Missing the mark? Why the future of beneficial ownership rules hangs in the balance

The EU is pushing member states to introduce public registries of beneficial ownership. Will other regions follow suit? 

Within Europe there’s often an assumption that the rest of the world will eventually follow its lead on transparency regulation. But I’m very sceptical about whether we’ll see most financial centres outside the EU following suit on public registries. Partly because there’s been a lot more political traction and NGO influence in Europe than in the US, let alone the rest of the world, where the issue of public registries appears to be very unimportant. 

In the US, we might see a beneficial ownership registry – or some kind of weak equivalent of it – emerge, but I don't think it will be public, and unlikely a stepping stone to public registries. 

Even in the EU, many member states have been dragging their feet. What are some of the challenges to implementing and maintaining public registries? 

A lack of resources to verify the information held in public registries, and an inability to take enforcement action where information is inaccurate or incomplete, are the key challenges. 

There are a huge number of companies and very few regulators. For instance, there may be around two million companies in the UK and just a handful of people responsible for collecting and maintaining the information for them, which effectively means it’s impossible for the regulators to properly scrutinise each company. 

I previously conducted some research with the World Bank in which we asked company registries in different countries if they’d like to be the official repository of beneficial ownership information. Their answer was “No”. They already had tons of information to maintain, so they didn’t want to create more work for themselves, especially because their respective governments were not going to provide them with more resources to do this. And sure enough, governments gave company registries neither more money nor more people to do this; they just gave them more work. 

How effective have public registries been to date in combatting money laundering and tax evasion? 

I can see some disillusionment with what public registries actually do, similar to the constant over-hyping of any new legal tool which is meant to "fix the problem", whatever the problem is. As soon as it’s introduced, it doesn't work — money laundering and corruption and tax evasion continue. That’s partly because a lot of the information fed into registries is junk. Public or private, bad information is bad information. 

Even in Europe, where I think the trend will continue for things like trusts, I don't think public registries are going to achieve the policy aims that they were set out to. Journalists and NGOs are the parties who are most likely to benefit, which is not necessarily a bad thing. But for actual law enforcement and for regulators, public registries will be much less useful. For those countries looking to fix their law enforcement or regulatory problems, there are many more effective things that they could, and probably should, be doing, rather than setting up beneficial ownership registries. 

The EU’s rules are now facing legal challenge. Is the future of public beneficial ownership registries under threat, even within Europe? 

I think they will continue to face legal opposition. There have already been some interesting court decisions. For instance, a French Court said that a public beneficial ownership registry of trusts is contrary to data protection laws, because the government must have a clear purpose for collecting and publicizing an individual’s information. 

The onus is not on the individual but on the government to make the case. And the court decided that such a public register would be a disproportionate breach of privacy rights. 

Legality aside, I think there’ll also be serious questions raised about the usefulness of public registers if governments don’t invest more in enforcing them. So far, the EU’s reforms have been a story of the continuing triumph of optimism over experience. 

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