Enhancing-Government-Effectiveness-and-Transparency-The-Fight-Against-Corruption (2)

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 7 GOVTECH disruptive technologies—such as drones—to map risks. Rather, supporting combinations of emerging properties and collect information. Under the project technologies served to address this goal. Table 7.4 over 1,000 municipal government staff were trained in summarizes the technologies that were used to support the use of drones to capture geospatial data. Several the AP program. Some technologies used, such as rounds of training and capacity building workshops Geographic Information System (GIS) platforms, had were held to train government staff in all the new been around for many years. However, while installing systems introduced. software manually had not been practical, cloud-based technologies made it easier to deploy GIS platforms Drones turned out to be cheaper than satellite imagery, across a significant number of municipalities. Both the other main option to collect property data, and drones and AI in the form applied were indeed a new drone images were also of higher quality. The collected technology for the decade, at least for this type of data was analyzed using machine learning and artificial application. The reduced cost and complexity of these intelligence techniques. For example, the drone images technologies allowed for their application, while their were projected over base maps and connected to other increased capability met the objectives of the reform. data across multiple applications, providing a complete geospatial view of municipalities. The government Increasing access to public services linked the newly collected information with existing records across various government departments to The government made more than 350 services available enable data exchange and cross-verification. After the online through a website called MeeSeva and provided information was updated, the government found it time-bound service level agreements for those easier to match demand and supply for urban services. services. The government also made some services available through PuraSeva, a mobile phone application The state also introduced an online building permission it developed. Several government departments platform and trained government staff how to use underwent business process re-engineering to it. The digital submission of construction permit encourage availability of online services. applications with automated artificial intelligence approvals reduced the discretion officials had in the AP created a Citizens Charter that included details of permit approval process. services to be provided along with stipulated timelines and fee structure. This information was available The AP experience highlighted that no single on the MeeSeva website and was also displayed in technology could serve to improve service delivery Citizen Service Centers. The government provided while also reducing fraud and corruption incidence and TABLE 7.4 AP’s Transformational Technologies Technology Functions Comments GIS Platforms Integration and application of different Ability to intersect and cross- validate spatial data layers different data Drones for spatial Use of drones with AI supported image Rapid mapping and validation of mapping with AI processing geospatial cadaster information Enterprise Resource Municipal e-governance system Cloud-based integration and software Planning (ERP) connected to geoportal services for wide array of service and management functions Online Building Permission Digital submission of construction permit Discretion reduced for officials System (Cloud-AI applications with automated AI approvals Supported) Smartphone application PuraSeva provides for different channels Continuous feedback enabled for feedback of citizen feedback Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 215

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 7 GOVTECH legal backing to service level agreements and digital citizen grievances available, along with information on documents. The legal changes ensured that new digital the government’s response. The initiative increased documents were legally valid. responsiveness and efficiency as services had to be delivered within fixed timelines or else the cause of the Incorporating citizen feedback delay had to be reported. The state launched a citizen feedback mechanism to Integrated service delivery platforms supported the ensure service standards were maintained and reduce entire lifecycle of city governance. The platforms were petty corruption. Citizens could leave feedback by used for planning, implementation, results monitoring, telephone, at citizen service centers, or through a and feedback for corrective action. Multiple new mobile phone application called PuraSeva. Using technologies were connected, departments were able the application, citizens could geo-tag pictures of to exchange information, and data was no longer in service delivery problems, such as water leakages. silos. The application assigned accountability to a municipal engineer to fix the problem, and a dashboard allowed The new systems enabled municipal governments to elected officials to view the information in real time. collect accurate information, which in turn provided two key benefits: The government made information on the response taken publicly available. For instance, citizens were • It helped curtail tax evasion. Revenue from provided with access to information regarding the property taxes and water charges more than status of their complaints; municipal employees doubled from 2015 to 2019. were given toolkits, training, and a way to track their work; city managers were entrusted with data-driven • It improved the monitoring and delivery of public decisions that were real-time and easy to analyze; at services. For example, piped water was provided the state level, data-driven planning was undertaken to over 200,000 households, and processing times based on key performance indicators. If the grievance for citizens to apply for public services reduced is actionable, and action taken is made public, more significantly. citizens get encouraged to use the platform. Clear accountability and transparency on the response taken Citizens benefited from digital technology as it enabled encourages more people to use the digital platform, them not only to take advantage of better service ensuring its success. delivery, but to do so at a lower cost and with less human interaction. Citizens could access services or In the 2019 fiscal year, more than 125,000 complaints lodge grievances through multiple channels, including were received. Just 367 went unresolved. The the PuraSeva mobile phone application, Mee-Seva complaints spanned a wide range of service delivery citizen service centers, websites, or through phone issues, including non-functioning streetlights, water calls. pipe leaks, and absenteeism of street sweepers. Almost half of these complaints were resolved within What led to these achievements? stipulated timelines. The citizen feedback system was simple, transparent, and increased accountability of 1. Strong political will to improve governance civil servants and municipal officials. and make AP more attractive for investors was an essential driver of the reform. There was Lessons learned considerable push from AP’s top leaders to introduce technology-based reforms to combat What was achieved? inefficiency and corruption prevalent in municipal systems. Despite a change in political leadership The project leveraged technology to boost transparency in 2014, the new government continued to support and strengthen accountability. It also increased citizen technology driven reforms and sustained the engagement by making real-time information on momentum. The new government that came to power in 2019 also continued to use and enhance the platform to improve service delivery. 216 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 7 GOVTECH 2. ‘Analog complements’ such as business process indicators. Actions taken on grievances were made re-engineering and complementary reforms public to enhance trust and encourage greater use supported the technology driven governance of the platform. reforms. The state government drew up time- bound service level agreements (SLAs), with legal 4. Training and capacity building programs helped backing, for almost 385 services, which even reduce resistance from government staff and today are being delivered through the integrated encouraged the uptake of new technology by online portal ‘Mee-Seva,’ while some services are citizens. Government staff across all 110 urban available through the app ‘PuraSeva.’ Putting the local bodies (ULBs) in AP received training on using ‘Citizens Charter’ on the ‘Mee-Seva’ website as the building permission platform; over 1,000 ULB well as in the Citizen Service Centers enhanced staff were trained in the use of drones to capture transparency and raised awareness. In addition, GIS data; and other staff were trained in using the several government departments underwent new systems. business process re-engineering to deliver online services more efficiently. Combining all these elements was the key to success. Thus, integrated digital technology, including the 3. Real-time data enabled stakeholders across sectors use of drones, GIS mapping, processing with artificial to develop innovative solutions. Getting real time intelligence, E-governance (ERP) dashboard, geo- data—whether on working streetlights, garbage portal, Pura Seva app and Mee-Seva platforms, collection, or unauthorized constructions—had to automated building permission approval systems, and be available, up to date, and easy to use and analyze the seamless linkage with various other government for the process to be successful. Citizens had applications had to go hand in hand with extensive access to information regarding the status of their training of government staff on the use of the ICT complaints; municipal employees could track their applications. This combination, all together, helped work; and city managers could make data-driven improve both municipal service delivery and the decisions. At the state level, data-driven planning tax revenues of the ULBs, while making the system was undertaken based on key performance responsive, inclusive, and participatory. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 217

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 7 GOVTECH Final reflections The recent developments in digital technologies have continued to catalyze public service delivery improvements, while potentially circumscribing fraud and corruption. Drones continue to rapidly increase the availability of increased resolution spatial and temporal data. Similarly, specialized sensors (IoTs) have significantly reduced the cost of data collection from the field. Significant advances in data processing and artificial intelligence coupled with cloud (and potentially quantum) computing can enable a vast amount of data from varied sources to be analyzed and used for evidence-based informed decision-making. Major advances in encryption and data protection technologies, together with robust interoperability and data-sharing strategies, have opened up an entirely new ecosystem of public and private sector players in developing new and innovative services, while preserving data confidentiality where necessary. These developments (collectively called Industry Revolution 4.0) provide unprecedented opportunities to formulate new policies that help overcome information gaps/ asymmetries, enabling a common platform for multiple agencies to work together and deliver services in ways that were not possible earlier. AP did not have advanced technology initially, but was able to “leapfrog” to the adoption of a set of emerging technologies. The past decade of success in AP suggests that national, and particularly sub- national governments, need to foster digital strategies that are broader than the current ICT strategies. They should foster a policy and institutional environment that promotes transparency and accountability, encourages uptake of new technology, invests in digital literacy and ensures broad-based digital strategies that improve participation by all, while keeping cyber-security concerns and data protection in mind. The experience of AP shows that technology can be a great enabler of better service delivery and good governance, provided there is strong participation by citizens and government in the uptake of this technology and if the political leadership is strongly supportive. 218 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 7 GOVTECH Notes 1. Cf. Vandy, Edie P. (2020). Sierra Leone: A digital President Bio 16. Aarvik, Per. (2019). Artificial Intelligence – a promising anti- embraces technology to transform the nation, The Patriotic corruption tool in development settings?, https://www. Vanguard. http://w w w.thepatrioticvanguard.com/sierra- u4.no/publications/artificial- intelligence-a-promising-anti- leone-a-digital-president-bio-embraces-technology-to- corruption-tool-in-development-settings.pdf, p. 50. transform-the-nation. 17. Cordovae, Yasodara and Eduardo Vincente Gonçalves. 2. World Economy Forum. (2020). Hacking corruption in the (2019). Rosie the Robot: Social accountability one tweet at a digital era: How tech is shaping the future of integrity in times time (Parts 1 and 2), October, https://blogs.worldbank.org/ of crisis Global Future Council on Transparency And Anti- governance/rosie-robot-social-accountability-one-tweet- corruption, Global Future Transparency And Anti-Corruption, time. May 2020.http://www3.weforum.org/docs/WEF_GFC_on_ Transparency_and_ AC _ Agenda_for_Business _Integrity_ 18. See U4, 2016. pillar_3_2020.pdf, pp, 17 19. Cf. Hashim, Ali; Piattifuenfkirchen, Moritz Otto Maria Alfons; 3. See Turkowitz, Joel. (2020). Confronting Corruption in public Cole, Winston Percy Onipede; Naqvi, Ammar; Minallah, procurement: Elements of Effective Approaches, 14 February, Akmal; Prathna, Maun; So, Sokbunthoeun. 2019. The Use Draft Note Prepared for Global Anti-Corruption Report, p. 14. of Data Analytics Techniques to Assess the Functioning of a Government’s Financial Management Information System 4. https://canaltech.com.br/governo/cgu-evita-prejuizos-de-r-1- : An Application to Pakistan and Cambodia (English). Policy bilhao-gracas-a-sistema-proprio-anti-fraudes-148083/ Research working paper; no. WPS 8689. Washington, D.C.: World Bank Group. ht tp://documents.worldbank.org/ 5. cf Ryvkina et. al. 2017 for the case of India’s I Paid a Bribe curated/en/226121546531748578/The-Use-of-Data-Analytics- application: Ryvkina, Dmitry, Danila Serrab, James Tremewanc. Techniques-to-Assess-the-Functioning- of-a-Governments- (2017). I paid a bribe: An experiment on information sharing Financial-Management-Information-System-An-Application- and extortionary corruption, European Economic Review, to-Pakistan-and-Cambodia. Volume 94, May 2017, p. 1-22. 20. Cloud-based services refers to the ability to access computer 6. Jha, Chandan Kumar Sudipta Sarangi. (2017). Social Media, resources, from storage to compute power, on-demand via Internet, and Corruption, Information Economics and Policy, the internet. There is a variety of ways by which this shift away Vol. 39, 2017. from traditional local systems is being implemented, but it is providing a higher degree of versatility and agility by which 7. For example, Ericsson to pay over $1 billion to resolve U.S. governments can deploy innovative and scalable solutions. corruption probes, Reuters, December 7, 2019. This means that government agencies do not need to invest in large fixed costs to apply big data analytics, allow for both 8. Cf. Hindustan Times. (2015). Coal, spectrum auction helped access to powerful tools for data fusion and AI. curb corruption: PM Modi, https://www.hindustantimes.com/ india/coal-spectrum- auction-helped-curb-corruption-pm- 21. Aarvik, 2019. modi/story-qYP0D49stcHrp1GwRHUrcM.html. 22. Cited by Aarvik, 2019: 5. 9. See Gelb, Alan and Anna Diofasi Metz. (2018). Identification Revolution: Can Digital ID Be Harnessed for Development?, 23. See Gelb and Metz, 2018. Washington, DC: Center for Global Development, https:// w w w.c g d ev.o r g /p u b li c a t i o n / i d e n t i f i c a t i o n - r evo l u t i o n - c a n - 24. India’s Aadhar biometric system is focused on proving unique digital-id-be-harnessed-development, p. 272. but not specific identify. It stores a large database of unique identities, and agencies can query if an identify is unique. This 10. Okunogbe, Oyebola and Victor Pouliquen. (2018). Technology, is somewhat different from a digital platform that would store Taxation, and Corruption: Evidence from the Introduction of all additional attributes of an individual. Electronic Tax Filing, World Bank Policy Working Paper, 8452. 25. D’Silva, Derryl, Zuzana Filková, Frank Packer and Siddharth 11. This risk indicator appears to have been developed based Tiwari. (2019). The design of digital financial infrastructure: on set of weighted criteria, rather than predicted based lessons from India, Bank of International Settlements (BIS) on an empirical model (e.g., proxies of previous outcomes Papers, No 106, 15 December, https://www.bis.org/publ/ associated with observed fraud and corruption). bppdf/bispap106.htm, p. 39. 12. Harding, M., Hersh, J. (2018). Big Data in economics. IZA 26. This registry does not itself capture details of the individuals, World of Labor 2018: 451 doi: 10.15185/izawol.451. but allows for checking if a given ID query is unique or duplication (therefore checking duplicate claims or the set-up 13. Hlatshwayo, Sandile, Anne Oeking; Manuk Ghazanchyan; of multiple identities). David Corvino; Ananya Shukla; Lamin Y Leigh. (2018). The Measurement and Macro- Relevance of Corruption: A Big 27. Gotev, Georgi. (2018). EU flags fraud and corruption in refugee Data Approach, IMF Working Paper, https://www.imf.org/ settlements in Uganda, Euractiv, https://www.euractiv.com/ en/Publications/WP/Issues/2018/08/31/The- Measurement- section/european- external-action-service/news/eu-flags- and-Macro-Relevance-of-Corruption-A-Big-Data- fraud-and-corruption-in-refugee-settlements-in-uganda/. Approach-46157. 28. Dhaliwala, lIqbal and Rema Hannab. (2017). The devil is in the 14. U4. (2016). Literature review: The use of ICTs in the fight against details: The successes and limitations of bureaucratic reform corruption, https://www.u4.no/publications/literature-review- in India, Journal of Development Economics, Volume 124, the-use-of-icts- in-the-fight-against-corruption.pdf, p. 16. January 2017, p. 1-21. 15. Cf. Gupta, Sanjeev, Michael Keen, Alpa Shah, and 29. India’s Supreme Court ruled in September 2018 that the Genevieve Verdier. (2017). Digital Revolutions in Aadhar biometric database was constitutionally legal. The Public Finance, ht tps://w w w.elibrar y.imf.org/view/ ruling agreed that the Aadhar can be used to distribute IMF071/24304-9781484315224/24304-9781484315224/ch08. government subsidies and benefits, and linked to tax numbers. xml?lang=en&redirect=true,. But it was no longer mandatory for opening Bank accounts or getting mobile connections. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 219

