Beneficial Ownership – Knowing the Rules

Before COVID-19, the two of us would do quite a lot of business travel, and that inevitably involved time waiting. Waiting in an airport, waiting for a transfer, waiting in a queue… And there were a few conversations which seemed to come up time and again, such as: how exactly do you count how many countries you have visited? Does transiting in an airport count? Do you need to spend a night in the country? When it comes to the US, do you count the whole US or only the states you have visited?

One of the compelling cases for public registers of beneficial ownership is the use case of that data. Users include domestic and international law enforcement agencies, private sector businesses, civil society and investigative journalists. Users of publicly available registers can access this information in a variety of ways, ranging from freely accessible online portals, to services whereby information can be requested upon the production of a legitimate interest. But in all cases, getting the BO data is only part of the story.

There is no single agreed standard or definition of beneficial ownership across the world. Variations in scope and threshold are common. But when you get into the detail of how politically exposed people are defined, for example, the differences can be quite complex. Understanding the exact definition of BO being used by a register is absolutely essential if users are going to be able to correctly interpret the data. Even though the public-facing element of the register might not be used by companies reporting their BO, a clear statement of the definitions being used is essential.

The answer to the question “Who are the beneficial owners of company X?” can only be properly understood if you also know the answer to the question “How does this register define a beneficial owner?” Unless you know the rules, you can’t really understand the answer.

For example, if a country introduces a BO regime with a reporting threshold of 20%, say, a company with 6 equal shareholders will report no beneficial owners. But unless the user of that register knows that the threshold is 20%, they have no way of knowing what level of interest and individual could have without having to disclose. Users shouldn’t need to delve into legislation or regulations in order to understand what is shown on a public BO register. That information should be made clear for all to see.

So a vital element of any public BO register is a clear public statement as to the exact definitions used in collecting and verifying the data. Users need to understand exactly what the rules are in order to meaningfully interpret the data.

That statement should be available alongside the register, and should reflect the same rules applicable to companies who are reporting their BO.

And as for the discussion we have about countries visited, the latest agreement is that you can count a country if you leave the airport. Those are the rules. Of course, I’m not giving any guarantees that the subject won’t be debated again once COVID restrictions are eased, and we start travelling again. 

Michael Barron and Tim Law are independent consultants that have advised governments on four continents on implementing effective beneficial ownership reporting systems.