Transparency about company and government payments is important for accountability, but tells citizens little about who owns extractive companies and ultimately benefits from the companies’ activities. In many cases, the identity of the real owners – the ‘beneficial owners’ – of the companies that have acquired rights to extract oil, gas and minerals is unknown, often hidden behind a chain of corporate entities. This opacity can contribute to corruption, money laundering and tax evasion in the extractive sector.
Pilot
The EITI has launched a pilot on beneficial ownership which seeks to ensure that information about extractive companies’ beneficial owners is available to the public. The objective of the pilot is to assess the feasibility of requiring beneficial ownership disclosure through the EITI, including reviewing existing disclosure practices in implementing countries participating in the pilot and identifying suitable approaches for disclosure.
Eleven EITI countries, Burkina Faso, the Democratic Republic of Congo, Honduras, Kyrgyz Republic, Liberia, Niger, Nigeria, Tajikistan, Tanzania, Togo and Zambia, are now taking part in the pilot and will disclose the identity of the real owners behind the extractive companies operating in their countries. Mongolia, Myanmar, Norway, the Philippines, Sierra Leone, and the United Kingdom have also expressed an interest and are undertaking work on beneficial ownership outside the scope of the pilot. Iraq and Trinidad and Tobago originally signed up to the pilot but have subsequently decided to put it on hold. The pilot will run until late 2015, with evaluation to commence in mid-2015. Expected outputs from the pilot include (i) a report on lessons learned; (ii) a guidance note on approaches for beneficial ownership disclosure through the EITI; and (iii) a widely-applicable agreed procedure for reporting on beneficial ownership.
Background
The EITI Board agreed at its meeting in Oslo in February 2013 that following a period of testing and learning, the EITI should in the future require disclosure of beneficial ownership in oil, gas and mining companies operating in implementing countries. While the Board noted the importance of transparency of beneficial ownership to the effective governance of the extractive industries and as a check against corruption, the Board also recognised that there was limited experience in addressing these issues in the context of the EITI, and that additional piloting and experimentation was needed. There was also a need for reviewing complementary approaches, such as the Financial Action Task Force and proposed EU anti-laundering regulations. Thus, the Board agreed to recommend disclosure of beneficial ownership information until the feasibility of requiring such disclosures had been established.
Requirement 3.11
3.11 Beneficial ownership
- It is recommended that implementing countries maintain a publicly available register of the beneficial owners of the corporate entity(ies) that bid for, operate or invest in extractive assets, including the identity(ies) of their beneficial owner(s) and the level of ownership. Where this information is already publicly available, e.g. through filing to corporate regulators and stock exchanges, the EITI Report should include guidance on how to access this information.
- Where such registers do not exist or are incomplete, it is recommended that implementing countries request companies participating in the EITI process provide this information for inclusion in the EITI Report.3
- It is required that the government and/or state owned enterprises disclose their level of beneficial ownership in oil, gas and mining companies operating within the country, and any changes in the level of ownership during the accounting period covered by the EITI Report (Requirement 3.6(c)).
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Definition of beneficial ownership:
- A beneficial owner in respect of a company means the natural person(s) who directly or indirectly ultimately owns or controls the corporate entity.
- Where the multi-stakeholder group addresses beneficial ownership, the multi-stakeholder group should agree an appropriate definition of the term beneficial owner. The definition should be aligned with 3.11(d)(i) above and take international norms and relevant national laws into account.
- Publicly listed companies, including wholly-owned subsidiaries, are not required to disclose information on their beneficial owner(s).
- In the case of joint ventures, each entity within the venture should disclose its beneficial owner(s), unless it is publicly listed or is a wholly-owned subsidiary as per 3.11(d)(iii). Each entity is responsible for the accuracy of the information provided.
Progress with the pilot
In February 2014, the EITI issued Terms of Reference (ToR) for the pilot and guidance to MSGs is available here: English | French | Russian | Spanish
Pilot countries are now working on the preparations for data collection as well as disclosure of beneficial ownership information as part of the EITI reporting process. This work also includes agreeing an appropriate definition of beneficial ownership and suggest a methodology for disclosure of beneficial ownership information. In addition, many countries have undertaken assessments of existing and potential systems and requirements for filing information about ownership.
A model beneficial ownership declaration form has been developed: English | French | Russian | Spanish. Pilot countries may wish to use this declaration form for collecting information on beneficial ownership.
For questions about the beneficial ownership pilot, please contact Dyveke Rogan (drogan@eiti.org) at the International Secretariat.
Pilot country updates
Below is an update on progress with the pilot as of January 2015. For further information, please contact the relevant country manager.
