Disclosure of beneficiary owners: how to get matter off the ground?

Oct 04, 2018 | Justice

At the request of the Ministry of Justice, the EU Project “Pravo-Justice” held an expert mission with the purpose to give some guidance on how to set up an effective mechanism for verifying the reliability of the obtained information on the beneficiary owners. Thus, experts of this mission of the Project “Pravo-Justice”, Mariano Garcia Fresno (Spain) and Dan Johnson (The Isle Of Men, the Sovereignty of the British Crown), in the interview to Yurydychna Gazeta spoke about their mission in Ukraine and the key principles which their recommendations are founded on.

Original in Ukrainian: Yurydychna Gazeta, journalist Daryna Sydorenko

Signing the Association Agreement with the EU in 2014 arose the issue of bringing amendments not only to the legislation but also to the existing business processes. One of these amendments, also expected by the International Monetary Fund, was concerning counteracting fraud, corruption and money laundering, namely it was providing the information the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Units (the USR) about who is the ultimate beneficiary owner of a company. This is an individual who would make the ultimate impact on managing the entire business structure, who creates a team of management, bears responsibility for the company activities and gets its profit. Given all economic and political circumstances, the public announcement of the information about the end-beneficiaries can "open their eyes" to some of the processes and prevent negative consequences both for certain companies and for countries in general.

There are a few problems at the moment. One of them is non-disclose by some Ukrainian companies of the information about their end-beneficiary owners, although the deadline was set yet in 2015. According to OpenDataBot, as of February 2018, the amount of these companies was 16,743, which is not a critical mass, compared to the total amount of active enterprises.

Another problem is checking the already obtained information, in which the companies that are not willing to disclose all details, declare the so-called "nominees" (trusted agents, intermediaries, etc.) as their beneficiaries. Such an owner is a fictitious person, and there are no mechanisms for verifying these data.

Therefore, at the request of the Ministry of Justice, the EU Project “Pravo-Justice” held an expert mission with the purpose to give some guidance on how to set up an effective mechanism for verifying the reliability of the obtained information on the beneficiary owners. Thus, experts of this mission of the Project “Pravo-Justice”, Mariano Garcia Fresno (Spain) and Dan Johnson (The Isle Of Men, the Sovereignty of the British Crown), in the interview to the YG spoke about their mission in Ukraine and the key principles which their recommendations are founded on.

Given all the steps taken to implement the disclosure of end-beneficiaries mechanism, what exactly is this mission about? Dan Johnson: The main purpose of this mission is get some final understanding of how the disclosure mechanism of the end-beneficiaries works, what kind of data is requested and obtained, who obtains it, who it is about and how it is verified and confirmed. Once this is clear, the following procedure will take place - the development of a specific plan of action on collecting the data on beneficiary owners that will enable us to verify the reliability of information. By the end of our mission, a report will be published on the results of work and recommendations.

Will any support be provided to implement these recommendations? I think it will, because this has a serious political support. From our part, we are contributing by providing our own expertise, and the implementation of these recommendations will require some coordination between Ukrainian authorities.

In your opinion, what is the largest problem in the existing mechanism? Currently, the registrar is only responsible for collecting the information and making it public - that's all the law requires them to do. However, they do not have to check the accuracy of this information, which causes a lot of problems, and this is what we want to change.

Although your recommendations have not been complete yet, could you give us the outline of the key ideas-principles to apply in this situation?

Fundamentally, we are currently developing a structure and procedures respectively for different authorities that have access to various types of information. This is necessary so that they could get this information and compare it in the public register.

So, when the register has the data that someone is the owner of a particular company, this information should be verified with the data that the tax inspection has, for example. That is, if the company indicates that it has paid EU100,000 of dividends, it can be monitored if the respective individual indicated these funds in their declaration, and if they did not, then why. The individuals who are beneficiary owners of companies get profit from its activities, so the tax authorities are the respective source of data that allows to compare and verify if it has been properly declared.

Furthermore, banking institutions will also be able to verify this information with their available data. If there is a discrepancy, then it will be investigated.

Judging from the European experience, has there been any practice of introducing such mechanisms in the EU?

Each European jurisdiction has its own mechanisms, which have both legal peculiarities and characteristics of mentality. The registers of beneficiary owners are at different stages of implementation, thus the verification of this data is at different stages of implementation. Let’s take France for example, the information is already checked and verified, so there are examples of how it works. However, it is too early to say about the stories of success or failure concerning the implementation of these mechanisms.

Mariano Garcia Fresno: In most jurisdictions, there is an approach based on the risk analysis borne by both the company and the individuals. These approaches also depend on the methods of how the information is obtained and how it is verified. We would like to introduce the risk analysis approach here as well, but it is necessary to understand that the problem of verifying the data on end-beneficiaries is not a problem of Ukraine only. It exists in most countries too, and the solution to this problem is not easy. So this is a challenge for our mission, Ukraine and other countries as well.