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 7 GOVTECH 30. D’Silva et. al., 2019. 43. A parallel argument could of course be made for cash, as India’s 2016 demonization of large denomination notes made 31. See Sen, Srijoni. (2019). A Decade of Aadhaar: Lessons in clear. Implementing a Foundational ID System, Observer Research Foundation, May, https://www.or fonline.org/research/a- 44. See ““DO YOU KNOW ALEXANDER VINNIK?” How an decade-of-aadhaar-lessons-in-implementing-a-foundational- offshore Bitcoin exchange and a London payments company id-system-50464/, p. 12. were misused to create a high-tech money-laundering machine”, Global Witness, https://www.globalwitness.org/en/ 32. See India’s Biometric Identity Program Is Rooting Out campaigns/corruption-and-money-laundering/btc-e- vinnik- Corruption, Slate, Aug 3, 2018 mayzus/ 33. Sen, 2019. 45. Will the China of tomorrow run on the technology behind bitcoin?, South China Morning Post, 2 Dec 2019, https://www. 34. Muralidharan, Karthik, Paul Niehaus, Sandip Sukhtankar. s c m p.c o m /n ew s /c hi na /p o li t ic s /a r t ic l e / 3 0 4 0132 /w ill - c hi na - (2020). Identity Verification Standards in Welfare Programs: tomorrow-run-technology-behind-bitcoin Experimental Evidence from India, NBER Working Paper No. 26744, Issued in February 2020, https://www.nber.org/ 46. See Greek Wealth is Everywhere but in the Tax Forms (New papers/w26744. York Times, 2010). But the challenge remained that even armed with digital evidence, the work of validating this manually and 35. Kenya’s early M-Pesa, China’s e-Payments platforms (CGAP getting results in the analogue courts proved challenging, as 2019). suggested by Greece’s Efforts to Limit Tax Evasion Have Little Success. 36. Cornillie, Chris. (2019). Medicare Agency Turns to A.I. to Stop Fraud and Faulty Payments. Bloomberg Government. The US 47. Decision support automation in this area can be mechanistic Centers for Medicare and Medicaid Services (CMS) estimated (e.g., basic symbolic rules that flag transactions from that in 2017 it has saved Centers for Medicare and Medicaid procurement to travel expenses submissions) or using either Services USD $15.5 billion, already in part using AI tools. supervised (trained) or unsupervised (outlier detection) machine learning algorithms. Technologies in this area, also 37. Carson, Brant, Giulio Romanelli, Patricia Walsh, and Askhat grouped as Robotic Process Automation (RPA), extend to even Zhumaev. (2018). Blockchain beyond the hype: What is the more interactive products such as chatbots. strategic business value?, McKinsey Insights. https://www. m c k i n s e y.c o m / b u s i n e s s - f u n c t i o n s /m c k i n s e y - d i g i t a l /o u r- 48. ITU and DIAL. 2019. SDG Digital Investment Framework - insights/blockchain-beyond-the-hype-what-is- the-strategic- A whole-of-Government Approach to Investing in Digital business-value?cid=other-eml-alt-mip-mck-oth- 1806&hlkid= Technologies to Achieve the SDGs, ht tp://handle.itu. d2c58d1171ab41a8a16e22859260e7cf&hctky=1871478&hdpid int/11.1002/pub/812df924-en, p. 136. =6a0817ff-c71d-4a97-be68-b9b733f3d39f. 49. Eaves, David. (2018). “The Fast-Follower Strategy for 38. The more general term for this technology is Distributed Technology in Government.” Governing, August 27, 2018, Ledger Technologies (DLTs), emphasizing that no central https://w w w.hks.har vard.edu/publications/fast-follower- actor controls the “truth” regarding the respective records. strategy-technology-government. The proof mechanism to confirm that a block in a blockchain is indeed subject to a consensus is subject to a host of designs 50. O’Neil, Cathy. (2016). Weapons of Math Destruction, Crown and implementation. One form of verification, which requires Books. a competition to solve cryptographic puzzles, has given rise to miner teams. The intuition here is that if many miners have 51. Greater emphasis on digital technology may amplify a number deployed collective efforts to “strike” a confirmation of the of blindspot and bias risks. Digital technologies present a set of block, reversing the block will be costly for any entity wishing distributional/digital literacy issues (including around gender to tamper with the content. These proof mechanisms can be lines), which can also emerge in terms of the intersection of quite costly in terms of energy and need to reward miners. technology and corruption. These merit special attention, DLTs also come in a variety of designs termed public or private including special initiatives to democratize the application of blockchains, in terms of who can view or alter the contents of technology. This would include focusing on corruption issues the blockchain. that may have disproportionate impacts on women, as well as bringing women analysts to bear on these issues and mitigate 39. Aliyev, Ziya. (2019). Logos, Mythos, and Ethos of Blockchain: blindspots (Sayers 2019). An Integrated Framework for Anti-Corruption, Paper Presented at 2019 OECD Anti-Corruption & Integrity Forum, 52. World Bank. (2019). GovTech Global Partnership Overview, March 20-21, https://www.oecd.org/corruption/integrity- ht tps://w w w.worldbank.org/en/topic/governance/brief/ forum/academic-papers/Z-Aliyev-I-Safarov- Blockchain-anti- govtech-putting-people- first corruption.pdf, p. 14. 53. Wikipedia. (2020). Blockchain. https://en.wikipedia.org/wiki/ 40. McQuinn, Alan, Daniel Castro. (2019). A Policymaker’s Blockchain. Guide to Blockchain, Information Technology & Innovation Foundation, April 30, https://itif.org/publications/2019/04/30/ 54. World Bank Report 2019. Andhra Pradesh ICR policymakers-guide-blockchain. 41. Cf Russian Hackers May Have Carried Out Largest Ever Crypto Exchange Theft 42. Shang, Qiuyun and Allison Price. (2018). A Block-chain Based Land Titling Project in the Republic of Georgia, Innovations, Vol 2, number 3/4, https://www.mitpressjournals.org/doi/ pdf/10.1162/inov_a_00276, p. 72-27. 220 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

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PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 7 GOVTECH Jha, Chandan Kumar Sudipta Sarangi. (2017). Social Media, Sen, Srijoni. (2019). A Decade of Aadhaar: Lessons in Implementing Internet, and Corruption, Information Economics and Policy, a Foundational ID System, Observer Research Foundation, May, Vol. 39, 2017. https://w w w.or fonline.org/research/a-decade-of-aadhaar- lessons-in-implementing-a-foundational-id-system-50464/, p. Kahn, Theodore, Alejandro Baron Juan Cruz Vieyra. (2018). Digital 12. Technologies for Transparency in Public Investment New Tools to Empower Citizens and Governments, Inter-American Shang, Qiuyun and Allison Price. (2018). 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PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 7 GOVTECH ht t p://cgg.gov.in/core/uploads //2017/07/Final - Rep or t-TPS -for- AP.pdf. Department of Industrial Policy & Planning (2016). Business Reform Action Plan & State Report Andhra Pradesh. https://eodb.dipp. gov.in/Home?year=2016. Hans India (2016). ‘Digital Nod Of Building Plans Preventing Corruption in GVMC’. McKinsey Global Institute. (2013). “Disruptive Technologies: Advances That Will Transform Life, Business and The Global Economy”. McKinsey & Company. https://www.mckinsey. com/~/media/McKinsey/Business%20Functions/McKinsey%20 Digital/Our%20Insights/Disruptive%20technologies/MGI_ Disruptive_technologies_Full_report_May2013.ashx. UN OHCHR. (n.d.). Good Governance and Human Rights. https:// w w w.o h c h r.o r g / EN / I s s u e s / D eve l o p m e nt /G o o d G ove r n a n c e / Pages/GoodGovernanceIndex.aspx. World Bank. (2019). India –Implementation Completion and Results Report 781 In on a Loan Andhra Pradesh and Telengana Municipal Development Project 2019. Washington, D.C : World Bank Group. Implementation Completion and Results Repor t. http://documents.worldbank.org/curated/ e n /6 37 7815 616 4 2 9 3 3 4 5 2 /p d f / I n d i a - A n d h r a - P r a d e s h - a n d - Telangana-Municipal-Development-Project.pdf. World Bank (2016). World Development Report, ‘Digital Dividends’. ht tps://w w w.worldbank.org/en/publication/wdr2016/ background-papers. World Bank (2009) Project Appraisal Document, Andhra Pradesh and Telengana Municipal Development Project 20 09. Washington, D.C: World Bank Group. ht tp:// documents.worldbank.org/curated/en/515421468266142619/ pdf/313920PAD0P071101Official0Use0Only1.pdf. World Bank (2009). World Bank Doing Business Data, Sub- National Report 2009. Dealing With Construction Permits India. https:// w w w.d oi ng b u s i ne s s .o rg /e n /d at a /ex p lo reto p ic s /d eali ng - w i t h - construction-permits/india. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 223

