thom-townsend-ubos-interview

The future of beneficial ownership data: an interview with Thom Townsend

We caught up with Thom Townsend, Executive Director at Open Ownership, to discuss the company’s ‘Beneficial Ownership Data Standard’, perspectives on the implementation of 5AMLD, and if the EU model for the transparency of corporate ownership has been emulated elsewhere.

Hi Thom, could you tell us a little about yourself and your role at Open Ownership?

I’m the executive director at Open Ownership. We were founded in 2017 as a result of growing international attention on the issue of beneficial ownership. In 2016, the Panama Papers were released and later that year David Cameron (the UK prime minister at the time) hosted a big anti-corruption summit in London and beneficial ownership transparency was a key part of that. The UK has taken leadership on the issue, implementing its own beneficial ownership transparency reforms and encouraging others to do the same. Open Ownership was founded to drive that momentum around the world. We’ve been successful at  growing the number of countries committed to beneficial ownership transparency to about 90 today. We’ve also spent a lot of resources and time thinking through the technical support countries will need to get this done.

Prior to doing this, I was the UK government’s Head of Data Policy for quite a long time, so I’m a recovering civil servant.

Open Ownership mentions “The Beneficial Ownership Data Standard” and provides a structured template for describing beneficial ownership as machine-readable data. Can you elaborate on how this is helping companies improve transparency?

The Beneficial Ownership Data Standard provides a set of structured schemas for effective collection of beneficial ownership data. It then breaks it down into a ready and implementable format for some of the really thorny parts around recording and understanding beneficial leadership. How we’re going to make sure that we’re identifying people so they can be probably disambiguated, or how we’re going to deal with issues around politically exposed persons. It’s now a ready, off-the-shelf way of dealing with this data.

In 2016 and 2017, there was the idea of a single global register for beneficial ownership data, and we began aggregating all available open data sources into a single place, cleaning that up, applying our data standard and creating some tools which would allow people to quickly visualise ownership structures. Over time, Open Ownership has somewhat de-prioritised our investment in trying to build a single platform for all of that. I think our approach now is about saying we want countries to deliver really good public registers of beneficial ownership, here’s how you do it, here’s the underlying data schema, here’s what a good workflow should look like from a user’s perspective, but also making sure that the data that comes out the other end is useful to you.

There’s three key users really. One is internally within government, making sure that PSC data in the UK is being integrated into other government business processes properly, particularly around public procurement. The second group is around business itself, kind of what you guys do, but making sure that the data out there is useful to Arachnys and others. And then the third group is civil society and citizens, so from an anti-corruption and public accountability perspective, how do we make sure what’s released is useful for the public.

As we know, the EU’s 5th Anti-Money Laundering Directive (5MLD) became effective on 10 January 2020. It stipulated that member states must open up publicly-accessible registers of ultimate beneficial owners (UBOs) of companies. Do you have any insights into how successful this initiative has been so far?

5AMLD and its inclusion of a necessity for a publicly accessible register is a massive step forward. It creates a meaningful foundation to get good registers used in EU member states. That is a huge step forward and a massive win.

Implementation is patchy, to be charitable. We’ve done a bunch of analysis on this, and Global Witness have as well, all of which is publicly available. Around 55% of EU member states still don’t have a centralised register of beneficial owners that’s publicly available. About five member states have implemented centralised registers of beneficial ownership, but the way they have been designed and implemented means it’s still extremely hard and potentially expensive to access the data. Countries like Malta and Germany, on paper being able to convincingly argue that they have met the publicly accessible threshold, have created non-user-friendly systems with poor UX. In Germany, you need at least one form of German ID to access the register. It’s also only possible to search on a single record at a time and only possible to search for a company and not a UBO. So, if you’re trying to build an image of a corporate structure, that’s essentially useless.

Malta is slightly better on the kind of ID requirements, but they have a charge against each record, which I think is about €2,80. If you are trying to build some understanding of the touch points that a UBO has across multiple corporate entities, or understand the relationship between corporate entities, that becomes very expensive very quickly. Of course, you’re also having to pay for the record before you see it, so you don’t even know if what you’re buying will be useful. These have been introduced into publicly accessible registers, so from a diplomatic perspective it’s easy to give it a big tick, but from a pragmatic perspective it really isn’t. There are very few countries publishing in bulk, which isn’t ideal.

There’s a charitable way of viewing this: no government digital system at first release is ever perfect, and we shouldn’t expect it to be. Now that first attempts are being made, it’s important for all of us to push government implementers by saying what isn’t meeting our needs and how they can improve their registers.

In a recent study, Arachnys found that 54% of respondents said that UBO registers will increase their confidence in EU company data and improve processes. What are your thoughts on these registers increasing confidence for compliance professionals doing due diligence?

Firstly, I hope that they do and I read that report with a great deal of interest, and I was actually somewhat surprised at how high that number was. I can understand where some of those challenges come from, and I think it’s largely linked to the absence of verification on some of this data. We know that’s a challenge in the UK; it has been from the start. When the PSC register first launched in the UK in July of 2016, there wasn’t any data validation, which is why we had 4,000 people who were documented as being born before Christ – so, at least we made some improvements on these, by validating the inputs.

There’s still no verification for those 46% of people who feel like this isn’t going to increase confidence and trust in the data, but a proportion of those do feel like it’s going to improve their business processes. I suspect that’s the reason why the next frontier is to make sure that there is actually some kind of meaningful verification underlying it. There’s a number of ways of doing that. In some cases it will be linked to whatever your national ID regime is, so if you look at a country like Estonia, it’s very good. UK: no national ID. I think it’s good that there’s that level of confidence – it’s good that there is now government-backed data on this stuff. That’s always going to improve people’s confidence and give it a kind of legitimacy within the data marketplace, but good verification is still a long way off.

