“Why do we need to disclose our ultimate owners?” and “Why impose an extra reporting burden?” These are just two of the many questions that company representatives ask when presented with the need to submit information on their beneficial owners – the real people who ultimately own or control the company. They are reasonable questions. Answering these questions and addressing other concerns should be part of a concerted communication and consultation strategy that forms a central thread of any government’s beneficial ownership (BO) implementation plan.
One of the key lessons from countries implementing BO registers is the need for extensive consultation with stakeholders. Some implementing government agencies have consulted only with other parts of government and civil society in the early stages. It is a mistake to limit consultation to these stakeholders only. Consultation with the private sector is a vital part of the design process of BO reporting.
The private sector is a central stakeholder in any BO register. Private sector companies will supply the information in the register and will be major users of a public register. Communication and consultation with the private sector will play an important role in creating awareness of the register, the reasons for implementation and what information is required. Effective communication with the private sector will increase the likelihood of compliance when the register is rolled out. Many governments have made the mistake of waiting until the legislative process is underway or even after the legislation has reached the statute book to start consultation with the private sector. This reinforces the perception that the BO reporting requirement is being imposed on business and is just an added compliance burden. Business will have no sense of ownership of the reporting system.
For countries putting in place a public BO register, there is another, possibly more important reason for effective communication with the private sector: creating awareness of the benefits that each company can gain from the register. These benefits are considerable and can make a significant contribution to a company’s risk management strategy. Companies can use BO information to answer questions about their suppliers, contractors and other business partners such as:
“Who really controls this company?”
“Are there any ethical concerns about this company?”
“Does it have any links to politicians?”
In return for the modest compliance burden of submitting BO information, the company has access to a vast database of useful information. The return on investment is considerable.
The communication strategy that supports the implementation of a BO reporting regime will have to reach a wide audience – every company in the country – and cater to a wide range of existing levels of understanding. Large companies may already have processes in place to collect and verify information on the ultimate owners of their suppliers and use it in their risk management processes. Smaller companies will have less capacity and probably a lower level of understanding. However, even in companies which have a sophisticated understanding of how to use BO information, that expertise may reside in one part of the company (e.g. procurement) and levels of awareness in other departments that can benefit (e.g. the sales) team may be low.
Consultation should start in the early stages of designing a BO reporting regime and continue through all stages of implementation and after the reporting regime becomes operational. Communication and collaboration with the private sector is needed to make companies aware of these benefits. This outreach strategy may also need to include some training on how to access the information and optimise its use. This communication and training may need to start with an explanation of what BO information is and is not. A lack of understanding of the difference between legal and beneficial ownership is a common barrier encountered in many countries as they try to implement BO reporting requirements, even in countries which have a long history of engaging on the topic.
Effective communication on the policy rationale for a BO reporting regime and the potential benefits to companies will make an important contribution to boosting levels of compliance. The answer to both questions posed at the start needs to go beyond, “because it is the law” or “our international partners are demanding it”. The answer to both questions is the same: it strengthens your social licence to operate and will ultimately contribute to making you a more attractive business partner.
Michael Barron and Tim Law are independent consultants that have advised governments on four continents on implementing effective beneficial ownership reporting systems.