Beneficial Ownership and Networks of Incorporation

2. In the corporate world

Beneficial ownership forms part of a larger scope of information and analysis known as due diligence.

Due diligence is typically carried out within the private sector, by one company or businessperson on another. There are two main triggers for carrying out due diligence i) regulatory requirements and ii) evaluation of transactions such as mergers and acquisitions of businesses.

As well as questions of ownership, due diligence processes typically cover issues such as:

  • Integrity checks, on business and legal procedures followed by a company or other actor in the market

  • Credit ratings, to check whether a company holds the necessary capital or access to it to carry out the transaction in question

  • Competence checks in technical areas

  • Background checks either i) for known criminal activity by any individual acting on behalf of the company, or ii) for connections to what are called Politically Exposed Persons (PEPs), meaning politicians or other figures who exercise direct influence over public policy.

The amount of corporate governance laws and regulations has grown significantly in recent times. For example, the US Foreign and Corrupt Practices Act of 1977 and the UK’s Anti-Bribery Act of 2010 make it a criminal offence for any company based in those countries to engage in bribery anywhere in the world.

Since the start of the 21st century there have also been broad laws introduced around the world against money laundering, and financing related to narcotic or terrorist activity. This has placed a heavy emphasis on companies developing systems to check their business partners are known entities and not engaged in any illegal activity.

Beyond mere compliance with the law in major jurisdictions, companies also regularly commission due diligence on potential business partners, as noted above.

Large companies have due diligence departments in-house, while other companies pay for corporate intelligence or large accounting firms to carry out these activities.

Beneficial ownership and natural resource governance

The last few years have seen questions of beneficial ownership rise rapidly up the agenda in terms of public transparency, both generally, across all economic sectors, and specifically in relation to the extractives sector.

The following sections describe some of the instruments and initiatives that have been developed to support increased transparency and governance.

The Extractives Industry Transparency Initiative (EITI)

The Extractive Industries Transparency Initiative (EITI) started to reference beneficial ownership in publications and board meetings in 2014. In 2016, it extended the core requirements of compliance within the initiative to include information about beneficial ownership.

By January 2017, all 51 member countries are due to have submitted a “roadmap” detailing how they will implement beneficial ownership information gathering, and to execute that plan by 2020. As with other scopes of information within EITI, the global board has left a measure of discretion to individual country boards as to how they will seek to implement this measure.

The Financial Action Task Force (FATF)

The Financial Action Task Force, originally established in 1989, re-issued its recommendations around money laundering in 2012, which led to a resurgence of interest in the field. FATF has a secretariat which is housed at the OECD headquarters in Paris.

Single Country Adoptions: the UK and Ukraine

In 2016, the United Kingdom published the first public registry of beneficial owners to be available as open data on the Internet. The registry was introduced because of a pledge by former prime minister David Cameron at a summit of the G7 in 2013.

Ukraine has also implemented a beneficial ownership register in 2014.

The Global Beneficial Ownership Register

In response to the growing interest around the topic, a proposal has also arisen to create a global registry of beneficial ownership which would be largely filled in by companies themselves. A pilot implementation has been funded by the British government, and set up by OpenCorporates, an open data company, and Global Witness, a London-based campaigning organisation.