Beneficial ownership: Data verification

How do you know that the individual identified as the BO is the real BO? Getting companies to file the BO data is only the first hurdle. Even if you have a name of a natural person deemed to be the BO, how to you know that this data is reliable? Key message 1: Agreeing an appropriate assurance procedure is key for the credibility of EITI’s BO data. Several examples of “false” BO data: GW report 2012 revealed how a dead person was considered the BO of a UK company. 2013 DRC EITI Report showed a BO that was not yet born. Key message 2: To some extent, public access to BO data is part of the verification process, as it allows the public to scrutinize and question whether the BO data is correct. This might lead to further investigations. Key message 3: Verifying BO data is difficult, and although there are some examples e.g from due diligence and “know your customer” checks carried out by banks or private companies, there is limited international experience to draw on. This presentation will give some examples of possible approaches.

Beneficial ownership verification: What the EITI Standard says “The MSG should agree an approach for participating companies assuring the accuracy of the beneficial ownership information they provide…” (#2.5.e)” (#2.5.f.i). Gives MSG mandate to agree appropriate approach. Should be agreed and communicated prior to data collection.

Beneficial ownership verification: Possible approaches Attestation. Requires the company to certify the beneficial ownership declaration form. Consider disclosing the name of the person certifying the form. Example: “I, undersigned, for and on behalf of the reporting entity confirm that all information provided in the above beneficial ownership declaration form is accurate and reliable.”

Beneficial ownership verification: Possible approaches 2. Supporting documentation. Require the company to attach supporting documentation to the declaration form, e.g. articles of association, powers of attorney, or copies of shareholder registers, verifying the correctness of the information. Example of power of attorney, confirming the rights of influence/control.

Beneficial ownership verification: Possible approaches 3. Confirmation procedure. Require that the company requests and provides a written confirmation from the beneficial owner. UK example: Information is “confirmed” if: The BO him/herself provided the company with the information about the beneficial interest held. The information was provided to the company with the knowledge of the BO. The company asked the BO to confirm that the information was correct, and the BO replied that it was correct.

Beneficial ownership verification: Possible approaches 4. Identify verification. Require that the company provides a verification of the identity of the BO, e.g. by attaching a copy of proof of identity (e.g. passport copy) to the BO declaration form. Example: US FinCEN rules on Customer Due Diligence for financial institutions. Note! This approach only verifies the existence of the beneficial owner. It does not verify that the beneficial owner is actually the owner of the legal entity in question. Nonetheless, it deals with the issue of ensuring that the BO is a living human being. It also assumes that an individual identified as a BO would contest that if it was not the case + enables law enforcement authorities to contact the person to verify the ownership held if needed.

Beneficial ownership verification: Possible approaches Note: The four approaches offer different levels of assurance – some provide stronger assurance than others. Consider a combination of the four approaches. Consider spot checks.

Beneficial ownership verification: Failure to comply with the agreed verification procedures Require the company to be transparent about efforts to identify the BO Disclose all steps taken to obtain information on the BO. Disclose the status, for example: The company has identified the BO, but has not been able to obtain verification of the BO status, or BO identity because…

Beneficial ownership verification: Failure to comply with the agreed verification procedures 2. Consider sanctions Examples: UK – criminal offence. Both company and BO risk 2 year imprisonment/ fines. Ukraine – administrative offence, head of legal entity subject to fines. Kyrgyz Republic – termination of the license.

Beneficial ownership verification: Discussion Discuss what an appropriate assurance scheme would look like in your country: Discuss the four approaches – what are the pros and cons/costs and benefits? Are there other approaches? Are sanctions for non-compliance necessary? If so, what should they be? Should there be sanctions both for non- reporting and for reporting of false information? Based on your discussion, what would be an appropriate verification procedure for EITI disclosure purposes?

Author: Dyveke Rogan Date: January 2017 Email: drogan@eiti.org - Telephone: +47 22 20 08 00 Address: EITI International Secretariat, Ruseløkkveien 26, 0251 Oslo, Norway