| Burkina Faso | Burkina Faso is currently collecting beneficial ownership data. It is likely that the report will be published in February 2015. |
| DRC | Of the 118 companies included in the 2012 EITI Report in the Democratic Republic of Congo, 2 companies did not have any beneficial owner in accordance with the 25 % threshold used to define a beneficial owner. For example, Kamoto Copper Company is owned by seven other companies, which each own less than 25% of the company. 49 companies either fully disclosed the name(s) and level of ownership, or indicated that they were publicly listed or state-owned. 56 companies provided partial disclosures, i.e. a mix of names of shareholding companies and beneficial owners. 11 companies did not provide any information. The report notes that there is no mentioning of the concept of beneficial ownership anywhere in Congolese law (p.43). Therefore, the MSG agreed its own definition of beneficial ownership that stipulated that any person holding at least a 25% ownership interest in an extractive company is considered a beneficial owner. Although only two of the 118 companies did not have any beneficial owners according to the threshold, the beneficial owners of many intermediate companies with ownership interest of e.g. 20% have not been disclosed because of the level of the threshold. Companies were also asked to disclose any beneficial owners that are ‘politically exposed’. In one instance, the beneficial ownership declarations reveal that a member of parliament elected in 2011, owns 100 % of a mining company. It is not however clear from the report whether this interest was acquired before or after he was elected. |
| Honduras | Honduras has completed a scoping study on beneficial ownership disclosures. The study asserts that there is no legal definition of beneficial ownership in Honduras and suggests one. It also identifies that there are legal barriers to disclosing personal assets. Honduras' EITI Report due in May 2015, will thus include beneficial ownership disclosures from companies that voluntarily agree to have these details published. The threshold for ownership reporting is set at 5%. In addition, all companies should be mandated to disclose whether any of their beneficial owners are Politically Exposed Persons. |
| Kyrgyz Republic | The MSG has completed scoping work for the beneficial ownership pilot. This work documents existing laws and definitions of beneficial ownership applicable to Kyrgyzstan, as well as the information kept in company registers and license registers. Drawing on existing definitions of beneficial owners, the MSG has agreed the following for the purpose of the pilot: “A natural person who has the title to property, influences transactions, obtains a certain benefit from transactions, and who has an ownership stake of at least 5%. If the beneficial owner is a politically exposed person their stake must be disclosed irrespective of the size of the stake.” The MSG has tasked the Independent Administrator with collecting the data as part of the EITI reporting process for the 2013 EITI Report, which will likely be published in Q3 2015. |
| Liberia | LEITI’s work on its beneficial ownership report is due to be published in March 2015. The report will include a database of all natural person(s) as well as intermediaries that hold ownership rights of ≥ 5 % in the companies that exploit oil, minerals, forestry or agricultural resources in Liberia. This will include current ownership of all active concessions as well as any changes in ownership during the period July 2009-June 2014. Where there is no single individual holding ≥ 5% of ownership rights, the report will list the top five shareholders with the greatest share of ownership. |
| Niger | Niger was supposed to include beneficial ownership data in the 2012 EITI Report published in December 2014, but this data has not been collected or included. It is unclear whether Niger will remain part of the pilot. |
| Nigeria | The 2012 Nigeria EITI Solid Minerals Report notes that Nigerian regulation does not require companies to disclose beneficial ownership information, and government officials are not required to report their financial interests in the sectors they oversee (p.8). Of the 66 companies included in the NEITI report, 28 companies either fully disclosed the name of their beneficial owners, the level of ownership and the nationality of their beneficial owners, or indicated that they were publicly listed. 21 companies provided partial disclosures, i.e. a mix of names of shareholding companies and beneficial owners. 17 companies did not provide any information. Most of the information has been obtained from the company register. The 2012 oil and gas report is due out by the end of March 2015. Beneficial ownership information from 5% ownership is required in the company template. If that information is not natural persons, then it should be followed up by the Corporate Affairs Commission. NEITI has also discussed with the Department of Petroleum Resources (the oil and gas regulators) about opening the national register of public ownership. |
| Tajikistan | The MSG has completed scoping work for the beneficial ownership pilot.This work documents existing laws and definitions of beneficial ownership applicable to Tajikistan, as well as the information kept in company registers and license registers. Most of this information is not publicly accessible, nor does Tajik law oblige companies to disclose their founding documents or information about their beneficial owners. Drawing on existing definitions of beneficial owners, the MSG has tentatively agreed the following for the purpose of the pilot: “A beneficial owner is one or more natural persons who ultimately have the rights of ownership and also have de facto control of the client and/or person in whose interests the transaction is being carried out, with an ownership share of 5% or more. If the beneficial owner is a politically exposed person, his share is subject to compulsory disclosure irrespective of the shareholding.” The MSG has tasked the Independent Administrator with collecting beneficial ownership data through the EITI Reporting process. The results would be published in the 2013 EITI Report, however the report is significantly delayed. |
| Tanzania | TEITI has agreed to collect beneficial ownership data through its next EITI report expected in June 2015. |
| Togo | In Togo, 12 of the 37 companies either fully disclosed the name of their beneficial owners, the level of ownership and the nationality of their beneficial owners, or indicated that they were publicly listed or fully owned by the State. Seven companies did not disclose beneficial ownership data, but included the names of their shareholding companies. 18 companies did not disclose any data at all. |
| Zambia | Zambia attempted to obtain beneficial ownership data from the reporting companies, but none of the private companies returned the beneficial ownership declaration form. According to the ZEITI, further outreach and training for companies is needed to ensure that they fully understand the objectives of the disclosures and how to fill in the templates. A supplementary report seeking to obtain the data from the private companies is being produced. |
Validation of this provision
As per the Standard Terms of Reference for Validators the validator is expected to document the details of any MSG discussions related to disclosure of beneficial ownership. Where the MSG has agreed to address beneficial ownership, the validator is expected to comment on progress with these disclosures in accordance with provision 3.11. Such disclosures are recommended, but not required and should not be considered in assessing compliance with the EITI Standard .