Countries developing a thorough system for obtaining, verifying, and holding beneficial ownership information should involve all stakeholders whose policies and work may be affected. A whole-of-government approach and bringing in the private sector can prevent bureaucratic overload and facilitate the adoption of new, trusted mechanisms for determining beneficial ownership.
Countries must consider several policy issues when developing and implementing a comprehensive system for obtaining, verifying, and holding beneficial ownership information. This chapter sets out some of these key considerations. Before adopting any new mechanisms, countries should ensure that adequate consultation takes place with standard setters and technical assistance providers.
Stakeholders
An effective system for obtaining and holding accurate beneficial ownership information on legal persons is likely to involve a wide range of stakeholders, so it is important for countries to adopt a whole-of-government approach when setting up the regime, especially given the importance of such information for many different sectors and processes. For example, it is likely that interested stakeholders from the public sector could include the following:
Ministries and public authorities responsible for anti– money laundering and combating the financing of terrorism, company creation, legal drafting, and budget (for example, Ministry of Justice, Ministry of Economic Affairs, Ministry of Finance);
Government trade/commercial departments (which have an interest in ensuring that countries remain competitive, including being attractive places to set up and run businesses);
Company registrars (which might already be the recipients of basic information and can be used in the process of holding beneficial ownership information);
Law enforcement and intelligence agencies, including financial intelligence units (which will need access to the information);
Supervisors (who might need access to the information and will be monitoring or supervising possible users and collectors of the information); and
Tax/revenue authorities (which are likely to interact with legal persons at various stages) and relevant authorities related to other transparency initiatives.
Countries should also involve the private sector as appropriate, including the following:
Trust and company service providers and notaries, if they are involved in setting up legal persons in a country;
Financial institutions and designated nonfinancial businesses and professions that need to identify and hold beneficial ownership information as part of their customer due diligence obligations and that would benefit from using a beneficial ownership registry; and
Nongovernmental organizations working on issues related to transparency— some of these organizations have been instrumental in helping to set up beneficial ownership registries in some countries.
Countries choosing to hold beneficial ownership information in a registry format will need to decide which public authority/body leads and is ultimately responsible for setting up and operating the mechanisms for obtaining, verifying, holding, and ensuring access to beneficial ownership information on legal persons. In some instances, this might involve setting up an entirely new agency (although adding this responsibility to a well-functioning company registry or other existing registries may also work). This will vary from country to country, but whatever authority or body takes the lead should have the stature and budget (including manpower) needed to deliver the beneficial ownership regime.
Complexity of Jurisdiction’s Legal Sector
The size and sophistication of the type of legal persons that can be created and operate in a country varies with each country. Each country should assess the money laundering and terrorist financing risks associated with all types of legal person created and operating in the country and should use the results to assess issues such as the scale of legal persons’ international operations, the types of activities they undertake, and the purposes for which the legal person is used in the country. For example, some financial and incorporation centers have many banks and trust and company service providers engaged in forming and administering companies mainly for nonresident clients. Issues related to international cooperation can be particularly relevant in these countries because other countries might depend on them to collect beneficial ownership information.
With information on the size, sophistication, and level of risk that the legal persons sector presents, countries must make policy decisions about the complexity of the regime required to ensure that beneficial ownership information is collected, held, and made available and that the system is appropriately supervised.
Legal/Regulatory Changes
Legislative changes will be required, depending on the extent of the changes made. Some of this can take time to implement, particularly if revisions are required to the commercial code and other key pieces of legislation. A public authority/body identified to obtain and hold beneficial ownership information may need additional legal responsibilities and powers to pursue these objectives, such as verification requirements and sanctioning powers.
Time Frame
Countries should also consider the time needed to implement changes to an existing system, such as how long it takes to enact any required legislation and whether regulations or issuing guidance could achieve the same result. For example, if the legal requirements are in place but not implemented effectively, guidance might encourage and ensure implementation.
Internal and external considerations will influence the time frame. Internal factors include the capacity and funding of the relevant organizations that might be involved in the beneficial ownership system (such as hiring and training staff and purchasing software or hardware). External factors can include pressure from the international community through poor mutual evaluation results or, for some countries, through requirements of action plans agreed to with the Financial Action Task Force.
Information Related to Existing Legal Persons
Countries must consider how to manage existing legal persons in addition to newly formed legal persons, especially when setting up new systems. One system should cover both newly formed legal persons and existing legal persons. Processes will need be in place to update information on existing legal persons (for example, by providing a time frame in which existing legal persons need to submit the information). Countries must also, in the development of their systems, consider how to manage the inclusion of information on foreign legal persons, if they choose to hold beneficial ownership of foreign legal persons operating in the country. Possible legal requirements for submission of this information, awareness raising, and monitoring how existing legal persons will be required to comply with these requirements are also important considerations.