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 Asset and Interest Declarations

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS Introduction Why is it important? What affects the effectiveness of AID systems? Asset and interest disclosure by public officials has been widely used to build integrity and combat While many countries have AID systems, few of corruption. According to World Bank research, over 160 them are effective. Most AID systems have yet to live countries around the world have introduced financial up to their potential. Cumbersome filing procedures, disclosure systems.1 Asset and interest disclosure (AID) crucial gaps in the disclosure forms, and lack of systems differ in scope and reach, level of sophistication transparency and enforcement are limiting the role of and transparency. Countries use different institutional AID. Such weaknesses also may make it merely another setups and methods to enforce the disclosure rules check-a-box exercise to implement national anti- and verify information. However, the analysis shows a corruption strategies. Lack of control of submission and clear trend of AID becoming a universal instrument to ineffective verification of declarations undermine their enhance public sector transparency and accountability, importance as an anti-corruption tool. There is also promote integrity and prevent corruption. little understanding of the impact that the asset and interest disclosure systems have on the level of integrity AID systems have increasingly become a multi- and corruption in the country. Countries rarely have a purpose tool aimed at preventing conflicts of clear vision of why they are introducing or reforming interest, detecting unjustified assets and building their AID systems, what goals they are pursuing in this broader integrity of public service. AID, therefore, process, and what outcomes they expect to achieve. combines prevention and enforcement purposes. New combined systems are replacing traditional ones, This chapter aims to show what an effective AID which often treated disclosure of assets and interests system should look like and how it can be relevant separately and pursued different objectives. Countries in the context of transnational financial flows, introduce or bolster verification mechanisms to improve new ways of disguising unjustified wealth, as well enforcement. as domestic typologies of conflict of interest and hidden wealth. Selected case studies included in the AID systems also raise heated debates, especially chapter illustrate what works and what does not, as well concerning public disclosure of information from as the new trends and essential features that make AID the declarations. It is a prominent example of how effective. The chapter will follow the general framework countries balance considerations of privacy and that is used to regulate AID systems: who should file, personal security with the public interest in transparency when and how, what to declare, how to verify and and accountability. sanction non-compliance, and what information should be public. It will end with remarks on how governments With more systems becoming digitized and going and other stakeholders can measure the impact of AID online, AID contributes to the development of systems and make them more relevant. digital governance and economy. Electronic systems of disclosure have a spillover effect by encouraging civil society and media that use data on the assets and interests of public officials in their watchdog activities. Open AID systems can contribute to the transparency of ownership and support supervision efforts in other sectors. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 225

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS The key questions about AID systems Who should file asset and interest easier to track and verify disclosures of the official. declarations? How frequently should declarations be The first question to answer when designing an filed? AID system relates to the filer population. Including too many declarants may dilute the focus, raise political Frequency of filings should follow the employment opposition and complicate enforcement. Excluding cycle of the official and provide a record of both important categories of filers whom the public entry and exit situations (when the official started perceives to be high risk in terms of corruption may and terminated his/her public sector employment), also negatively reflect on the system’s effectiveness and changes throughout his/her career. It is also and credibility. It is therefore important to find a useful to look at former officials’ assets and interests balanced solution that targets, first of all, the high- one or two years after leaving office to see whether risk public sector positions and areas. There is no they gained any unjustified assets or improper standard list of officials whom the system should interests. Some systems also require filing of ad hoc cover. The filer population should ultimately reflect the forms whenever significant changes in assets happen. national corruption risk assessment. Considerations of It is important to note that disclosures discussed in this effectiveness and impact sought by the system should chapter differ from the conflict of interest reports which guide the decision on the scope of filers. officials have to file when a conflict of interest arises and requires a management response. Consideration needs to be given to a minimum and a broader list. The minimum list of high-risk positions Electronic vs. paper filing can reflect the definition of domestic politically exposed persons used in the anti-money laundering Managing a paper-based system involves legislation. The broader list may include key officials substantial challenges and costs, which an in all branches of government, including the President, electronic system can eliminate. The following are members of parliament, members of government and some of the benefits of the electronic system: it allows heads of central executive authorities, other political for coverage of a broader scope of declarants, simplifies officials, staff of private offices of political officials the submission process by making the declaration form (such as advisors), regional governors, mayors of large more user-friendly, reduces the number of mistakes cities, judges, prosecutors, members of the judicial made in the forms, facilitates further verification of and prosecutorial governance bodies, anti-corruption declarations, and improves data management and investigators, senior executives of state-owned security. Not surprisingly, an increasing number of enterprises, etc. The high-risk areas or functions may countries in various regions have transitioned to include, for example, officials responsible for public electronic AID systems. procurement, licensing and supervision, members of independent market regulators, and tax and customs However, several issues may impede the officials. introduction of an electronic disclosure system. These include internet coverage and quality of access, Family members should be included. Approximately availability of digital authentication, institutional 65 percent of countries with disclosure laws require capacity to process electronic filings and ensure data officials to submit information not only for themselves security, and additional costs to develop and roll out a but also for their family members.2 Omitting family new IT system. members creates a loophole that declarants can easily abuse to avoid disclosure of assets and interests. The Despite implementation challenges, World Bank system can require family members to submit their experience in advising countries in this area shows disclosures directly, or the public officials can include that the electronic system saves financial and information on assets/interests held by family members human resources. It eliminates the need for secure in their own declaration forms. The latter approach reduces the number of forms submitted and makes it 226 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS physical storage space for paper declarations and conflict of interest rules. Among such elements that an allows the staff of asset declaration agencies to focus effective AID form should include are: on ensuring compliance and advising filers on how to correctly fill out the declaration form or how to manage • Disclosure of all types of income as well as gifts a potential conflict of interest. It also raises the level and sponsored travel, including disclosure of of compliance with the disclosure requirements and the identification details of the legal entity or provides better transparency and public accountability.3 individual who was the source of the income, gift or sponsored travel. What is to be declared? • Disclosure of national and foreign bank accounts To be useful, the asset and interest disclosure has and safe deposit boxes (vaults) to which the to include information that allows the tracking of declarant or family members have access, even if all the important assets and interests of the public formally opened by another person. official. The information provided should also highlight significant changes in wealth that lawful income cannot • Loans given or received by the public official, explain, and uncover interests that may be in conflict including to/from private individuals. with the filer’s official duties. • Deferred corporate rights (e.g. options to purchase Modern AID systems have to reflect current shares) and investments regardless of their form. typologies of money laundering and corruption. Ownership through proxies remains a widespread way • Disclosure of expenditures above a cer tain of hiding control of assets or getting unlawful benefits. threshold. This is essential to track significant It is essential for an AID system to require public officials changes in wealth by comparing income, savings or their related persons to report the legal entities of and expenditures over time. Expenditures should which they have beneficial ownership and control. The cover not only acquisition of assets but also declaration form should also cover trusts and other payment for services and works. similar legal arrangements, including any relation a public official or family members have regarding a trust. • Disclosure of interests not related to income or assets, notably contracts with state entities of the Disclosure of assets should not only include their declarant and family members or companies in formal ownership. What matters for AID is the real their control, prior employment, and any link with control of assets regardless of the nominal owner, and legal entities and associations (e.g. membership in the use of assets, which may show hidden ownership or governing bodies). lifestyle not commensurate with the official’s position or income. Disclosure of beneficial ownership of assets In the new AID systems, policy makers often focus should therefore extend to all types of tangible or more on assets, forgetting that the disclosure intangible property and income. form can be very helpful in managing conflicts of interest. When officials fill out the form, they have to Use of virtual assets (e.g. cryptocurrencies) take stock of their interests and review them against has become a challenge for tracking ill-gotten their official duties. The officials can then seek guidance proceeds. The reporting of such assets in the AID form from the respective integrity official and manage their is an important step towards bringing transparency to potential or real conflict of interest. The disclosure form this new mode of wealth accumulation. can be a crucial tool to detect conflicts, if it contains sufficient information on the financial and non-financial Building a comprehensive disclosure form without interests of the declarant and related persons. important loopholes can be accomplished by considering the outcome of the verification process. How can declarations best be The form should ask for information that the verification verified? process can later use to detect infringements based on an analysis of methods of hiding unjustified assets, Verification is an important element of the laundering of criminal proceeds and violations of enforcement of the disclosure rules. Effective Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 227

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS verification helps to uncover non-compliance and to clear criteria limiting discretionary decision-making. start the process that ultimately leads to imposing The system may categorize declarations submitted sanctions. Verification can enable the detection of: by certain top officials as high-risk by default. This will give credibility to the system and avoid focus • Cases of late submission or non-submission of on low-level officials or petty inconsistencies. disclosure forms • External signals (e.g. media reports, complaints of • Prohibited gifts citizens or watchdog NGOs, referrals from other authorities) should take priority. The agency should • Assets or income not reported or disclosed verify them if they give rise to a substantiated incorrectly (e.g. under-reporting or over-reporting suspicion of irregularity. Anonymous reports about of value) verifiable facts should also be included. • Assets not justified by the lawful income • The verification should include IT solutions that automate certain operations. Such solutions can • Lifestyle of the public official that does not perform a risk analysis of each declaration, compare commensurate with his status several declarations of the filer or compare with declarations of similar filers. Applying analytical • Non-compliance with anti-corruption restrictions software to the disclosure data can help to find (incompatibilities, divestment of financial interests, patterns that can be then used to develop red flags post-employment restrictions, etc.) for future verifications. • Interests or activities that may give rise to situations • Cross-checking disclosures with other government- of potential, real or apparent conflict of interest held registers and databases is an important with the declarant’s duties and position. element of the verification that effectively uses government data. The system can also automate Certain legislative and institutional conditions such cross-checks and perform them shortly after provide the basis for an effective verification the declaration is filed or even at the time of the system. These include: submission. • A clear legislative framework that establishes the Verification can only be as effective as the people verification mandate, its triggers and scope. who conduct it. Experience in countries shows that decentralized systems of verification, i.e. where • Verification procedures that streamline the individual agencies take on this responsibility for their verification process and prevent unnecessary own officials, are rarely effective because of the lack impediments (e.g. short time limits for verification of motivation, expertise, and resources. A dedicated procedures or the possibility to challenge each verification agency provides a better model for step of the proceedings). organizing the verification process. Such an agency does not have to deal only with the verification of financial • Use of a risk-based approach to trigger and disclosures; it may also combine this function with other prioritize verification when inherent risks are found preventive or law enforcement functions in the anti- in the disclosure form, such as the position/duties corruption arena. It is important though to separate the of the declarant. Systems which automatically verification functions within such an agency to ensure trigger the verification on formal grounds (e.g. late proper specialization and autonomy. The regulations submission) are ineffective as they overburden should grant to the officials who conduct verification a the verification agency. This is especially relevant certain level of autonomy and protection against undue for systems where the number of disclosures is interference. substantial and not matched with the resources to verify them. A verification agency should have sufficient powers and resources to perform its duties. Such • When the number of mandatory verifications is powers could include access to government registers substantial, the verification agency has to prioritize and databases, including tax information, company its work by focusing on high-risk declarations. Such prioritization should be transparent and based on 228 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS register and registers of real estate and vehicles, right to compliance. Criminal sanctions for serious violations obtain information and records from public and private related to asset and interest disclosure (e.g. non- entities, access to banking and other financial data, reporting of significant assets or illicit enrichment), and the possibility to request or access information which can be enforced through criminal proceedings, abroad. At the same time, the verification agencies are are usually more effective than administrative ones. usually not law enforcement bodies and lack certain tools that a criminal investigation can employ, e.g. In line with the proportionality principle, certain special investigative techniques. This highlights the breaches may attract softer measures that need to understand the limitations of administrative do not qualify as sanctions but bear negative bodies in charge of verification and the importance consequences for the non-compliant official. For of cooperation with law enforcement bodies. It also example, the public disclosure of the names of those affects the debate on the level of dissuasive sanctions, who failed to submit a declaration or submitted it as shown below. outside of the set time limit may be sufficient to deter repeat infringements. The “naming and shaming” A major challenge for the verification agencies is can also reinforce other imposed measures and raise finding and tracking assets or financial interests awareness about the disclosure requirements. Such located abroad. This remains an area of weakness in visibility also helps to build public trust and awareness most AID systems with a strong verification mechanism. of the AID system. Some countries implement this tool To address this issue, the verification agencies may as a searchable register of corruption offenders that is take a number of measures, for example: raise the open to the public. technical expertise of their staff by providing training on the available open source information and use of Sanctions for AID related violations do not have foreign jurisdiction registers; establish a legal mandate to be applied against an individual to be effective. and the technical capacity of the verification agency Civil or administrative confiscation of unjustified to get and use information from foreign ownership assets, even without the individual liability of the public registers for verification purposes; develop relations official, may be a dissuasive instrument to target assets and sign information exchange agreements with that exceed the official’s lawful income. Such measures verification agencies in other jurisdictions, especially in target the outcomes of the criminal acts of corruption neighboring countries where declarants often acquire or money laundering by confiscating the proceeds or keep assets; and join and support regional initiatives of such activity without having to overcome often for information exchange on the assets and interests of an insurmountable hurdle of detecting and proving public officials.4 underlying offenses. How are sanctions to be imposed for Besides sanctions or measures that target non-compliance? declarants, an effective AID system should also include sanctions that support the enforcement Effectiveness of verification is closely linked to mechanism. They ensure that the different actors in the sanctioning regime, which should be effective, an AID system properly perform the duties assigned to proportionate and dissuasive. Verification, which them. Such sanctions may target, in particular: uncovers irregularities, is just the first step. The sanctioning proceedings have to follow and adequately • Failure of public and private entities to provide respond to the discovered violations. To be dissuasive, information in response to a request from the sanctions must have a sufficient deterrent effect, which institution carrying out the verification; and means that the personal cost of the sanction is higher than the potential benefit derived from the offense. • Failure of a public agency or official to fulfill To be proportionate, sanctions must correspond to their duties related to the AID (e.g. to check the the offense. submission of declarations, report non-compliance to the enforcement agency, verify the identity of The level of sanctions and applicable procedures the official if such identification is required during may also determine what tools enforcement the official’s registration of the disclosure in the agencies could use to establish and punish non- electronic system). Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 229

