What have seagulls got to do with beneficial ownership transparency? In many English coastal towns, seagulls pose a real problem as they attack people to steal food and they befoul buildings. Understanding who really owns these buildings is part of the solution. We will explain how a little later. For now, this is just one of many ways (big and small) in which beneficial ownership information can be used as part of the solution to a problem. Almost any organisation, indeed almost any individual person, can use beneficial ownership information to better understand who they are doing business with and improve the level of trust and integrity in society.
Quick and easy access to information on the real people who own companies is a relatively recent innovation and still not widespread. The UK established the first free-to-access public register of beneficial owners in 2016. It is called the Persons of Significant Control (PSC) Register and is part of the UK company register held by Companies House (https://find-and-update.company-information.service.gov.uk). Anyone, anywhere with access to the internet can search the register by company name or by individual person. Go on, give it a go. Only a handful of countries have publicly accessible beneficial ownership registers, but all EU member states are supposed to have them this year. Other countries around the world are also introducing them.
The UK government’s research suggests that small and medium sized companies (SMEs) are amongst the most frequent users of the PSC register. Research published in September 2019 by the UK’s Department of Business, stated, “The most common reasons for using the company search services were to confirm and check the consistency of information provided by companies (e.g. suppliers and/or customers), or as part of more detailed due diligence research into a company. The main beneficial outcomes for direct users were stated to be improved decision-making about suppliers or customers, or time savings to their organisations due to the information being readily available.”[1] Companies House data is accessed around 9 billion times per year and that access has more than tripled since access became free in 2015. The direct value of information to each user is estimated at £2000/year.
Companies House information provides a useful resource to conduct basic due diligence on your suppliers, customers, business partners, contractors and competitors. The need to know who you are really dealing with applies to all types of business and all types of industries, whether it is construction, manufacturing, pharma, energy, logistics, technology, hospitality, media or any other sector. SMEs often do not have the financial resources to commission due diligence enquiries from specialist providers but still need to know that the companies they are doing business are really who they say they are. SMEs also need to mitigate the risk of becoming inadvertently involved in conflicts of interest, corruption or other unethical and criminal activities.
Examples that we have come across include transport companies wanting to ensure that they are not dealing with wildlife smugglers, an energy company selecting a local partner, business consultants understanding the ownership structure of a new client, manufacturers ensuring that suppliers are not facing allegations of employing child labour and a fintech company identifying hidden government ownership in a potential business partner in a new market. In the real estate sector, there is growing pressure to know who is really buying and owning property. The US government has introduced obligations in some states for realtors to verify property buyers. While publicly available beneficial ownership information will not provide all the answers it will highlight red flag issues or provide comfort that a company and its owners are who they say they are.
Procurement is perhaps one business area where reliable beneficial ownership information has particular value. This is both for companies procuring goods and services and for companies participating in tendering processes. Emerging best practice is for companies undertaking procurement processes, especially for large and material contracts to demand that all bidders provide details of their ultimate beneficial owners. This allows the procuring company to understand fully who is bidding and contribute to an assessment of the best candidate to win the contract. For companies bidding for new business, repeated requests for the same ultimate ownership information, perhaps in differing formats, can be time consuming. It would be more efficient to be able to point to a central and reliable source. More importantly, publicly accessible information allows companies to understand who they are bidding against and identify any unethical practices such as conflicts of interest. This applies to both public and private sector procurement processes. In public sector procurement, there may be other considerations such as rules that favour local companies or bids from particular sectors of society. Beneficial ownership information allows bidders to ascertain whether companies are really owned by local citizens or have been set up as a front for others.
Back to the seagulls. They are a persistent problem in many coastal towns and undermine efforts to attract visitors. In one town in northern England, Scarborough, the local council offered grants to local businesses to put up nets on buildings to prevent the seagulls from having perches. However, the council struggled to find the ultimate owners of one of the largest and most prominent buildings in the town, creating a significant gap in the campaign to control the seagulls. While the UK has a land register, this provides legal ownership details and not always ultimate owners, especially where they are based overseas. The British government is introducing a register for the overseas beneficial owners of property in the UK. An individual or company buying property in the UK may not have a registered presence in the country and therefore not appear on the PSC register. More troubling, they may use an opaque overseas-registered company to conduct the transaction. This new register will close a significant loophole.
Michael Barron and Tim Law are independent consultants that have advised governments on four continents on implementing effective beneficial ownership reporting systems.
[1] Valuing the User Benefits of Companies House Data, Policy Summary, BEIS Research Paper Number 2019/015, https://www.gov.uk/government/publications/companies-house-data-valuing-the-user-benefits