Resources and Technical Considerations
Costs and technical capacity should be considered when deciding whether to develop a new beneficial ownership information system or make adaptations to an to an existing system. The cost of setting up a new system, such as a central database, will have to be assigned to a particular authority/body. Development of such a system will incur costs through hardware and software purchases, and the need to hire staff with relevant technical capacity. The system might eventually become self-funding, for example, through fees for registration and/or access to information. Making changes to an existing system may initially be less costly, but risks resulting in greater costs and potential inefficiencies as the system becomes operational if not fit for purpose. The cost of doing business for the reporting entities is equally important (see Box 5.1). The costs of a beneficial ownership system will vary greatly between countries, depending on the existing systems, the scope of coverage, and the type of registry or mechanism the country chooses to adopt.
Access to beneficial ownership information held in a registry format might be free or involve a charge. The access charge should not be so substantial that it discourages using the registry. Access by domestic and foreign law enforcement and FIs/DNFBPs undertaking CDD obligations should be free.
Technical considerations involved with setting up a registry, whatever format it takes, include ensuring that information can be entered easily into the database and that the information is searchable and in a machine-readable/ open-data format. Strong cybersecurity measures to avoid cyberattacks or fraud are also crucial, given the information’s sensitivity. Other considerations include how to provide access to other relevant authorities, particularly if different types of databases in a country need to be interlinked.
Consolidation of Requirements
Introducing measures to increase the transparency of beneficial ownership is sometimes perceived to have a negative impact on the business climate because of the increased compliance costs associated with implementing beneficial ownership requirements. Arguments against increased transparency include concerns that countries could lose business to other countries with lower transparency standards. However, this approach and these arguments disregard the longer-term benefits of integrity in business and government. More transparency can help improve the ease of doing business in a country. Countries that encounter lower standards in other countries or insufficient cooperation from other countries should consider raising these issue with the Financial Action Task Force or with the relevant Financial Action Task Force– style regional body to see how the other country can be assisted in raising its standards through training, technical assistance, or peer pressure.
Incorrect implementation choices can have a negative regulatory impact if countries simply add new requirements to an existing regulatory framework or if introducing beneficial ownership requirements leads to additional levels of bureaucracy and the need for new competent authorities. Such increased bureaucracy and red tape can also provide more opportunities for soliciting bribes, which can discourage legitimate business from operating in a jurisdiction.
Many of these possible negative impacts can be mitigated. The implementation of beneficial ownership requirements can be used as an opportunity to rationalize company creation and registration procedures, create new efficiencies, and reduce the administration involved in company registration, while introducing effective beneficial ownership requirements. Consolidating requirements can also have efficiency gains (see Box 5.1).
Consolidation of Registration Requirements into a Single Registration or Entry Point
Existing rules and regulations may require new legal persons to register with several government agencies and make use of specific gatekeepers. It is common for new companies to have to use a company registrar, notary, or company service provider and submit similar or identical information to company registries, chambers of commerce, tax authorities, market regulatory authorities, or other supervisors at many levels of government (for example, municipal, state, and federal).
For greater efficiency, governments can consider designating one competent authority as a single point for receiving information relating to the legal person (the entity required to receive all the necessary information from the legal person, verify it, and share it with other government entities, as needed). Sharing information among government entities allows government entities to match the shared information with their own databases and spot inconsistencies at an earlier stage. While rationalizing information streams, authorities need to consider the quality of the information needed to counter the abuse of legal persons and who needs to have access to it. Information that some competent authorities have historically requested from legal persons may no longer need to be submitted (for example, because the information may have become public, and the government can retrieve it easily). Authorities should consider this as part of the risk analysis of legal persons that the Financial Action Task Force standards require (see “Risk Assessments of Legal Persons” in Chapter 2). Good practice for countries that face the risk of bribery of public officials (especially relating to paying government employees to help navigate bureaucratic requirements) might include introducing a single registration point for legal persons because this will reduce the opportunities for such bribes. It will also reduce the cost of doing business, increase legal certainty for businesses, and reduce possible criminal legal liabilities for legal persons that might currently feel forced to pay bribes to avoid delays or be refused business opportunities.
A single registration or entry point for company creation and registration can reduce the overall regulatory burden for legal persons and minimize the additional costs of having to submit beneficial owner information to authorities. By doing so, authorities can use the introduction of beneficial ownership requirements and the legal and institutional changes that this requires as an opportunity to increase the country’s competitiveness (including for doing business) by reducing financial institutions’ cost and time burden and providing them with a reliable information source for a large number of domestic legal persons.
Source: IMF staff.References
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