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS How much transparency should the The best approach to ensure transparency is to disclosure system have? make data from asset and interest disclosures available online. Providing public access to such Public transparency of asset and interest information free of charge and without technical declarations acts as a deterrent in and of itself barriers will help to reach the transparency objective. and reinforces other elements of the system. Public An electronic AID system allows the collection of availability of information from declarations increases structured data through declaration forms and then scrutiny and complements the enforcement efforts of its publication in open data (i.e. machine-readable) the verification agency. Transparency of information formats. Publishing declarations as open data facilitates about the assets and interests of public officials helps their re-use by civil society and the private sector can to build public sector integrity and promotes public contribute to the emergence of new data analytics tools trust in the government. Over 55% of countries require and watchdog initiatives. the declared information to be public.5 Broader public disclosure can be beneficial also Making declarations public has both opponents and because of cross-sector use. For example, publicly critics, as such transparency conflicts with the available information on declarants and their related privacy and data protection rights of the declarants persons can help banks (and other obliged entities and related persons. In some contexts, this can affect under the anti-money laundering framework) to their security and become a barrier to the entry of some conduct customer due diligence, in particular by professionals into public service. The policy makers identifying politically exposed persons. Information therefore have to find a balanced solution that takes about beneficial ownership of public officials in account of these competing interests.6 The degree of legal entities can increase corporate transparency transparency could be linked to the corruption and and improve the investment climate in the country. public administration integrity level in the country—the Governments can combine data from AID forms with more corrupt and less integrity there is in the system other data to detect and prevent violations in areas like the more transparency it requires. Other considerations public procurement and licensing of rights to resources matter as well (e.g. the level of physical security and (e.g. in the extractive sector). Cross-checking data with violent crimes). As a result of the balancing exercise, the register of asset and interest disclosures can help even in systems where wide public access is granted, sector regulators ensure compliance with the ownership certain information can be withheld from publication. and transparency requirements in the respective This could be information about a person’s IDs and sector (e.g. banking, competition, audiovisual media place of residence or also information about cash and services). AID transparency has, therefore, a significant valuables held outside of banks. In any case, the scope spillover effect when actors in other areas use data from of the information withheld from disclosure should be declarations for the public good. explicitly and narrowly determined in law. Final reflections AID systems constitute a fast-developing anti- Countries and development partners, however, corruption policy and enforcement area. More need a better understanding of how to measure and more countries all over the world are introducing the success and impact of AID systems. It may be or upgrading their systems. The reforms usually aim impossible to establish exactly to what extent AID has to digitize filing systems, broaden their scope, and establish a verification mechanism. Governments often contributed to the success or failure of anti-corruption promote their AID systems as an anti-corruption tool that focuses on the public officials themselves. This and policies. But it is still important to measure the impact the visibility of AID systems can explain their popularity as an anti-corruption measure. of a disclosure system. This can include measuring population perception and expert opinion on how the AID system has contributed to the transparency and accountability of the public administration, and the 230 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS opinion of the public officials themselves on whether by boosting civil society activism and encouraging AID has resulted in better compliance with anti- watchdog activities, improving compliance with anti- corruption restrictions and improved integrity. Surveys money laundering and other sectoral regulations, of various stakeholders can measure the perception of increasing corporate ownership transparency or whether the verification of declarations is effective and contributing to digital governance. unbiased. The case studies of Romania and Ukraine that The results of enforcement efforts can also indicate follow constitute examples of successful AID the level of success. These results are reflected systems. Although both countries publish declarations by the level of compliance with the AID submission online, the two systems are different in their history obligation, the number of detected violations and and level of development. One is completely digital applied sanctions, the amount of unjustified assets covering about 1 million filers, while the other allows and prohibited gifts detected and confiscated, the submission of scanned paper declarations. One country number of disclosed and prevented conflict-of-interest has a strong track record of enforcement and dissuasive situations, etc. The work of verification agencies can sanctions, while in the other a poor enforcement be evaluated using different performance indicators record and allegations of bias brought down the measuring the effectiveness and efficiency of their corruption prevention agency. The case studies show work. why enforcement is key and how digitization can make AID systems more effective. They also include lessons The impact of AID may also extend beyond its learned from these countries that may be useful for primary anti-corruption goal and have a cross- policy makers and practitioners in other countries. sector effect. A disclosure system can have an impact Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 231

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS CASE STUDY 18 CASE STUDY 18 ASSET AND INTEREST DECLARATIONS Reform of Asset and Interest Disclosure in Ukraine Overview Introduction Ukraine has required that public officials submit asset In the winter of 2013-2014, hundreds of thousands of declaration forms since the mid-1990s, but up until 2014, Ukrainians took to the streets in protest. While the the forms were merely a formality and were ineffective main impetus for the demonstrations was a shift in in preventing corruption. Following the dramatic events government policy away from integration with the of the Revolution of Dignity (Euromaidan) in 2014, civil European Union, the protesters were also motivated by society successfully advocated an overhaul of the anti- the widespread corruption that permeated Ukrainian corruption infrastructure, including the introduction politics. The protest movement—which became known of a new electronic asset and interest disclosure as the Ukrainian Revolution of Dignity or Euromaidan— system. A new organization, the National Agency for led to the ouster of President Viktor Yanukovych. Corruption Prevention, had to lead implementation Yanukovych and other public officials were accused of the e-declarations system. Despite numerous of embezzling billions of dollars to pay for mansions, attempts by spoilers to block or weaken the reform, sports cars, and other luxuries. the new system became operational in September 2016, becoming one of the most comprehensive asset In theory, Ukrainians should have been able to track declaration systems worldwide in terms of how much elected officials’ assets through an asset declaration information was disclosed and made publicly available. system put in place in 1995 (and revised in 2011). But the By the end of 2019, the system held over 4 million system lacked an enforcement mechanism and provided electronic documents, all of which were available for for very limited public access to asset declarations. free public access, including in machine-readable Officials submitted hand-written declarations to the format. The asset declarations register connected to respective human resources department, which usually 16 other government databases for cross-checks and kept them out of the public eye and rarely reviewed operated an automated risk analysis system to select them. The amount of information that was disclosed declarations for verification. Although the system itself was limited and did not allow effective identification of was a success, the corruption prevention agency largely variations of wealth and conflicts of interest. As a result, failed to use it to sanction non-compliance or ill-gotten asset declarations did not help the public hold officials gains. At the end of 2019, the agency was overhauled to accountable. improve its effectiveness. 232 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS Following the revolution, which ousted the top The design of the new system included a vastly leadership of the country, lawmakers embarked on a improved asset and interest disclosure form, secure complete overhaul of the country’s anti-corruption data storage through a public-access website separate infrastructure. The new anti-corruption legislation from the main database, and protection against data called for a fully electronic and web-based system of tampering since submitted documents could not be asset and interest disclosure and a new institution to withdrawn or changed in the system and each document oversee the system and verify asset declarations of had to display the date and time of its submission. The public officials. The law also extended significantly the system’s terms of reference also stipulated a free read- scope of the disclosure, provided for online publication only access to the e-declarations by the public and the of data from declarations and strengthened sanctions possibility of data re-use. for non-compliance, including criminal punishment. The new system aimed to prevent and detect conflicts Implementing the system of interest, monitor public officials’ wealth, and ensure transparency of officials’ assets and interests. While the system was being designed, political interference threatened to block it from being Implementing such a system was never going to be implemented. In December 2015 parliament passed easy. Corruption was endemic throughout all areas of amendments that postponed the launch of the public administration, and many officials were resistant e-declaration system for one year. After civil society to change. and international partners raised concerns, parliament returned to this issue, but instead of removing the The implementation process amendment, it introduced a set of new restricting changes. Designing a new system When the President vetoed those changes, opponents The support of development partners, such as the in parliament tried a new approach to thwart the new World Bank, International Monetary Fund and the system, this time by drawing out the process to select European Union through advisory assistance, budget commissioners for the new corruption prevention support operations and the EU visa liberalization plan agency. The government appointed the minimum was essential for the design of the asset declaration required number of commissioners only in March 2016. system and its launch. The budget support operations Opponents also tried to derail the launch by denying and the EU visa liberalization plan focused on pillars technical certification of the IT system behind the new of the system, such as legislation underpinning the asset declaration register. Some members of parliament verification of declarations as well as the launch of the (MPs) claimed that the system was deficient because electronic filing system. the digital signature of one of the commissioners was allegedly compromised. Even before the government set up the National Agency Through a combination of public campaigns and for Corruption Prevention, which would be responsible consultations with government stakeholders, for the operation of the new e-declarations system, civil society advocacy groups and international preparations for the system’s creation started. Following development partners maintained their focus on the a request from the Ministry of Justice, in July 2015, the need to avoid delays in the implementation of this World Bank handed the draft terms of reference for the vital reform. Eventually those efforts paid off, and in electronic system to the ministry, and two months later, June 2016 the newly established National Agency for the United Nations Development Programme (UNDP) Corruption Prevention formally accepted the software in Ukraine used the terms of reference as a basis for and approved the bylaws necessary for the system’s calling a software development tender. The contractor functioning. was selected in December 2015 and delivered the software in mid-2016. A quality assurance group that The new system became operational in September included the Ministry of Justice and the World Bank 2016 when the first wave of filers submitted their provided advice during the software development e-declarations. Within two months, over 100,000 process. declarants submitted forms through the electronic Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 233

