances arise when an individual, due to his or her involvement in a business or a combination • Directly or indirectly holds the right to appoint or remove of business activities and personal characteristics, would face the majority of the board of directors, a significant risk of violence or intimidation if their details were publicly accessible.36 • Otherwise exercises or has the right to exercise significant influence or control, and Companies House does not charge for basic data use but recovers all its costs by charging for some data products and • Exercises or has the right to exercise significant influence through incorporation and filing fees. Results Overall, the introduction of the UK’s PSC register has yielded A 2019 analysis of user benefits found that the annual benefit significant results in enhancing transparency and addressing to direct users of the PSC register—measured as their average illicit activities. It has helped uncover beneficial ownership willingness to pay for PSC information—is about $105 per structures, contributing to the prevention of the misuse of user. Additionally, the analysis estimated the aggregate annual companies for money laundering, tax evasion, and other benefit to direct users of the PSC register at $150 million.38 illicit purposes. The PSC register has provided authorities, businesses, and the public with valuable insights into the As for register usage, a 2019 survey found that of the ownership and control of UK companies, contributing to a businesses that used the PSC register, one-fifth (22 percent) more accountable and trusted business environment. used it to look up information on other businesses.39 Out of those, the majority looked up information on clients and To evaluate the costs and benefits associated with the PSC customers (65 percent). The same survey revealed that law register, the government has commissioned several studies. enforcement organizations, financial institutions, and civil A study published by the BEIS estimates that the initial cost of society organizations are frequently accessing the register to compliance with PSC regulations for UK businesses amounted inform criminal investigations, to inform services provided to to about $320 (mean) or $140 (median) per business.37 The clients, and for research purposes. Overall, the stakeholders same study estimates that the mean overall cost of checking surveyed consider the PSC register to be a useful resource and updating PSC information per business was $35, while because it makes the process of obtaining information on the median cost was $2.5. beneficial ownership more efficient. 36. See guidance on applying to protect personal information on the Companies House register. 37. Government of the United Kingdom, Department for Business, Energy & Industrial Strategy. 2019. “Review of the implementation of the PSC Register.” BEIS Research Paper No. 2019/005. 38. Government of the United Kingdom – Department for Business and Trade, Companies House, and Department for Business, Energy & Industrial Strategy. Companies House data: Valuing the user benefits. 39. Government of the United Kingdom, Department for Business, Energy & Industrial Strategy. 2019. “Review of the implementation of the PSC Register.” BEIS Research Paper No. 2019/005. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 34 Lessons and Outlook The UK has been a strong advocate for increased BOT and its The UK government has recognized the need for strengthening PSC register is a notable example for others to learn from. The the quality of data in the register and has proposed a new Financial Action Task Force (FATF) assessed the UK as one of legislation for identity verification, which was anticipated the few countries with a substantially effective framework for to become law by late 2023. This proposed legislation, the promoting BOT to prevent the misuse of corporate entities for Economic Crime and Corporate Transparency Bill,43 would money laundering and terrorist finance.40 apply to all new and registered PSCs, obliging them to verify their identity either directly via Companies House or indirectly However, several stakeholders have pointed to the ongoing through an authorized corporate service provider. Additionally, misuse of companies for illicit activities and have raised the bill would provide Companies House with powers to concerns about the quality of data in the register.41 A 2019 impose penalties on individuals who do not comply or those survey of the implementation of the PSC register corroborates who submit wrong information.44 The implementation of these these concerns, finding that many users of the register measures is anticipated to enhance the reliability of registered mentioned problems of inaccurate information and suggested information, leading to various advantages for businesses and introducing validation and verification processes.42 efforts against corruption and money laundering. BOX 4: UK’s Register of Overseas Entities Snapshot of UK Register of Overseas Entities Name Register of Overseas Entities Launch 2022 Overseas entities registered 26,342 Access Public and free of charge Website https://find-and-update.company-information.service. gov.uk/ (using advanced search function) In 2022, the UK extended its pioneering efforts in BOT by introducing the Register for Overseas Entities (ROE). The ROE was established following the passage of the Economic Crime (Transparency and Enforcement) Act45 and is intended to increase transparency about property ownership and reduce money laundering through the UK property market. It requires overseas entities