The Global Beneficial Ownership Register: a new approach to fighting corruption by combining political advocacy with technology

May 11, 2016

     By Duncan Green     

A second post on corruption ahead of tomorrow’s summit. Activists are often more concerned with how they see David McNairthe world than with understanding how others see it, but understanding what motivates and incentivises others is crucial to building coalitions for change. Transparency campaigner David McNair describes one such example, a wonky-but-important demand for a Global Beneficial Ownership Register to curb tax evasion.

After more than a decade of campaigning to open up tax secrecy in offshore (and on-shore) centres, we can claim some success. But not all of that can be attributed to campaigners.

Ahead of the financial crisis, our arguments didn’t get much of a hearing. The crash changed all that. Post 2008, when countries the world over were chasing revenues, they were no longer so willing to turn a blind eye to offshore evasion – and that – with a push from campaigners – led more than 80 governments to automatically share tax information.

anti corruption summit logoThe next fight lies in pursuing information on the true ownership of companies and other legal entities. The Panama Papers have shown us how the establishment of anonymous companies happens on an industrial scale. These companies are routinely used to channel ill-gotten gains away from the oversight of governments and regulators. Here progress has been less impressive – unsurprising given the cast of those among the global elite who are implicated.

The gold standard here is public disclosure of the true ‘beneficial ownership’ of companies and trusts. Groups like Global Witness, Oxfam, ONE, Christian Aid, Transparency International and others have been pushing this for a long time – securing commitments from the UK, Netherlands, Australia, South Africa and Nigeria.

But the European response in the Anti-Money Laundering Directive has been half baked, and the US has shown little willingness to police the problem. Even the UK, as a first mover, actively pushed for trusts to be left off the table in Europe. And this month, offshore centres like Cayman Islands celebrated the UK’s leniency when Prime Minister David Cameron congratulated them for how far they have come, despite the fact that their proposal falls far short of public transparency. These loopholes risk creating a game of whack-a-mole – where the problem gets solved and then pops up somewhere else.

In response, an unusual coalition of business leaders, NGOs, and a tech startup have launched a new initiative to dealend tax havens with the problem in a very different way: the Global Beneficial Ownership Register.

Grand corruption is a networked problem; to fight it we need a networked solution.  Often money launderers will establish a firm in one country, which is, in turn, owned by another company or trust in another country. These legal structures are like russian dolls. Pretty soon it becomes very very difficult to track who owns what.

This register would be the ‘Google search’ of who owns legal entities. Developed by Opencorporates, the largest open database of companies with 99 million firms on its books, this tool aims to enable investigators and corruption fighters to follow the money and see the connections between ownership of companies and trusts the world over.

It removes the technical barrier for governments (e.g. of smaller countries) to address company secrecy by providing a tech tool (like gmail) that could be taken and adapted by a country to its own circumstances. This removes the argument that the problem is too difficult or costly to solve.

But for success, we need to build and align incentives not just for those that care about corruption, but also for public institutions and business.

tax havens google searchHere the critical piece is helping to reduce the burden of risk management and due diligence for accessing public procurement, export credit or for becoming a supplier to a large multinational. Businesses want to know who they are doing business with, to reduce the risk of fraud, failed contracts or investments. They don’t want to inadvertently do business with politically exposed persons (which can now result in hefty penalties and ongoing drops in stock value).

Institutions and businesses can use the register as one step in a procurement process, requiring bidders to register their ownership. This can be combined with contractual liabilities for fraudulent disclosure while allowing the ownership information to be subject to checks by investigators, journalists, civil society and other interested parties due to it being public.

This in turn, provides an incentive for others to register voluntarily. Their data will integrate with the data aggregated from all public registers of beneficial ownership and information that can also be “scraped” from filings companies make in other kinds of registers and regulators.

Making the register work for business means addressing data quality and being able to prove the benefits of network effects – that a much wider set of people can alert you to a political connection through their access to the information. Donors too have expressed an interest in using the tool to increase transparency and manage risk around their procurement.

As this coalition develops the register, working with all the different types of users – governments, international no economic reason for tax havensinstitutions, businesses, civil society, journalists – will be critical to designing a platform that plays its role in getting rid of company and trust secrecy.

But it is also critical for building the kind of coalition of unusual suspects that can make the case that this kind of policy is needed, is feasible and will make a difference.

David McNair is Policy Director for Transparency at The ONE Campaign. @david_mcnair