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS system. Once submitted, all declarations became categories of high-risk declarants whom the law had immediately public online. The agency fully launched previously missed, such as leadership of the president’s the system on January 1, 2017, when about 1 million office, and assistants to judges. The new amendments filers from the public sector had to file their declarations. clarified the definition of family members and the definition of property use which filers had to report, and The initial launch of the electronic filing system did introduced requirements for the disclosure of beneficial not go smoothly. The system experienced overloads ownership in trusts and similar legal arrangements, in peak periods, and the corruption prevention agency cryptocurrencies, bank accounts and bank safe deposit had insufficient capacity to advise declarants who boxes in Ukraine or abroad. were trying to submit their forms. To make it easier for declarants to comply with disclosure requirements, In 2019 the corruption prevention agency started using over time the agency introduced additional support the software for the automated analysis of declarations. for declarants, such as guidelines, video aids, and an The analysis included automated cross-checks with 13 online training course. external government registers and checked data against more than 100 pre-determined red flags.8 Based on such One important part of implementation was integrating analysis, the system ranked all submitted declarations the new system with external registers, such as the according to their risk rating and determined which land register, company register, vehicles register and declarations should be prioritized for full verification tax database. Such integration required a lot of inter- conducted by the agency’s staff. Ukraine was one of agency negotiations and time to technically arrange the first countries in the world to introduce such an for the data exchange. Legal obstacles also hampered automated risk analysis of declarations in bulk, which integration with some databases. Ultimately, parliament also included data cross-checks. had to amend the law to remove these obstacles. The availability of information through the new While there was an overall drive to strengthen anti- e-declarations system fostered a range of new civil corruption efforts, there were also temporary setbacks. society initiatives. All documents submitted in the web- When the anti-corruption drive of politicians linked to the based system immediately became available online revolution weakened, some political groups and parts at https://public.nazk.gov.ua. Documents were also of government tried to roll back the new achievements, disclosed through an open application programming including by curtailing the asset and interest disclosure interface (API) as machine-readable data, allowing system. In 2017, parliament instituted requirements NGOs to develop new watchdog instruments. that anti-corruption NGOs and activists also file asset declarations, a decision that violated international “Introduction of the new e-declaration system was one standards.7 The new requirements were criticized by of the main anti-corruption achievements in Ukraine Ukrainian civil society and international partners, who in the past 5 years,” said Vitaliy Shabunin, head of the perceived parliament’s actions as a backlash against leading anti-corruption NGO “Anti-corruption Action the civil society actors who advocated for the new Centre”. “Journalists, NGOs and, first of all, voters got system and defended attempts to undermine it. The access to comprehensive information about wealth e-declarations for civil society activists remained in of politicians and officials. The scope of data and the force until the Constitutional Court revoked them in possibility of its processing in a machine-readable June 2019. format afforded the country multiple investigations into unlawful assets of public officials. Such investigations Enhancing the effectiveness of the doomed many political and civil service careers of system corrupt officials who managed to keep their positions even after the two prior revolutions.” National elections held in 2019 brought in a new For example, a group of activists developed a website government that had campaigned on an anti-corruption (declarations.com.ua/en) that presented the data agenda. The administration change opened a new retrieved from the official database with advanced window of opportunity for anti-corruption reforms. In search and filtering features, a more user-friendly October 2019, parliament passed amendments that interface, and data analytics and visualization tools. extended the disclosure requirements to cover new The site also included digitized forms of previous paper 234 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS FIGURE 8.1 Implementation Timeline of Electronic Asset and Interest Disclosure System in Ukraine World Bank Official launch of \"Reboot\" of NACP e-declarations TOR NACP operation started submitted to Ministry of Justice New Corruption Main part of the E-declarations system Prevention Law e-declarations launched for all filers system software adopted delivered Oct-14 Apr-15 Jul-15 Mar-16 May-16 Jun-16 Aug-16 Sep-16 Jan-17 Jan-19 Oct-19 Nov-19 Government appointed Launch of e-declarations More than 4 million 4 NACP commissioners system (the first wave asset declaration of filers) forms available online for public Corruption NACP approved NACP launched access Prevention Law regulations necessary for automated entered into force the system's launch verification module of declarations BOX 8.1 Scope of Asset and Interest Disclosure Form Ukraine’s form of electronic declaration captures a very broad range of disclosure items. Most systems target real estate, vehicles, corporate rights, income, gifts, etc. In addition to such usual disclosure items, Ukraine’s form also covers assets that reflect current corruption and money laundering typologies in the country and abroad. The form covers, for example, the following: • Beneficial ownership (control) in legal entities, trusts and similar legal arrangements in Ukraine and abroad. • Cryptocurrencies. • Bank accounts regardless of the balance, opened by any person in the declarant’s or family member’s name, safe deposit boxes and persons who have access to them. • Any property or income that formally belongs to a third person, but which is in fact controlled by the declarant (family member) or from which the declarant (family member) receives or can receive income. • Use of any property. • Any expenditure or transaction as a result of which the declarant acquired or ceased to own or use any asset. Some of the items above (e.g. trusts, cryptocurrencies) were recently introduced and filers have to disclose them in declarations that cover the period starting January 1, 2020. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 235

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS declarations, which allowed citizens to track the assets government set up a six-member panel that included of officials to earlier periods. The same group operated representatives of two prominent anti-corruption another website (ring.org.ua) where 19 databases, Ukrainian NGOs and international experts from including asset declarations, the company register Slovenia, Germany, and US proposed by international and public procurement database, were integrated to organizations. The selection process was transparent provide cross search and a comparison of data. and merit-based, including general skills and psychological tests, essays, and interviews with the Another anti-corruption watchdog NGO created a 30 candidates who applied. In January 2020, the database of domestic politically exposed persons9 using newly-selected head announced a broad reform of the a range of public sources, including e-declarations. The agency to win back the public’s trust. database was used by banks for customer due diligence and by anti-corruption investigators and investigative Reflections journalists. Information was available in English and was integrated in the WorldCheck database and other Ukraine’s new asset and interest disclosure system commercial data aggregators. The database aimed was recognized both by Ukrainian citizens and the to prevent Ukrainians from using financial institutions international community as one of the key tools to to transfer ill-gotten assets abroad and disguise their turn around the country’s reputation for high levels of origin. Inspired by this example, other groups in Europe corruption. “By publicly disclosing officials’ incomes and and Asia began establishing similar databases in their assets via an open, directly accessible digital system, countries.10,11 the e-declaration system was Ukraine’s breakthrough instrument to prevent corruption,” said Blerta Cela, the Overhauling the anti-corruption agency UNDP’s deputy country director.13 to improve enforcement By the end of 2019, the e-declaration system contained Support from international organizations like the EU, over 4 million electronic documents. IMF, UNDP, and the World Bank, and advocacy from civil society organizations on the ground in Ukraine, Despite the public availability of this data, the was critical to get the system up and running and to corruption prevention agency failed to gain public overcome efforts to block its implementation. In the trust. Verification of declarations and enforcement of absence of broad political will and a strong national sanctions for non-compliance, in particular, remained institution to oversee the design and implementation a weak spot. The corruption prevention agency and of the new system, civil society and international the police focused their enforcement efforts mostly partners stepped in to provide the necessary technical on minor infringements. Allegations of arbitrary expertise and advocacy support to develop and application of the law and ineffectiveness discredited launch the new system. Later, those groups mounted the agency and led to calls for its urgent overhaul.12 a defense against attempts to curtail the robust asset Those calls grew louder after a whistleblower from disclosure provisions. the corruption prevention agency disclosed in 2017 that the President’s office at the time allegedly The submission compliance levels in Ukraine were gave instructions to the agency’s staff concerning high—despite the lack of sanctions handed down. verifications they conducted. Part of the reason for this was that it was relatively easy to detect non-submission of declarations since After the 2019 elections, where a majority of MPs the law required entities that employed declarants to that won seats were from the new president’s party, check if they submitted their declarations on time and parliament passed amendments to reboot the agency report back to the corruption prevention agency, and and replace its leadership through an open competition. the fact that all declarations were available online for Giving a fresh start to the corruption prevention agency public scrutiny. was one of the electoral promises of the new president and his party. The newly revealed details about officials’ wealth sent shockwaves around Ukraine. While Ukrainians To choose a new leader for the agenc y, the had long suspected that many public officials were 236 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS incredibly wealthy, the extent of the riches they had needs broader powers and resources, including the amassed caused a media storm. A survey conducted ability to impose sanctions, get information from shortly after the new asset and interest disclosure different actors, access financial information and other system’s launch found that Ukrainians thought the new government registers, and request information from system was one of the four biggest successes of 2016 abroad. In addition, it was important to have multiple in the country.14 A poll conducted in 2017 showed that points of verification, including criminal investigation 72% of Ukrainians had a positive or somewhat positive of false statements in the declarations, since criminal opinion about the system.15 investigators usually have more powers and resources to pursue effectively cases of false disclosure. Several aspects of the Ukrainian reform made it stand out as one of the most promising asset and interest In Ukraine, however, even the criminal investigators ran disclosure systems around the world. “The Ukrainian into difficulties in pursuing cases. The National Anti- system of asset declarations is probably one of the Corruption Bureau of Ukraine, a criminal investigation most advanced globally in terms of the information body targeting high-level corruption that was set up covered, the use of innovative digital solutions, and the in 2015, opened more than 60 criminal proceedings level of transparency,” said Ivan Presniakov, Deputy into false disclosure by high-level public officials, but Chairperson of the corruption prevention agency, who failed to deliver tangible results of dissuasive sanctions had previously managed the e-declarations system because judicial reform lagged behind. development project at the UNDP. “It has three distinct features. First, the scope of reported data is In late 2019 the judicial reform started to make progress, comprehensive and leaves almost no loopholes to promising to ensure that those who failed to comply abuse the system. Second, there are strong sanctions with the asset and interest disclosure legislation would for false data or untimely submission. And, third, what be sanctioned. In September, a new anti-corruption is of crucial importance, almost all data is publicly court took over the cases from the ordinary courts that disclosed, which guarantees that assets of any official had proven ineffective in dealing with corruption cases. are under the scrutiny of public or law enforcement In early 2020, this new court delivered a conviction for eye.” the non-submission of asset declaration by a judge, and more verdicts in cases of false asset disclosure were Ukraine’s digital by design approach provided many expected throughout 2020. benefits, especially because the e-declaration data was available for public use in machine-readable format. The availability of this information triggered civil society activism, the emergence of data analytics tools, and new forms of civil society and journalism watchdog activities. The digital approach also allowed the corruption prevention agency to continuously improve the system by adding additional functionalities, such as the automated red-flag analysis and the automated cross-checks with registers. As well as being cost effective, the digital approach eliminated the burden of storing and processing paper forms and limited manual work. While the system itself was a success, its effectiveness was hampered by the corruption prevention agency’s limitations in verifying the asset declaration information and sanctioning non-compliance. Although there were strong sanctions in place for submitting a false declaration or failing to submit a declaration altogether, there was little enforcement. The agency’s struggles highlighted that in order for an asset declaration system to function effectively, the responsible agency Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 237

