Feature: Verification of beneficial ownership information

[StephenAbbott]

[This ticket helps track progress towards developing a particular feature in BODS where changes or revisions to the standard may be required. It should be placed on the BODS Feature Tracker, under the relevant status column.

See Feature development in BODS in the Handbook.

The information in this first post on the thread should be updated as necessary so that it holds up-to-date information. Comments on this ticket can be used to help track high-level work towards this feature or to refine this set of information.]

Feature name: Verification of beneficial ownership information

Feature background

What user needs are met by introducing or developing this feature in BODS? [Summarise these needs. Link to user stories, reports, blogs and other evidence where possible. Or add user stories here directly.]

Verifying beneficial ownership data and keeping it up-to-date are both crucial ways to build trust in the accuracy of the data and the effectiveness of disclosure regimes. This is why Open Ownership has enshrined verification and keeping data up to date and auditable in our Principles for Effective Beneficial Ownership Disclosure.

In May 2020, Open Ownership produced a policy briefing on the verification of beneficial ownership data setting out how verification “is the combination of checks and processes that a particular disclosure regime opts for to ensure that the beneficial ownership data is of high quality, meaning it is accurate and complete at a given point in time”. The briefing sets out how a range of checks are more achievable with well-structured beneficial ownership data including those carried out at the point of submission and after submission.

Open Ownership’s response to the Financial Action Task Force (FATF) consultation on revisions to Recommendation 24 and response to BEIS consultation on Corporate Transparency and Register Reform from 2019 repeatedly emphasise the importance of verifying beneficial ownership data with our BEIS response going so far as to say “without verification, the potential of beneficial ownership data as an anti-money laundering tool will be lost”.

In later responses submitted to the UK government's Corporate transparency and register reform: powers of the registrar consultation which ran in 2020/2021, Open Ownership welcomed plans to give the registrar greater powers to query and remove information from the Companies House register including the information collected and published on persons of significant control. Open Ownership also welcomed proposals to strengthen the verification of personal identification documents for those listed as corporate directors although we expressed reservations about the challenge of conducting such checks on foreign entity corporate directors.

Toward the end of 2021, FATF revealed its proposed revisions to Recommendation 24 on beneficial ownership and carried out a public consultation. The proposed revisions would strengthen FATF's guidance around countries and timely access to adequate, accurate and up-to-date beneficial ownership information. Specifically, FATF's draft text sets out that:

Accurate information is information which has been verified to confirm its accuracy by verifying the identity and status of the beneficial owner using reliable, independent source documents, data or information. The extent of verification measures may vary according to the specific level of risk.

These revisions are due to be discussed at FATF meetings in February 2022.

In 2019, the Tax Justice Network produced a paper titled ‘Beneficial ownership verification: ensuring the truthfulness and accuracy of registered ownership information’ setting out the importance of ensuring the accuracy and validity of beneficial ownership information as well as providing international case studies for how a variety of countries are starting to address tackling these issues.

Also in 2019, FATF published their Best Practices on Beneficial Ownership for Legal Persons setting out case studies from countries including Denmark and France on how they deploy a variety of verification mechanisms, as referenced in Open Ownership's verification briefing. And that same year saw the publication of EITI's report on Legal approaches to beneficial ownership transparency in EITI countries listing legally mandated data verification mechanisms from the European Union, Ghana, Indonesia, Malawi, Peru, Ukraine, United Kingdom and Zambia.

The European Union's fifth anti-money laundering directive from 2018 states "accurate identification and verification of data of natural and legal persons are essential for fighting money laundering or terrorist financing" as well as introducing amendments to strength the focus on measures that obliged entities need to take to verify the identities of named beneficial owners.

Here are some user stories relating to verification:

• As a company registrar, I want to show when my team have verified beneficial ownership data or records in order to increase confidence and trust in the data we publish
• As a civil society organisation investigating beneficial ownership records in a national register relating to politicians in my country, I want to be able to see when data has been verified to ensure that I have trustworthy information on which to base my investigations
• As a business owner carrying out due diligence processes before undertaking a partnership with a new business partner, I want to look at verified beneficial ownership information in a public central register to make me confident that I know who the real owners of my partner organisation are
• More user stories to be added...

What impact would not meeting these needs have?

For ownership or control, person or entity statements in BODS, it is currently possible to show that statements have been verified within BODS 0.2 by using verified in the sourceType array (see Github issue for worked example). Publishers can also provide a description for the source of the verification, a URL to the source, a retrievedAt date for when this verification information was retrieved/received and use the assertedBy array to give a name and URI for the agent providing the verification information. However, given that many beneficial ownership registers do not have built-in verification mechanisms at present, all of these fields are optional.

How important is it to meet the above needs?

Verification of beneficial ownership data is crucial to bolster trust in the data and facilitate the increased use of that information in jurisdictions across the world to achieve some of the key aims of beneficial ownership transparency. Being able to best represent and capture verification activities in structure beneficial ownership data is therefore a high priority.

How urgent is it to meet the above needs?

Further investigation, evidence gathering and work with implementers will be needed in order to understand whether the verification mechanism present in BODS 0.2 fulfils the requirements of publishers and users of beneficial ownership data or whether additional changes to BODS will be required.