that want to buy, sell, or transfer property or land in the UK to register with Companies House and to disclose their beneficial owners. After registering, overseas entities are provided with a unique Overseas Entities ID that they need to present to the land registry when engaging in property transactions in the UK. The legislation, initially drafted in 2018, saw accelerated passage in response to the Russian invasion of Ukraine and the UK government’s determination to enhance the enforcement of sanctions. This resulted in a short time frame for the implementation of the ROE. Companies House developed, built, and launched the ROE in 109 working days. The register and its components were built from scratch and the process involved extensive and systematic consultations with 93 stakeholders from 30 countries. Companies House worked with 13 organizations on the ROE development, trained 36 employees to work on the new register, and conducted research sessions with 94 users to test the service and gather feedback. CONTINUED 40. FATF. 2018. The United Kingdom’s measures to combat money laundering and terrorist financing. 41. Global Witness. 2019. Getting the UK’s House in Order. 42. Government of the United Kingdom, Department of Business, Energy & Industrial Strategy. 2019. “Review of the implementation of the PSC Register.” BEIS Research Paper No. 2019/005. 43. UK Parliament. Parliamentary Bills, Economic Crime and Corporate Transparency Bill. 44. Government of the United Kingdom. 2023. Fact sheet: Identity verification and authorised corporate service providers. 45. The National Archives. 2022. Economic Crime (Transparency and Enforcement) Act 2022. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 35 To date, about 26,000 overseas entities have completed the registration process, granting law enforcement agencies, journalists, and the general public access to this data. Companies House reports some 220,000 searches of the data since the launch, indicating that the register is effectively fulfilling its intended purpose of enhancing transparency about property ownership in the UK and serving as a tool for law enforcement agencies to investigate suspicious wealth more effectively. Given its public nature, the register can be used by organizations and citizens anywhere in the world to help investigate corruption and money laundering. For example, journalists have utilized ROE data to identify ownership of UK property by sanctioned persons.a Furthermore, there are some promising early results from the register in reducing purchases of UK property through companies based in tax havens. A recent study found that new purchases by companies based in tax havens fell substantially following enactment of the Economic Crime Act in 2022, a clear indication that those seeking to invest anonymously through opaque structures in the UK perceive the new regulations as a threat.b While the ROE is an important advancement toward enhanced transparency and in eliminating the blind spots to corrupt and illicit financial flows in the UK’s property market, the register needs to improve its data verification system to fully leverage its potential. Concrete measures for improving data quality have been proposed by stakeholders,c and their implementation appears likely, particularly considering the additional impetus for the reform expected from the anticipated passage of the Economic Crime and Corporate Transparency Bill. a Financial Times. 2023. “Register of UK property held offshore lists 40 owners under sanctions.” b Colin, Matthew, Florian Hollenbach, and David Szakonyi. 2023. “The end of Londongrad? The impact of beneficial ownership transparency on offshore investment in UK property.” UNU WIDER Working Paper 2023/11. c Kiepe, Tymon, and Thom Townsend. 2022. “A first (quick) look at the verification mechanism of the new UK Register of Overseas Entities.” Open Ownership (blog), August 17, 2022. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 36 7. >>> Implementation Challenges and Emerging Responses The review of implementation experiences has identified five persistent implementation chal- lenges: data standards, data accuracy, compliance, outcome measurement, and reform sustain- ability. These challenges are encountered by countries with established registers and indicate areas for enhancing the impact of the BOT regime. However, effectively addressing these issues is equally important for countries newly embarking on the implementation of BORs to ensure meaningful long-term impact. Data Standards Utilizing a standardized data structure like the Beneficial Ownership Data Standard (BODS) is crucial, as it ensures consistency and harmonization across different registers, facilitating data exchange and interoperability between jurisdictions. Furthermore, it can enhance data quality and accuracy, enabling more reliable analysis and effective utilization of beneficial ownership in- formation for anticorruption, law enforcement, and transparency purposes. By providing a com- mon language and framework for sharing and accessing beneficial ownership data, it fosters trust and collaboration among stakeholders, including governments, regulatory bodies, financial institutions, and civil society. By adopting BODS for its national BOR, Nigeria has emerged as the first African country to uti- lize this standardized data format to register beneficial ownership information. (For details, see Implementation Insights from Nigeria, pp. 14–19.) Using standardized data enables seamless integration with beneficial ownership data from other countries, thereby increasing the effective- ness