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS CASE STUDY 19 CASE STUDY 19 ASSET AND INTEREST DECLARATIONS Enhancing Effectiveness of Asset Declarations in Romania Overview and designed to issue early warnings to contracting authorities about potential conflicts of interest in Asset declarations were first introduced in 1996 with procurement procedures. the aim of cleaning up the public sector following the transition from Communism. The asset disclosure Introduction system, which was later expanded to cover potential conflicts of interest and incompatibilities,16 underwent As Romania transitioned from a state-controlled several series of major reforms from 2003 through 2010. economy to a market economy in the early 1990s, many The road from first establishing the system to seeing public officials became inexplicably wealthy, despite results took many years and even now refinements are having spent their entire professional lives working for needed to match the emerging challenges. meagre government salaries. MPs, ministers, mayors or heads of local or regional governments and their family A wide range of Romanian public officials have to members acquired real estate, vehicles or land whose declare their assets and interests. But Romania also value was disproportionate to their current or past set up a verification mechanism focused on detecting sources of income. The rapid accumulation of wealth and sanctioning unjustified variations of wealth, among public officials was hard to miss since private conflicts of interest and incompatibilities. Since 2007, property had only recently appeared. Law enforcement an independent administrative agency—the National failed to credibly tackle this very visible integrity issue, Integrity Agency (ANI)—has managed the system. The and the level of trust in the public sector decreased. agency collects mostly paper-based declarations and publishes them on its website.17 Transparency has been In 1996 Romania introduced mandatory asset disclosure key to the success of the system; it has allowed for public for public officials, as did other countries in the region oversight of disclosure forms and given prominence to and elsewhere in the world. But the system initially did the system on the political reform agenda. Public access not deliver on its promise. Officials submitted disclosure also contributed to the effectiveness of the verification forms to their human resources department, and the process, as the vast majority of review procedures have information declared was not disclosed to the public. been triggered by media and civil society reports. With no transparency and no effective mechanism to verify assets or unjustified variations of wealth, the asset In 2017, the ANI launched its newest tool, PREVENT, disclosure system failed to make significant inroads which is linked with the public procurement system 238 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS in reducing Romania’s corruption problem. Between sources of income and debts of family members as well 1996 and 2007, Romanian courts adjudicated less than as the balance of their bank accounts needed to be ten cases of civil confiscation of unjustified variations disclosed and was made publicly available. of wealth. While this is a relatively high number in the regional context, it did not come close to making a dent Civil society groups and investigative journalists used in the challenge at hand. the declarations in combination with other open source data to paint a comprehensive picture of the A window of opportunity to fix the system began to interests and wealth of public officials. During electoral appear at the end of the 1990s, when Romania started campaigns and when individuals were competing for the long process of joining the European Union (EU). high-level public functions, information from the asset Along with other reforms, Romania had to tackle and interest disclosures played an important role in corruption in order to be accepted into the EU. public debates. Initial concerns that public access to information in disclosures might pose a threat to the The implementation process personal security of public officials turned out to be unfounded. “Blacklisting”19 of candidates for public Reforming the system office, based on information from the declarations, became a frequent practice of civil society groups In 2003, Romania introduced declarations of private since 2004. Investigative journalists routinely used interests18 in addition to asset disclosures, and the declarations of assets and interests as a first step in information filed in the declarations became publicly their investigations. available for the first time. However, the information that declarants had to submit was limited in scope. For By the time Romania joined the EU in 2007, its asset example, the asset disclosure form did not include the declaration system was comprehensive in terms of the precise value of bank deposits, loans or debts, but just scope of the information disclosed and much of what an indication of whether they exceeded the threshold of was filed was made publicly available. But there was 10,000 euro. Declarants were also required to disclose still much work to do for the country to stamp out in a yes or no format if they held shares worth more than corruption, and the reforms of the late 1990s and 2000s 10,000 euro. were fragile. To ensure that Romania remained on track with its anti-corruption agenda, the EU implemented In 2004, the disclosure form was amended to close the “Cooperation and Verification Mechanism” (CVM), more loopholes, such as including the actual value of a tool used for both Romania and Bulgaria (which faced bank deposits if above 10,000 euro. similar challenges and joined the EU at the same time). The mechanism allowed the European Commission, Finally, in 2005, the government made sweeping the executive branch of the EU, to issue regular reports reforms to the asset and interest disclosures. The forms assessing the two countries’ progress20 on or deviation became more comprehensive, requiring officials to from their reform agendas. declare a much wider range of information: movable and immovable property with a clear indication of The European Commission set four criteria for assessing the value, financial assets in Romania or abroad (bank Romania’s progress. One of those criteria was to set up accounts and other financial investments including their an agency responsible for verifying asset disclosures, respective value), liabilities, gifts and all income. identifying conflicts of interest, and issuing sanctions for noncompliance. Despite pressure from the EU to Local and national elected public officials, civil servants, set up the agency, it took time to overcome strong judges and prosecutors, police and intelligence officers domestic opposition. all had to file public disclosures at the beginning and end of their mandate, and yearly while they remained The ANI was set-up as an independent administrative in their position. Filers needed to submit information agency in mid-2007 and became operational at the not only on their own assets, income and interests, beginning of 2008. The ANI published all disclosures but also on those of their family members (spouse and on its website and kept them there for three years dependent children). Information on the values and (before archiving them). As of April 2020, 7.7 million declarations are available on the ANI’s public portal. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 239

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS Facing challenges or ex-officio by the chief prosecutors from the Courts of Appeal (there are 15 courts of appeal in the country). Early in ANI’s life, it faced a fundamental challenge The verification was conducted by a commission to its institutional framework and at an immediate composed of two judges and one prosecutor and later operational level to many on-going verification assessed by appeal court judges. The results achieved procedures. One of the first cases on confiscation of by these commissions in the area of wealth verifications unjustified variations of wealth, which was sent to the were modest. The system lacked accountability court in 2008, was appealed, and in April 2010 the mechanisms and transferred tasks to the judiciary that Constitutional Court found that parts of the law on the should have been dealt with by administrative control procedure for controlling wealth were unconstitutional. bodies. Prosecutors and judges had to perform the A new law, amended to reflect the criticism from the prima-facie investigations of wealth, although this is Constitutional Court, was adopted in September 2010. essentially a technical task that should be performed by ANI had to pause operational work for half a year, then an administrative or investigative body and censored close all on-going verification procedures and restart and reviewed by the judiciary. them from scratch in line with the amended procedures, generating further delays in its anti-corruption efforts. After 2007, ANI initiated verification procedures based on complaints or ex-officio. Staff used relevant Over the years there have been frequent legal government databases (such as the companies initiatives21 in Parliament to curtail ANI’s powers. The register, vehicle registration register, police database) 2019 European Commission CVM report on Romania to crosscheck information provided by declarants. highlighted that in the previous two years, five legislative One of the most important features of the Romanian proposals modifying the integrity framework had integrity mechanism is the power of ANI to request been adopted, weakening certain provisions and the any type of data and information from both public ability of ANI to maintain its track record of cases. This and private entities, including financial information included a “relaxation” of the incompatibilities regime, from financial institutions regarding transactions, introducing a non-dissuasive sanctioning regime for the bank accounts or credits. This proved to be extremely local elected officials found to have conflicts of interest, useful when assessing the wealth accumulated by a and a general statute of limitation period of 3 years22 for public official during his mandate and in the process sanctioning conflicts of interest and incompatibilities in of verifying the accuracy of the disclosed data. Public ANI’s cases. officials were able to provide additional information during the verification process, and ANI’s findings were Achievements challengeable in court. Around 70% of ANI’s cases are challenged before courts. Confiscating unjustified wealth Following the Constitutional Court’s 2010 decision Since the asset disclosure forms were first introduced related to the procedure for controlling wealth, the in 1996, Romania has been one of the few countries September 2010 law introduced an additional filter. This that has aimed to control and sanction unjustified was that ANI decisions would have to be analyzed by a variations23 of wealth of public officials by embedding commission of two judges and one prosecutor set up at civil confiscation tools in its financial disclosure system. the level of each court of appeal. This is a combination Although other countries have civil confiscation tools in of the initial institutional set-up of ANI and the old place, there are few systems where civil confiscation is system of wealth control. If the commission agrees with so intertwined with the asset declaration system. ANI’s findings, the case is sent to the administrative litigation section within the Courts of Appeal with a The original mechanism for verifying the accuracy of final appeal to the High Court of Cassation and Justice. asset declarations that was in place between 1996 While ANI is limited to asking for further clarifications and 2007 was rudimentary and difficult to use. The only from the subject of the investigation (the filer), procedure could start either with a complaint from the the Wealth Investigation Commission attached to the public regarding unjustified variations of wealth (even Court of Appeal (another filter) can gather its own though at that point the declarations were not public) additional evidence and can hear other individuals than the subject of the investigation. A final finding of unjustified variation of wealth results in the confiscation 240 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS of the wealth that the public official cannot adequately • In the case of a prominent political figure, account for. prosecutors notified ANI, based on their information, that a public official was hiding large Sanctioning conflicts of interest and sums of money in a foreign jurisdiction. ANI’s incompatibilities inspectors requested the Tax Administration to provide additional information about the As in the case of verification of unjustified variations official’s bank accounts abroad. This information of wealth, in the area of conflicts of interest and was obtained at a later stage from the foreign incompatibilities ANI can also conduct verifications jurisdiction and ANI found this amount to be based on complaints or start investigations ex-officio. an unjustified difference between legal income The agency’s findings can be challenged in court (the and assets and notified the Wealth Investigation administrative litigation section within Courts of Appeal Commission. with a final appeal to the High Court of Cassation and Justice) without the additional filter of the commission • In a case of corrupt police officers, judicial that exists in the area of unjustified wealth. For conflicts proceedings performed by prosecutors were of interest, the sanction is disciplinary24 and the act doubled by the administrative wealth assessment concluded under the conflict of interest is annulled conducted by ANI’s inspectors, which led to and parties must be reinstated to the initial state. In the non-conviction based confiscation of half a practice, this means that disciplinary sanctions range million euros (sums of money discovered by the from salary reduction for a limited period of time to prosecutors during the home searches). removal from the position. To deal with conflicts of interest in the area of public procurement, an ex- • In a few hundred cases, ANI notified the prosecutors ante mechanism for identifying potential conflicts of about false statements or missing information from interests was introduced (see below). the asset or interest disclosures. For incompatibilities, the sanction is the public official’s Bet ween 2011 and 2015, ANI identified both dismissal from the public position unless s/he gives up administrative conflict of interest and indications of the other position declared incompatible by the law. possible criminal conflict of interest in the case of a Between 2010 and 2019, 321 public office holders few dozen MPs. The conflict of interest was generated were removed from their offices (MPs, mayors, heads by the fact that they hired their own relatives to work of public authorities, civil servants, police officers etc.), as members of their parliamentary offices. On the while 635 had already left their offices before the ANI administrative side, the courts confirmed ANI’s findings, decision was enforced. civil sanctions were applied and the interdiction to occupy any other public office for three years was Besides dismissal, another dissuasive feature of the enforced. On the criminal side, prosecutors sent sanctions for incompatibilities and conflict of interest the cases to court, where most defendants received is a three-year ban on occupying any other public suspended prison sentences. position. The public officials under this prohibition are listed on ANI’s website. Using PREVENT to deal with potential conflicts of interest in public Inter-agency cooperation procurement If inspectors find indications of other irregularities Since 2013, the European Commission has constantly (administrative, fiscal or criminal), they have to notify called upon Romania to strengthen integrity in the relevant bodies, for example the tax administration, public procurement system: “The penalties for officials police, or prosecutors. The following are examples of involved in fraudulent public procurement cases successful cases of cooperation between prosecutors continue to be very low and the law does not foresee a and integrity inspectors, with both using their possibility of a cancellation on the grounds of conflict of respective competences to tackle lack of integrity in interest of projects that have already been executed....A the public sector. more systematic approach to ex ante checks, most logically a role for ANI (with new resources) that would Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 241