Lower middle income and lower income countries will probably take the steps on verification faster because the need is greater around their losses through corruption, and so on. There are a number of countries, particularly in sub-saharan Africa, that are taking beneficial ownership transparency very seriously because it’s the thing that will crack their problem.

UBO registers for companies essentially rely on self-reported data. Do you think that this means those who have things to hide will continue to try and find ways to conceal the legitimate ownership of the vehicles being used to transfer money and launder the proceedings of their illicit activities?

It would be naive of me to sit here and say that’s not a possibility. It clearly is, however, what we have observed is that there is a significant deterrence effect when you introduce these new forms of disclosure and transparency. This applies to things like beneficial ownership, and it also applies to some of the UK approaches to corruption – even if you don’t deploy an unexplained wealth order regularly, it does have a deterrent effect on people. It sends a powerful signal to people who want to do wrong.  However, any information that’s filed through a much more integrated set of data from around the world allows us to have a better chance of identifying and detecting corruption.

A company called Aquind is currently trying to get a license to build an electrical power line between France and the UK. Their grid has six owners, and there’s been a lot of suspicion in the press as a couple of them have links with Russian oligarchs. Two of the beneficial endings listed in the PSC register are exempt under the politically exposed person’s rule from having that name published in the UK register, but they are published in linked companies in Luxembourg, so we’ve ended up in this situation where you decided to redact your name in the UK register.

It is reported that the US and Canada are moving toward greater transparency for corporate ownership, possibly using an EU-style framework. Do you think they have made any positive advances in the right direction?

The US legislation will require filing to a central essential closed register that will sit with FinCEN, and that is a massive step forward for the US. In 2007, the first legislation was co-signed by the then senator Barack Obama; we’re 12 years into this process and inching our way forwards. It’s taken a long time, but this is massive progress, although it won’t be public. That would be a big new step.

Canada’s consulting on this. The challenge in Canada is that company registration is a province level duty and there is a great deal of antagonism. However, British Columbia, Quebec, and to a lesser degree Ontario are making good progress. When the Trudeau government got reelected last year, there was a very clear statement of moving towards a public register.

In terms of a European style system in the US, it doesn’t feel likely at the minute. In Canada, it is much more likely. COVID-19 has set back that process, so the challenge will be in maintaining momentum on this issue when governments attention is understandably elsewhere. It’s important to make sure that the economy remains, has integrity, and is well governed, and I think there’s another really interesting macro question on this about the role of trade wars, the more aggressive stance to places like China. You see countries like India introducing beneficial and ship caps on how much foreign direct investment a Chinese state-owned enterprise can make in Indian firms. So ownership data around things like foreign direct investment export control, understanding of players in the marketplace with a geopolitical/national security rubric around it, I think the necessity around that ownership is only going to grow for sure.

Looking ahead into the near future, what other ways do you see companies becoming more transparent – without necessarily being forced to via regulatory or legislative changes?

If you asked me that question five or six years ago, I would have said there would be a real push towards corporate social responsibility, ESG stuff – environmental and social side of things. I think post-COVID-19 the kind of conversation about what role a business plays in our community becomes even more important when we’re being asked to “eat out to help out” and go and buy local, and all the rest of it. Everyone’s going to go “am I paying my fair share?” and more importantly, “are you paying your fair share?”

I think the conversation around corporate taxation and corporate behavior is much more alive than it has been for a long time. Not just having an annual report about corporate social responsibility, but actually doing it. People are voting with their feet. I think you see that with the airlines actually, it’s those sorts of forces that are probably going to have the biggest impact. Where there is market advantage to being transparent and open about who owns you, how much tax you pay, what you genuinely do as a corporate citizen, and how that benefits the community you serve, it’s going to become really important because the community has been bailing you out for however long.

Finally, which key influencers/podcasts/blogs/books do you recommend to keep up-to-date with the latest developments in improving corporate transparency? Or, where do you find inspiration in general?

I think there’s been some amazing work coming out of Malaysia following the 1MBD scandal where $1.5 billion were stolen by the Prime Minister, who’s now been convicted of those crimes in the last few months.  Amazing work is being done in Malaysia, and they are starting to reveal what the economy looks like and where this money actually ends up.

I’m always inspired by the work that happens in Nigerian civil society, in particular people like BudgIT. Really good work is happening in the extractive sector in Nigeria, which makes up masses of revenue.

In the US, I’m inspired by GFI, the Global Financial Integrity initiative. Organisations like the Project on Government Oversight (POGO) have kept the pressure up on the Senate to pass this legislation, and they’ve worked like absolute Trojans for the last couple of years to think creatively about how you build the biggest coalition of people who want to see this get passed.

There’s a massively important national security argument in all of this, so Transparency International US have gone, you do realise we rent a load of buildings for national security purposes or have highly classified material, and we have no idea who enters these buildings? That can’t carry on. Other people are linking this to much more profound human rights issues, like the role of anonymous companies in human trafficking and sex trafficking in the US, which typically happens when someone buys a smaller company and launders money through it. That is a vector for some really nasty stuff in the US, and those groups have been really effective – picking what that issue means, explaining the human story about how anonymous companies kill people, then bringing that to the attention of US political leaders and  capturing their imagination.I’m hugely inspired by all of them.

In terms of who’s writing the most interesting stuff, you are doing by far and away in the private sector the most interesting things. I’m thinking about what transparent beneficial ownership data needs: the survey work that you reference in this interview. You put the report out a couple months back, and it was profoundly useful.That kind of material coming from a private sector voice will have twice the impact than something we say. But the work that you guys do is great, and I think you are from the private sector perspective the most progressive voices on this, I really appreciate it.

Digital Marketing Executive at Arachnys