of collective efforts to combat illicit financial flows. The publishing of standardized beneficial ownership data in several countries has allowed CSOs to easily access and combine different datasets. A suite of tools has been developed that allows compliance professionals, journalists, and citizens to conduct more effective investigations into their clients, business partners, or elected officials. An example is the OpenScreening tool46 that combines beneficial ownership data with data from sanctions lists, politically exposed persons (PEPs), and offshore entities (Figure 9). The unified database includes information on about 26 million companies and 25 million persons of interest and can display some 106.5 million rela- tionships. The universal adoption of beneficial ownership data standards will further reinforce efforts to expose transnational networks of illicit financial flows and support effective and timely due diligence. 46. Linkurious. OpenScreening. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 37 Another important endeavor that contributes to enhancing the creation of an open, standardized database for legal entity beneficial ownership transparency is the global initiative reference data. The widespread use of LEIs would allow for advocating for the widespread adoption of Legal Identity better cross-referencing with other databases, enabling better Identifiers (LEIs). The LEI, a unique global code promoted by mapping of beneficial ownership relationships. the Global Legal Entity Identifier Foundation (GLEIF), enables > > > F I G U R E 9 - Visualization of Dataset Combining Beneficial Ownership Data with Data on Politically Exposed Persons Source: OpenScreening. Note: For a clickable visualization of this unified database (representing 106,512,292 relationships), see here. Data Accuracy Data accuracy is another key challenge, even in countries with Ensuring data accuracy involves data verification mechanisms advanced BOT regimes. Inaccuracies in beneficial ownership as well as proper form design and data collection. Having information can arise from unintentional mistakes or intentional reliable and up-to-date beneficial ownership data enhances efforts to mislead. Company ownership details are sensitive, credibility and trust in the system. It facilitates compliance, creating incentives to manipulate or conceal them, such as enforcement, and investigations, enabling more efficient through nominee arrangements.47 This makes the verification detection of financial crimes and noncompliance. Additionally, process for beneficial ownership data particularly complex and accurate data foster international cooperation by promoting underscores the importance of robust and reliable verification information sharing and collaboration among jurisdictions. mechanisms. 47. Nominee arrangements are one of the most common devices for hiding the identity of those controlling shell companies. For more information, see StAR (Stolen Asset Recovery Initiative). 2022. Signatures for Sale: How Nominee Services for Shell Companies Are Abused to Conceal Beneficial Owners. World Bank and UNODC. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 38 Responding to feedback from CSOs and internal evaluations accuracy of physical addresses in the register. Information that have raised concerns about the lack of quality of on the address of a company is collected to establish its information in the UK’s BOR, the government has proposed presence and jurisdiction. However, some companies provide new legislation to strengthen data verification mechanisms. false information about their physical address to evade taxes The new legislation seeks to enhance the reliability of the or obscure their true operations and avoid detection. One beneficial ownership information in the register by mandating registrar reported this as a significant issue, citing instances identity verification via an updated process. The new identity where companies that generate millions in revenue claim to be verification process will leverage authentication technologies operating out of demolished buildings. Verifying the accuracy that link individuals with authorized identity documents, where of the physical addresses provided can be challenging due to they will provide a photograph of their face alongside the limited resources for on-the-ground verification. This involves identifying document. Through likeness matching technology physically confirming the existence and location of a company, and validation of the photo ID, the identity verification is which can be time consuming and resource intensive, typically completed within minutes. Additional methods are especially when dealing with a large number of registered available for individuals without photographic ID, and digitally companies. However, there are alternative methods for assisted identity verification is an option for users who cannot verifying the accuracy of physical addresses, such as sending utilize the digital system. The identity verification service is a code by mail. currently planned to be facilitated by third-party providers. While data verification is an important aspect of beneficial In Nigeria, data accuracy is enhanced through pre-submission ownership registers, the absence of verification does not validation of beneficial ownership data by using unique invalidate reform efforts. Imperfect data still hold significant identifiers such as the National Identity Number (NIN). This value in combating corruption and money laundering. For automated process removes the necessity for manual entry, as instance, despite the UK’s