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS also ensure a uniform and systemic implementation, recover losses incurred through corrupt procurement would offer a useful way forward.” processes. In June 2017, ANI launched PREVENT, a prevention As PREVENT is an automated system, it also managed to tool to detect and eliminate potential conflicts of monitor procurement procedures on a scale that would interest in procurement. The targeting of conflicts of have never been possible through manual processes. interest in public procurement procedures is due to: 1) It also fosters a collaborative approach to dealing with the magnitude of this sector—around 15 billion euros conflict of interest situations as the main outcome of the yearly; 2) the widespread perception of corruption in PREVENT procedures is not punishing individuals, but this area—8 out of 10 companies say that corruption rather pinpointing specific risk situations. in public procurement is a widespread problem; 3) a significant number of conflicts of interest found by ANI in Results of the integrity the previous years were related to public procurement; system in Romania and 4) EU-funded contracts are also subject to public procurement legislation. By the end of 2019, ANI had reviewed more than 18,000 cases, out of which 3,000 were confirmed to be integrity PREVENT automatically checks whether participants in violations (significant differences between incomes a public bid are related or otherwise connected to the and acquired assets, incompatibilities, administrative management of the contractor. The system predicts conflicts of interest, suspicions of criminal offenses i.e. the likelihood of a potential conflict of interest through conflicts of interest, false statements, money laundering, a risk rating of each tender. The tool introduced suspicions of committing corruption offenses, including “integrity forms,” which bidders and procurement crimes against the financial interests of the European committee members (who decide which bid to accept) Union). ANI applied more than 7,000 administrative have to upload in the country’s electronic procurement fines for non-compliance with the obligation to system. Using the forms, ANI verifies the composition disclose. ANI’s final reports also include 1,954 cases of of procurement committees and identifies potential incompatibility, 668 cases of administrative conflict of conflicts of interest between committee members interest and 160 cases of unjustified wealth amounting and bidders. In this process, ANI cross-checks the to over 29.2 million euros. information from the integrity forms with other public databases (company Register and National ID register, Among high level officials, ANI found integrity incidents which also includes data on birth and marriages). When in the case of 141 MPs, 31 government officials, the PREVENT system identifies potential conflicts of 1,755 local elected officials and 252 heads of public interest (for example, a relative of a bidder being on institutions.25 In around 1,400 cases, sanctions were a procurement committee), ANI issues an integrity enforced and assets were confiscated and returned warning to the head of the contracting authority. The to the state budget. In the other cases, ANI’s findings responsibility for removing the cause of the conflict were not confirmed by the courts or the officials no of interest rests with the head of the contracting longer occupied positions in the public sector or the authority. If the latter fails to do so, ANI starts an ex- statute of limitations had passed. officio verification on the consumed conflict of interest. In other words, where prevention fails, sanctions are imposed. From June 2017 to December 2019, the PREVENT Moreover, the PREVENT system is acting as a strong system reviewed 43,008 procurement procedures, deterrent: The number of investigations opened into resulting in 117 integrity warnings. In 113 of those alleged cases of conflict of interest related to public cases amounting to 255 million euros, the contracting procurement contracts has significantly dropped (by authorities removed the cause that generated the almost 50%) since the system became operational.26 potential conflict of interest, while in the other four cases ANI started ex-officio verifications. By identifying and eliminating potential conflicts of interest early, the PREVENT system helped Romania to avoid spending time and resources on court proceedings to 242 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS FIGURE 8.2 Final Findings of ANI Reports between 2008 and 2019 350 323 300 82 292 15 250 101 229 263 2013 29 200 124 123 2014 30 25 150 119 161 161 165 129 112 2015 2016 36 72 59 37 100 15 9 6 4 50 32 2012 2017 2018 2019 2 10 17 0 2011 2008-2010 Incompatibilities Administrative con icts of interest Unjusti ed wealth Reflections asset and interest declarations are in an unhealthy competition with criminal investigative bodies Several key legal and operational factors have or believe that results are dependent on having contributed to ANI’s track record of cases: similar investigative powers as their colleagues on the criminal side. • Dissuasive sanctions included in the law (ANI’s The institutional architecture also played an important findings on incompatibilities, conflicts of interest or role in the evolution of ANI. Integrity inspectors—the unjustified assets were followed up by sanctions or staff that carries out the analytical and operational confiscations of the unexplained amounts); work—appointed to their position following public competition have full autonomy and independence in • Access to information (any information can be their case files, i.e. they cannot receive instructions from requested and easily obtained from any private anyone, not even their superiors on the conclusions that or public entity or individual, including from tax they reach during the investigations. The quality of their authorities and financial institutions); work is assessed every year by an external independent audit report and every time a case file is challenged • Comprehensive methodologies and procedures in Court (judicial review). The management of ANI is developed and used by the operational staff (which performed by a president and a vice-president, who are include templates for communication, working also appointed based on public competition. They only methods and strategies, scenarios, etc.); fulfill management duties and do not have the right to intervene in the inspectors’ case files. • Constant communication with other stakeholders in the integrity system (communication with the Romania’s experience shows the benefits of a filers, judges, prosecutors, fiscal administration comprehensive approach that focuses on both inspectors, etc.); and prevention and sanctioning. In similar country contexts to Romania, where there are high levels of violations • Effective cooperation with other institutions related both to unjustified variations of wealth and involved in the fight against corruption. In some conflicts of interest, it is important to consider a countries, the institutions responsible for verifying comprehensive approach. Preventive measures alone Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 243

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS will not be sufficient. At the same time, sanctions alone assistance from similar entities in other jurisdictions will be less effective than a combined approach. nor provide it. ANI cannot provide information to similar foreign institutions about bank accounts Transparency of asset and interest disclosures plays because the ANI integrity inspectors can only an important role. After declarations became public, access information if a specific verification file civil society groups, journalists and citizens were able is opened under the name of a Romanian public to check what public officials declared that they own27 official. and compare it with information from other sources. As a result, the public could demand investigations based • Paper-based system. One important operational on concrete information rather than just suspicions. challenge that prevents the further strengthening of Transparency also helped consolidate active citizenship the asset declaration system is the fact that it is still and public accountability, generating support for anti- paper based. As a result, ANI uses a lot of financial corruption institutions like ANI. and human resources to deal with the complexities of collecting, organizing, securing and making In implementing its asset and disclosure system, publicly available millions of declarations. This also Romania confronted strong and sustained opposition hampers the further development of its verification from individuals and groups that benefited from system. ANI launched at the end of 2019 a complex corruption. Public support and international pressure EU-funded project, which aims at developing the were essential to build political will and overcome technical platform for introducing electronic filing those trying to stifle reform. In particular, pressure from of declarations. The relevant legislation still needs the European Commission through the EU accession to be adopted by the Romanian Parliament. process and the Cooperation and Verification Mechanism ensured the country kept strengthening Romania’s experience also shows that it is a long way its asset and interest disclosure system and did not from identifying a violation to enforcement, particularly backtrack on its anti-corruption efforts. when it comes to elected officials. Sometimes, not even final court decisions guarantee enforcement. For Looking forward example, the Romanian Parliament refused on several occasions to sanction its own members.29 A truly Despite the system’s successes, some ongoing effective anti-corruption regime requires the support challenges need to be addressed. Some of these are: of all institutions, particularly those with the power to bring significant change. • Use of third parties. Many assets are held under the names of third parties (relatives, business associates, companies, friends etc.) and this frequently makes it impossible to ascertain the size of a public official’s estate. Other countries that have faced this challenge have introduced the declaration of assets held by public officials and their family members as beneficial owners. • Assets held abroad. Another challenge is verifying the assets held abroad, such as real estate and bank accounts. While some very limited mechanisms are now in place (i.e. a treaty for avoiding double taxation) and others are under discussion (International Treaty on Exchange of Data for the Verification of Asset Declarations),28 administrative entities responsible for verifying asset declarations face difficulties in tracing assets held abroad. Administrative entities like ANI can neither receive 244 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS Notes 1. Rossi, Ivana M., Laura Pop, and Tammar Berger. 2017. Getting from judicial acts, visualize them, provide statistics, and merge the Full Picture on Public Officials: A How-To Guide for data from court decisions with other databases, including Effective Financial Disclosure. Stolen Asset Recovery (StAR) e-declarations. Series. Washington, DC: World Bank. doi:10.1596/978-1-4648- 0953-8. 12. NGOs compiled a list of the corruption prevention agency’s failures and urged parliament to disband it (http://nazkfails. 2. Idem, p. 24. antac.org.ua/eng). The OECD anti-corruption monitoring report outlined many challenges and deficiencies in the 3. See, in particular: Dmytro Kotlyar and Laura Pop. (2019). agency’s work – see OECD (2017), Fourth Round Monitoring E-filing asset declarations: benefits and challenges. World of the Istanbul Anti-corruption Action Plan, Anti-corruption Bank/Stolen Asset Recovery Initiative. https://star.worldbank. Reforms in Ukraine, p. 33-37, www.oecd.org/corruption/acn/ o r g /p u b l i c a t i o n /e - f i l i n g - a s s e t- d e c l a r a t i o n s - b e n e f i t s - a n d - OECD-ACN- 4th-Round-Report-Ukraine-ENG.pdf. challenges. 13. Cela (2018). Electronic Asset Declarations for Public Officials 4. As an example of such regional work, see the initiative on the – two years after its launch. A panacea against corruption? International Treaty on Exchange of Data for the Verification www.ua.undp.org/content/ukraine/en/home/blog/2018/the- of Asset Declarations in Southeast Europe, www.rai-see.org/ expectations-and-reality-of-e-declarations.html. regional-data-exchange-on-asset-disclosure-and-conflict-of- interest. 14. Rating Group (2016). Estimation of 2016 Events and Socio- political Moods of Population. http://ratinggroup.ua/en/ 5. Rossi, Ivana M., Laura Pop, and Tammar Berger. 2017. Getting r e s ea r c h /u k r ai n e /o c e n k a _ s o by t i y_ 2016 _ i _ o b s c h e s t ve n n o - the Full Picture on Public Officials: A How-To Guide for politicheskie_nastroeniya_naseleniya.html. Effective Financial Disclosure, cited above, p. 91. 15. Cela, 2018. 6. See also Dmytro Kotlyar and Laura Pop. (2016). Asset Declarations: A Threat to Privacy or a Powerful Anti-Corruption 16. The holding of two functions simultaneously despite this Tool? www.worldbank.org/en/news/opinion/2016/09/26/ being forbidden by law. as s et- d eclar ations - a -t hreat-to - p r ivac y- or- a - p ower f ul - anti - corruption-tool. 17. See http://declaratii.integritate.eu/. 7. See, among others, ICNL (2017). Analysis of the Draft 18. Initially those included memberships in political parties and Laws On Introducing Changes to the Tax Code and to NGOs, paid professional activities and shareholding rights in Some Other Laws to Ensure Public Transparency of the companies. Financing of Public Associations and the Use of International Technical Assistance. ht tps://mk0rofifiqa2w3u89nud. 19. SAR (2004). Coalition for Clean Parliament – Local and General kinstacdn.com/wp-content/uploads/our-work _ICNL- Elections (Translated Title). http://sar.org.ro/coalitia-pentru- A nalysis - of-t he - Uk r ainian - D r af t- L aw - on - Re p or ting -for- parlament-curat- 2004/. C S O s . p d f ?_ g a =2.4 0 6 3 0 8 8 4 .773 5 6 6 4 87.159 218 9 2 0 0 - 2000779560.1592189200/.; Transparency International (2017). 20. S e e h t t p s: //e c .e u r o p a.e u / i n f o /p o l i c i e s / j u s t i c e - a n d - Proposed Amendments to a Law that Targets Ukrainian Anti- fundamental-rights/upholding-rule-law/rule-law/assistance- corruption Groups Must Be Abolished. www.transparency. bulgaria-and-romania-under- cvm/reports-progress-bulgaria- org/news/pressrelease/proposed_amendments_to_a_law_ and-romania_en. that_targets_ukrainian_anti_corruption_groups; IFEX (2017). Ukraine: Drop government proposals that restrict NGO 21. “...the legal framework for integrity, the set of laws defining the activity. https://ifex.org/ukraine-drop-government-proposals- situations of conflicts of interests and incompatibilities for civil that-restrict-ngo-activity; OSCE/ODIHR (2018). Joint Opinion servants and elected or appointed officials, has been regularly on Draft Law No. 6674. & 6675. www.venice.coe.int/webforms/ re-opened in Parliament.” CVM (2017a). Report from the documents/default.aspx?pdffile=CDL- AD(2018)006-e. Commission to the European Parliament and the Council: On Progress in Romania under the Co-operation and Verification 8. At the end of 2019, the agency connected the e-declarations Mechanism. https://ec.europa.eu/info/sites/info/files/com- register to other three important databases of the Ministry of 2017-44_en_1.pdf. and in the technical report, “In April 2017, Justice of Ukraine (registers of civil acts, powers of attorney unexpected modifications of the law on incompatibilities for and inheritance). Members of Parliament were adopted. A negative opinion had been issued by ANI but the amendment went ahead.” CVM 9. See https://pep.org.ua/en. (2017b). Romania: Technical Report. https://ec.europa.eu/info/ sites/info/files/swd-2017-25_en.pdf. 10. See, for example, https://ceeliinstitute.org/identifying- unexplained-wealth-of-public-officials-ceeli-assists-civil- 22. Based on the earlier provisions in the law on ANI, the society-in-developing-new- anti-corruption-tools, www. assessment of conflicts of interest and incompatibilities tisrilanka.org/tisl-launches-online-database-on-politically- was carried out both during the exercise of public functions exposed-persons. by officials and civil servants, and for 3 years after their termination. According to the same provisions, the sanction 11. Other noteworthy examples of watchdog tools established for a conflict of interest or incompatibility could be applied using information from the e-declaration system include: a) in maximum 6 months from the date ANI`s report remained Zaparkanom (“Over the Fence”, https://zaparkanom.com. definitive, i.e. confirmed by the court. For example, ANI could ua/) which used the e-declarations register to merge data have started an investigation in 2019 for a civil servant that on declarants, provide dashboard analytics, rate declarants committed a conflict of interest in 2015. Assuming that the by risks, and show links of declarants with other individuals case had been completed and gone through all the judicial and legal entities, b) DeclaCar (https://declacar.com.ua) stages by the end of 2020, then the sanction could have been which compared the value of cars declared by officials in applied at any time between January and June 2021. However, their disclosure forms with public data on the market value a new amendment was introduced stipulating “a general of cars to show inconsistencies, and c) Sud na doloni (“Court statute of limitations for civil, administrative and disciplinary on the palm”, http://court-on-the-palm.com.ua) which used liability for conflicts of interests and incompatibilities of three the open court decisions register to provide structured data years after the facts have been committed.” For this reason, Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 245