Are there any obvious problems, dependencies or challenges that any proposal to develop this feature would need to address?

More investigation is needed into user requirements and needs but a challenge for the team working on BODS will be to understand whether the current approach where an entire BODS statement is marked as verified is suitable for user needs or whether a different approach is needed where publishers and data users can point to a particular field in a BODS statement which has been verified.

An open question which needs further investigation by the Open Ownership team and where we would welcome further external inputs is whether those implementing BODS and using it to provide verification information about statements would benefit from also being able to record IDs for agents (see comment on related Github issue).

Feature work tracking

[Link to proposals, bugs and issues in the repository to help track work on this feature]

See issues #16 and #271

[StephenAbbott]

As part of ongoing research and investigation into emerging issues relating to beneficial ownership verification by the Open Ownership team, my colleagues Thom Townsend and Tymon Kiepe have just published a blog post looking at the verification mechanism of the new Register of Overseas Entities in the United Kingdom which "applies to overseas entities that want to buy, sell or transfer property or land in the UK, and will also apply retrospectively to varying degrees in England and Wales, and Scotland":

https://www.openownership.org/en/blog/a-first-quick-look-at-the-verification-mechanism-of-the-new-uk-register-of-overseas-entities/

[StephenAbbott]

Noting here that the European Union's draft sixth anti-money laundering directive contains the following section on discrepancy reporting and/or verification of BO data:

5.Member States shall require that the beneficial ownership information held in the central registers is adequate, accurate and up-to-date. For that purpose, Member State shall apply at least the following requirements:

(a)obliged entities shall report to the entity in charge of the central registers any discrepancies they find between the beneficial ownership information available in the central registers and the beneficial ownership information available to them pursuant to Article 18 of Regulation [please insert reference – proposal for Anti-Money Laundering Regulation].

(b)competent authorities, if appropriate and to the extent that this requirement does not interfere unnecessarily with their functions, shall report to the entity in charge of the central registers any discrepancies they find between beneficial ownership information available in the central registers and the beneficial ownership information available to them.

6.Member States shall require that the reporting of discrepancies referred to in paragraph 5 takes place within 14 calendar days after detecting the discrepancy. In cases of lower risk to which measures under Section 3 of Chapter III of Regulation [please insert reference – proposal for Anti-Money Laundering Regulation] apply, Member States may allow obliged entities to request the customer to rectify discrepancies of a technical nature that do not hinder the identification of the beneficial owner(s) directly with the entity in charge of the central registers.

7.Member States shall ensure that the entity in charge of the central registers takes appropriate actions to cease the discrepancies, including amending the information included in the central registers where the entity is able to identify and verify the beneficial ownership information. A specific mention of the fact that there are discrepancies reported shall be included in the central registers and visible at least to competent authorities and obliged entities.

[StephenAbbott]

As part of Open Ownership's ongoing work with implementers to understand and respond to needs relating to beneficial ownership verification, I am sharing a sample implementation checklist for designing beneficial ownership data verification systems created by my colleague Peter Low and recently published on openownership.org.

[StephenAbbott]

On 25th October 2022, the Financial Action Task Force published draft guidance on beneficial ownership as part of its work to revise and update Recommendation 24.

This guidance is due to be finalised by February 2023 and includes recommendations on how to address the verification of beneficial ownership information including how to verify identities and to verify the information that leads to the person being classified as a beneficial owner.

[StephenAbbott]

As part of work to implement the Register of Overseas Entities in the UK as legislated for in the Economic Crime (Transparency and Enforcement) Act 2022, the registry team at Companies House has published technical guidance setting out all the potential ways that overseas companies can provide registration details/documents and the ways that those details can be verified by professionals authorised to carry out anti-money laundering checks.

[StephenAbbott]

On verification, the final consolidated text for the EU's Sixth Anti-Money Laundering Directive says the following:

The accuracy of data included in the beneficial ownership registers is fundamental for all of the relevant authorities and other persons allowed access to that data, and to make valid, lawful decisions based on that data. Therefore, Member States should ensure that the entities in charge of the central registers verify, within a reasonable time upon submission of the beneficial ownership information and on a regular basis thereafter, that that the information submitted is adequate, accurate and up to date.

Member States should ensure that entities in charge of central registers are able to request any information they need to verify beneficial ownership information and nominee information, as well as situations where there is no beneficial owner or where the beneficial owner(s) could not be determined , in which case the information provided to the register should be accompanied by a justification including all relevant supporting documents to enable the register to ascertain whether this is the case. Member States should also ensure that the entities in charge of the registers have at their disposal adequate tools to carry out verifications, including automated verifications in a manner that safeguards fundamental rights and avoids discriminatory outcomes.

[StephenAbbott]

Also see verification of beneficial owner identities in final consolidated text for the EU's Anti-Money Laundering Regulation:

Beneficial ownership information shall be obtained and reported to the register referred to in Article 10 of Directive by the legal entity without undue delay after its incorporation. Any change of the information shall be reported to the register without undue delay and no later than 28 calendar days following the change. The legal entity shall regularly verify that it holds updated information over its beneficial ownership. As a minimum, such verification shall be performed annually whether as a self-standing process or as part of other periodical processes, such as the submission of financial statement.