BOR currently lacking verification, pertinent information from the NIN is utilized to automatically it has proven to be instrumental in uncovering leads for populate the form to register beneficial owners. investigations, including the high-profile Beirut port explosion case,48 and enabling the National Crime Agency (NCA) to Another remaining challenge to data verification is the issue an Unexplained Wealth Order (UWO).49 Compliance Compliance involves adhering to legal and regulatory Portal with the BOR, restricting eligibility to only those requirements set forth by governments and international companies that have registered their beneficial owners. organizations regarding the reporting and verification of Furthermore, authorities in Kenya are undertaking an outreach beneficial ownership information. While noncompliance initiative involving the distribution of a guide on the disclosure constitutes a legal offense in the countries examined, there of beneficial ownership information. are still significant noncompliance rates of up to 60 percent. Compliance can be increased by employing both the threat Macedonia has also taken an effective approach to augmenting and application of sanctions, as well as by raising awareness compliance rates and enhancing data accuracy by requiring and inculcating understanding of beneficial ownership banks to verify the information provided by their clients in the requirements among entities responsible for reporting BOR. information. The UK is currently foreseeing a clear protocol for In Kenya, compliance with beneficial ownership requirements noncompliance and applying sanctions. The new protocol for companies bidding on government contracts is ensured will have a clearly defined compliance period after which the through the integration of the Public Procurement Information sanctions regime will kick-in (Figure 10). 48. Ezeigbo, Chinwe Ekene, Tymon Kiepe, and Louise Russell-Prywata. 2021. Early Impacts of Public Beneficial Ownership Registers: United Kingdom – Case Study: The Beirut Explosion. 49. Ezeigbo, Chinwe Ekene, Tymon Kiepe, and Louise Russell-Prywata. 2021. Early Impacts of Public Beneficial Ownership Registers: United Kingdom – Case Study: Linking Politically Exposed Persons to UK Assets. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 39 > > > F I G U R E 1 0 - UK’s Proposed Identity Verification Mechanism for Beneficial Owners CH links PSC filing to verified account and notifies PSC of new filing PSC annotated as “verified” PSC opens PSC information verified account PSC identified submitted to CH. by company PSC added to PSC contacted register. to verify PSC does not PSC annotated as Non-compliance and verify identity “not verified” sanctions regime begins Compliance Period No “not verified” annotations “Not verified” annotations Source: Figure adapted from BEIS (UK government’s Department for Business, Energy and Industrial Strategy). 2022. Corporate Transparency and Register Reform White Paper, p. 46. Note: In the UK, beneficial owners are referred to as People with Significant Control (PSCs). CH = Companies House. Noncompliance remains a challenge despite countries’ efforts countries to glean insights from one another and develop an to address it through sanctions and information campaigns. optimal policy framework that combines effective deterrents However, many of these measures are relatively new, and their against noncompliance with information dissemination and impact is still unfolding. It is crucial to monitor their effectiveness awareness-raising efforts, ultimately leading to improved in improving compliance and to facilitate knowledge sharing compliance in the future. among countries. This exchange of experiences will enable Outcome Measurement As more countries adopt BOT legislation and establish BORs, data access. Based on a 2019 analysis, the aggregate annual the focus of reform is shifting from outputs to outcomes. The benefit to direct users of the BOR was estimated at $150 crucial question now is whether beneficial ownership data million. (For details, see Implementation Insights from the are being effectively used toward intended policy outcomes United Kingdom, pp. 24-28) such as increased effectiveness of AML/CFT systems, reduced corruption and illicit financial flows, strengthened tax Measuring the reduction in corruption and illicit financial flows compliance, enhanced law enforcement capabilities, fairer can be an indirect way to assess the impact of BOT reforms. business practices, and improved social contract and trust. By analyzing trends in financial crimes, money laundering cases, and asset recovery, it is possible to gauge whether Regarding usage statistics and overall benefits, the UK has the reforms have had a deterrent effect on illicit activities. For been monitoring the access numbers of its BOR, which example, a study looking at the impact of BOT reforms on reportedly received at least 10 billion accesses in 2020–2021. purchases by companies based in tax havens found that BOT, Furthermore, the UK conducted surveys to gauge the value if implemented correctly, has a strong deterrent effect.50 of the register to users, estimating the willingness to pay for 50. Colin, Matthew, Florian Hollenbach, and David Szakonyi. 2023. “The end of Londongrad? The impact of beneficial ownership transparency on offshore investment in UK property.” UNU WIDER Working Paper 2023/11. