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Who owns what? Three lessons for transparency in beneficial ownership

The authors work with the CSABOT project, offering training in beneficial ownership transparency. Our latest session (in France, June 2022) generated three clear lessons about its importance and practice.
Also available in French
3 August 2022
Through our work on beneficial ownership, we have learned that transparency is a key way to hold people to account; that legislation often falls short of what is needed; and that civil society cooperation can make better use of the existing data. Photo:
bowie15/iStock
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Hidden wealth, anonymous assets and illegitimate funds present problems for transparency – in France as elsewhere. The former prime minister of Czechia, for instance, owned a castle in France, undeclared to his home country, hiding in plain sight. Russian oligarchs have purchased properties along French shores. Today, sanctions against Russian oligarchs are making headlines, and massive data leaks regularly exposing hidden wealth have helped to draw attention to the concept of ‘beneficial ownership’ transparency.

What is beneficial ownership (BO)?

A ‘beneficial owner’ is the ‘natural person’, the real flesh-and-blood human being, who owns or controls a legal entity (eg a company, foundation or trust) – whether directly or indirectly.

Until recently, companies, criminals, wealthy individuals, and corrupt officials could easily stay anonymous, concealing their identity and their illicit practices.

With the adoption of legislation around the world requiring the disclosure of beneficial ownership and the establishment of public registers, it is now more difficult to remain in the shadows.

However, with the adoption of legislation around the world requiring the disclosure of beneficial ownership (BO) and the establishment of public registers, it is now more difficult to remain in the shadows, even though regulations often fall short of what is needed.

Three lessons learned for beneficial ownership

What’s important now is to understand and use the new information contained in these registers and disclosures. To that end, as part of the CSABOT project,bac88ee3c73e we (the authors) moderated a two-day training session in France on 29–30 June 2022. The discussions led to three main takeaways, relevant for anyone looking into BO transparency around the world.

Takeaway 1: Beneficial ownership transparency is more than a tool to fight illicit financial flows

BO was originally seen as a tool to deter and disrupt illicit financial flows, including corruption, money laundering and tax avoidance. But its importance actually goes far beyond that. BO transparency helps to hold companies and public officials accountable for their actions, for example by uncovering connections between human rights or environmental violations and those who benefit from them. BO disclosure can also help to expose bias in decision making, and conflicts of interest, like those that emerged during Covid-19.

BO transparency helps to hold companies and public officials accountable for their actions.

But knowing who is behind a legal entity is not sufficient to determine whether corruption or human rights violations took place. BO transparency is only one element. It is crucial to also look at corporate structures; how legal entities are linked and where they are registered; who the legal owners are; and the role of different countries (eg luxurious cars and houses may be purchased in France with proceeds of corruption that took place somewhere else, as shown by the Biens mal acquis case).

Takeaway 2: French laws on beneficial ownership ‘meet EU standards’ … but those standards are low

The European Union has a legal framework to combat money laundering (amended in 2018, with further revisions underway). Since 2015, it has included provisions on BO transparency and the establishment of registers of corporate entities (accessible to the public) and trusts (accessible only to those with a legitimate interest).

The French transposition of this framework includes provisions on BO in the monetary and financial code (for corporate entities) and in the manual for fiscal procedures (for trusts). A central, free, public register of BO for corporate entities was established, through which anyone can access the name, month and year of birth, nationality, and country of residence of the BO, as well as the nature and extent of the beneficial interest held.

Although French law is perfectly compliant with the EU framework, it has various gaps and loopholes, some of which stem from the framework itself, and others that only emerge in practice.

Although French law is perfectly compliant with the EU framework, it has various gaps and loopholes, some of which stem from the framework itself, and others that only emerge in practice:

  • Under EU law (and French law), the BO of a corporate entity is defined as the natural person who directly or indirectly controls more than 25% of the capital or of the voting rights in the company. This means that four people each holding exactly 25% of the company do not have to disclose their identity. A stricter definition could have been adopted by France (with EU directives, Member States can go beyond what is required) to make it more difficult to circumvent (e.g. setting no threshold).
  • One quarter of the corporate entities registered in France have not disclosed their BO.
  • Data on beneficial owners, such as country of residence or extent of the beneficial interest held, are often missing.
  • There is no publicly available information on whether clerks of the commercial court (the authority in charge of BO controls) have initiated controls or sanctioned companies for non-compliance with BO declaration obligations. Fines for breaches – 37,000 Euros for companies and 7,500 Euros for individuals – are hardly dissuasive, and could potentially promote deliberate non-compliance among the wealthiest.
  • Foreign companies operating in France do not have to disclose their BO, even as many foreign companies purchase expensive property.
  • There is a lack of information on corporate structures and corporate layers.

Takeaway 3: We must make the most of the BO data we have, using available networks and tools

Facing weak or non-existent data verification processes in public registries around the world, civil society actors have created networks and tools to make the most of the available data, to improve transparency and public accountability.

These groups investigate whether BO data is accurate and they search for clues around potential illegal activity. Global Witness, for instance, conducted in-depth studies on the UK BO register, showing the pervasiveness of implausible data entries, shell companies, ‘straw men’, and illegal practices such as circular ownership structures. The Tax Justice Network has contributed with detailed guidance for public authorities on how to best organise data verification processes.

Facing weak or non-existent data verification processes in public registries around the world, civil society actors have created networks and tools to make the most of the available data.

Furthermore, civil society has created tools that assist journalists, academics and concerned citizens. For example, the International Consortium of Investigative Journalists (ICIJ) has an extensive database of leaked data called Offshore Leaks. Others, like the Organised Crime Corruption Reporting Project (OCCRP), are developing complex databases that connect publicly available datasets, yielding remarkable research insights (OCCRP Aleph). The Tax Justice Network publishes vast databases that cover a variety of transparency indicators (Financial Secrecy Index), and tax data (Corporate Tax Haven Index). In France, we see inspiring initiatives, with companies making accessible a number of government open-data sources (Koumoul) and web platforms providing business documentation free of charge (Pappers).

BO trainings should be organized around the world

The two-day training was not only filled with constructive analysis and criticism of France’s BO registries, but was also rich in civil society cooperation tools, deepening networks in the fight for transparency. The session also highlighted how important it is to build and share knowledge on BO and make use of the available data.

We hope more trainings like this one will be organised within the EU and beyond so that more can join the fight for transparency and accountability.

  1. Supported by the European Commission, the CSABOT project (Civil Society Advancing Beneficial Ownership Transparency) organises a series of two-day training sessions in seven countries across Europe, joining forces with Transparency International, Tax Justice Network, Transcrime, and the Government Transparency Institute. These sessions bring together experts, civil society organisations, journalists, academics, lawyers, and the private sector to discuss the national legal framework, how to use BO information and the challenges and opportunities for BO transparency in their country.

About the authors

Sophie Lemaître

Sophie Lemaître is a Senior Adviser at U4 Anti-corruption Resource Centre. Sophie leads U4’s thematic work on natural resources and on illicit financial flows.

Lucas Millán

Lucas Millán is senior researcher for the Tax Justice Network's Financial Secrecy Index and Corporate Tax Haven Index. He researches technical aspects of corporate tax evasion.

Disclaimer


All views in this text are the author(s)’, and may differ from the U4 partner agencies’ policies.

This work is licenced under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International licence (CC BY-NC-ND 4.0)

Keywords


illicit financial flows, beneficial ownership , transparency, money laundering, anti-money laundering, datasets, open government