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 40 The impact of BOT on improving tax compliance can be indicators related to business growth, investment inflows, and measured by evaluating indicators such as increased tax market competitiveness. revenue, reduced tax evasion, higher compliance rates, decreased use of tax avoidance schemes, enhanced Furthermore, conducting surveys or assessments to gauge transparency in tax reporting, and improved cooperation with public perception and trust in the effectiveness of BOT tax authorities. These indicators provide insights into the reforms can provide valuable insights. Understanding the effectiveness of BOT reforms in fostering tax compliance and level of awareness, confidence, and satisfaction among the can guide further policy adjustments if necessary. public and relevant stakeholders can help assess the impact of enhanced BOT on the social contract and trust. Assessing the use and impact of beneficial ownership information by law enforcement agencies in investigations By measuring these outcomes, policymakers and stakeholders and prosecutions can also be indicative of the reforms’ can evaluate the overall effectiveness of beneficial ownership effectiveness. This can include measuring the number of reforms and make informed decisions to enhance their cases where beneficial ownership information has been used impact. However, the review of implementation experiences successfully, resulting in convictions or asset recovery. has highlighted the difficulty of establishing a direct causal relationship between BOT reforms and some of the indicators As for outcome measures related to the business environment, mentioned above. While finding outcome measures may be indicators can capture changes in investor confidence challenging, it remains essential for showing reform impact and perceived integrity and transparency in commercial and gaining the necessary support to further advance BOT. transactions. This can involve conducting surveys or analyzing Reform Sustainability Finally, an enduring challenge that has emerged from the If financing is primarily envisioned through government funding, examination of country cases revolves around the sustainability a constant budget line should be established to sustain the of reforms. It is vital to incorporate considerations for financial BOR. Alternatively, exploring partnerships and collaborations sustainability into the design and implementation process of a with development agencies or private sector entities can also new BOR right from the beginning. This involves developing secure funding. While external funding can play a crucial role a comprehensive long-term financial plan that outlines the in supporting the initial implementation of a BOR, it is less funding requirements for operating and maintaining the BOR suitable for long-term maintenance due to its higher volatility. over an extended period. This plan should consider various cost elements such as technology infrastructure, personnel, The BORs in Nigeria, North Macedonia, and Kenya have data verification, and ongoing system updates. been implemented with significant technical and financial assistance from donors, including the World Bank and GIZ. One approach to ensuring financial sustainability is through The BOR in Nigeria primarily relies on government funding, the establishment of cost recovery mechanisms, where users ensuring its continued operation and maintenance. In of the register pay fees or charges to access information. This contrast, the BOR in North Macedonia is sustained through a can also involve cost-sharing arrangements with regulated revenue stream generated from user fees, establishing a self- entities or professional service providers who benefit from the sustaining financing model for the register. (For details, see register. Consideration should be given to strike a balance Implementation Insights from North Macedonia, pp. 20-25). between generating revenue and ensuring the accessibility and affordability of the register. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 41 8. >>> Outlook and Future Topics Beneficial ownership transparency is an evolving field, with countries gaining practical insights as they implement measures to establish effective beneficial ownership systems. The aim of this note was to capture these implementation experiences, facilitate knowledge exchange, and promote peer-to-peer learning. Against a backdrop of low citizen trust in governments, caused by frequent corruption scandals, and the loss of public revenues due to tax evasion, there is a compelling need to unveil dubious corporate structures and improve beneficial ownership transparency. This endeavor necessitates concerted efforts and continuous learning involving governments, civil society, development partners, academia, and the private sector, as those engaged in corruption will consistently strive to identify new loopholes. Complementing this note, the World Bank’s Governance Global Practice organized a deep dive session on beneficial ownership registers at the 2023 Anticorruption for Development (AC4D) Global Forum in Washington, DC.51 This session brought together leading experts and practi- tioners involved in implementing beneficial ownership transparency reforms. It addressed per- sisting challenges and identified outcome measurement and the connection between beneficial ownership data and procurement data as key topics for future analytical work. 51. A recording of the deep dive session on beneficial ownership transparency at the Anticorruption for Development (AC4D) Global Forum in Washington, DC on June 26, 2023 is available here. BENEFICIAL OWNERSHIP REGISTERS: IMPLEMENTATION INSIGHTS AND EMERGING FRONTIERS <<< 42 Supported by the GovTech Global Partnership: www.worldbank.org/govtech