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS References in this new form, in order to sanction an incompatibility or Barnes, Daniel W.; Berger, Tammar; Burdescu, Ruxandra; Gilman, conflict of interest, the deed must be discovered, ascertained, Stuart; Habershon, Alexandra M.; Recanatini, Francesca; Reid, and carried through all the judicial and administrative Gary J.; Trapnell, Stephanie E.. (2012).  Public office, private proceedings in less than 3 years from the date the facts have interests : accountability through income and asset disclosure been committed. One of the many consequences that this (English). Stolen Asset Recovery (StAR) initiative. Washington, modification has generated is that ANI has already dismissed D.C.: World Bank Group. http://documents.worldbank.org/ more than 200 ongoing cases, because more than 3 years curated/en/734201468152086402/Public-of fice-private- passed from the date the acts had been committed. interests-accountability-through-income-and-asset-disclosure. 23. Of more than 10,000 euros between incoming cashflow and Dmytro Kotlyar and Laura Pop. (2016). Asset Declarations: A Threat outgoing cashflow. to Privacy or a Powerful Anti-Corruption Tool? www.worldbank. org/en/news/opinion/2016/09/26/asset-declarations-a-threat- 24. Disciplinary sanctions range from a warning, a salary cut, to-privacy-or-a-powerful-anti-corruption-tool. relegation to a lower function and dismissal. Dmytro Kotlyar and Laura Pop. (2019). E-filing asset declarations: 25. See ht t ps://w w w.integr it ate.eu /Nout atias px?Ac tion= benefits and challenges. World Bank/Stolen Asset Recovery 1&NewsId=2964&PID=21 Initiative. https://star.worldbank.org/publication/e-filing-asset- declarations-benefits-and-challenges. 26. CVM (2019a). Romania: Technical Report. https://ec.europa. eu / info/files /te c hnic al - re p or t- ro mania -2019- s wd -2019-393 _ OECD (2011), Asset Declarations for Public Officials: A Tool en. to Prevent Corruption, OECD Publishing. http://dx.doi. org/10.1787/9789264095281-en. 27. According to the 2019 Google Analytics Report, both ANI`s website and the asset and interest disclosure portal have Rossi, Ivana M., Laura Pop, and Tammar Berger. (2017). Getting almost 280.000 unique visitors per year. the Full Picture on Public Officials: A How-To Guide for Effective Financial Disclosure. Stolen Asset Recovery (StAR) Series. 28. RAI (2019). International Treaty on Exchange of Data for the Washington, DC: World Bank. doi:10.1596/978-1-4648-0953-8. Verification of Asset Declarations. http://www.rai-see.org/ regional-data-exchange- on-asset-disclosure-and-conflict-of- Case Study 18: Reform of Asset and Interest Disclosure interest/. in Ukraine 29. Cooperation and Verification Mechanism report issued in Cela (2018). Electronic Asset Declarations for Public Officials January 2017 covering the previous 10 years – “There has – two years after its launch. A panacea against corruption? also been a recurring problem concerning resistance to the w w w.u a.u n d p.o r g /c o nte nt /u k r ai n e /e n / h o m e / b l o g /2018/t h e - implementation of the Agency’s reports, even when confirmed expectations-and-reality-of-e-declarations.html. by a court decision, and reluctance from the responsible institutions and authorities to apply the sanctions required IFEX (2017). Ukraine: Drop government proposals that restrict (which consist normally in either dismissal of public function or NGO activity. https://ifex.org/ukraine-drop-government- administrative fines). In the last two years, the general situation proposals-that-restrict-ngo-activity. has significantly improved, but some decisions by Parliament have still appeared to question or delay the implementation of ICNL (2017). Analysis of the Draft Laws On Introducing Changes to the final court decisions confirming the Agency’s reports.” CVM, Tax Code and to Some Other Laws to Ensure Public Transparency 2017b. of the Financing of Public Associations and the Use of International Technical Assistance. ht tps://mk0rofifiqa2w3u89nud. In 2019, the European Commission maintained these criticisms: kinstacdn.com/wp-content/uploads/our-work _ICNL- “The November 2018 report pointed at delays and apparent A nalysis - of-t he - Uk r ainian - D r af t- L aw - on - Re p or ting -for- inconsistencies in the application of sanctions for Members of C S O s . p d f ?_ g a =2. 4 0 6 3 0 8 8 4 .7 73 5 6 6 4 87.159 218 9 2 0 0 - Parliament who were found to hold incompatible functions or 2000779560.1592189200/. to be in a state of conflict of interest by a final court decision rendered on the basis of a report from ANI. It highlighted a OECD (2017), Four th Round Monitoring of the Istanbul possible divergent interpretation of the rules (notably when Anticorruption Action Plan, Anticorruption Reforms in Ukraine, the integrity incident in question came in a previous mandate pa. 33-37, www.oecd.org/corruption/acn/OECD-ACN-4th- or position)” CVM (2019b). Report from the Commission to Round-Report-Ukraine-ENG.pdf. the European Parliament and The Council: On Progress in Romania under the Cooperation and Verification Mechanism OSCE/ODIHR (2018). Joint Opinion on Draft Law No. 6674. & ht t p s: //e c .e u r o p a.e u / i nfo/s i te s / i nfo/f il e s /p r o g r e s s - r e p o r t- 6675. www.venice.coe.int/webforms/documents/default. romania-2019-com-2019-499_en.pdf. aspx?pdffile=CDL-AD(2018)006-e. Rating Group (2016). Estimation of 2016 Events and Socio-political Moods of Population. http://ratinggroup.ua/en/research/ ukraine/ocenka_sobytiy_2016_i_obschestvenno-politicheskie_ nastroeniya_naseleniya.html. Transparency International (2017). Proposed Amendments to a Law that Targets Ukrainian Anti-corruption Groups Must Be Abolished. www.transparency.org/news/pressrelease/ proposed_amendments_to_a_law_that_targets_ukrainian_ anti_corruption_groups 246 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 8 ASSET AND INTEREST DECLARATIONS Case Study 19: Enhancing Effectiveness of Asset Declarations in Romania CVM (2017a). Report from the Commission to the European Parliament and the Council: On Progress in Romania under the Co-operation and Verification Mechanism. https://ec.europa. eu/info/sites/info/files/com-2017-44_en_1.pdf. CVM (2017b). Romania: Technical Report. https://ec.europa.eu/ info/sites/info/files/swd-2017-25_en.pdf. CVM (2019a). Romania: Technical Report. https://ec.europa.eu/ info/files/technical-report-romania-2019-swd-2019-393_en. CVM (2019b). Report from the Commission to the European Parliament and The Council: On Progress in Romania under the Cooperation and Verification Mechanism. https://ec.europa. eu/info/sites/info/files/progress-repor t-romania-2019- com-2019-499_en.pdf RAI (2019). International Treaty on Exchange of Data for the Verification of Asset Declarations. http://www.rai-see.org/ r e g io nal - d at a - exc ha n g e - o n - a s s e t- d i s c l o s u r e - a n d - c o nflic t- of- interest/. SAR (2004). Coalition for Clean Parliament – Local and General Elections (Translated Title). http://sar.org.ro/coalitia-pentru- parlament-curat-200. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 247

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 Beneficial Ownership Transparency

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY Introduction The release of the Panama Papers and Paradise Confronting corruption and the IFFs it generates Papers in 2016 and 2017 shone a spotlight on requires an end to secrecy surrounding company the extensive use of anonymous companies for ownership and an end to the abuse of anonymous concealing corrupt practices and proceeds. The legal structures for illicit financial gain. This requires sudden growth in publicly available information on this a shift in our thinking about confronting corruption. widespread practice has helped increase pressure on It means focusing on the financial centers and the policy makers to address the abuse of anonymously- jurisdictions that provide a “safe haven” for corrupt owned companies and other anonymous financial funds” in addition to strengthening the response to vehicles, and to take into account the role that they play corruption in developing countries. in facilitating corruption and illicit financial flows. These mega-leaks exposed abuses that toppled heads of Addressing anonymity is a key challenge. A study state and provided the information for law enforcement by the World Bank’s Stolen Asset Recovery Initiative actions that (by conservative estimates) helped recover (StAR) showed in 2011 that this kind of anonymity is a $1 billion for taxpayers around the world.1 As revealed core feature of grand corruption, with anonymously- by these leaks, anonymously-owned companies owned companies used in 70% of cases studied. registered in tax havens were the getaway vehicles for Since 2009, tax campaigners have also been drawing tax evaders, criminals, and corrupt politicians. The most attention to the use of anonymous companies for tax shocking insight from these public revelations is that abuse.5 Secrecy is a well-established norm, however, these cases are merely the tip of the iceberg, being just and access by law enforcement and other interested a few of the disreputable clients of a small number of parties to information about the beneficial owners of the law firms that provide these services. companies and legal entities remains a challenge. Regulatory loopholes in beneficial ownership This chapter provides an introduction to beneficial disclosure requirements in one country have serious ownership transparency. It explains the concepts, consequences globally because illicit financial reviews the existing global standards, identifies some flows (IFFs) are not constrained by national of the early impacts, and illustrates the policy and borders. Common practices employed for laundering technical challenges governments face in implementing corrupt proceeds adapt and evolve to seek out reforms. It also describes the growing international jurisdictions where legal structures offer the greatest commitment to action by governments and degree of privacy protection. Developing countries international policymaking bodies. Finally, it presents pay the heaviest price for these practices because of three case studies that chart the reform experience in lost revenues or funds that are diverted as a result of Nigeria, Slovakia, and the United Kingdom, to illustrate fraud, tax evasion, and the illegal exploitation of natural how governments have tackled some of the common resources. challenges. Estimates of the global volume of IFFs vary— precisely because the anonymity permitted by these services makes the problem hard to measure2—but most estimates put them in the trillions. It is difficult to estimate the value of financial assets held in tax havens for the same reasons. A 2012 report by the Tax Justice Network estimated that between USD21 trillion and USD32 trillion worth of financial assets was held in tax havens.3 The cumulative effects are devastating. In the Global South, IFFs are estimated to cause USD416 billion in tax losses, eroding service provision and trust in governance among the world’s most vulnerable populations.4 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 249

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY BOX 9.1 What is a Beneficial Owner? The term “beneficial owner” refers to the natural person, i.e. the real, living person, who ultimately owns or controls a company or another asset, or who materially benefits from the assets held by a company. The control can be realized either directly or indirectly, for example via professional intermediaries, nominees, or through other contractual agreements. Control can be exercised in a variety of ways: for example by holding – directly or indirectly – a controlling legal ownership interest or a significant percentage of voting rights; by having the ability to name or remove the members of an entity’s board of directors; or by holding negotiable shares or convertible stock.   The difference between legal ownership and beneficial ownership A beneficial owner describes an individual who ultimately controls assets held by a company, while the legal owner is the person (or corporate structure) that holds the legal title. In a majority of cases, the beneficial owner and the holder of the legal title of a company will be the same – if the legal owner is holding the title on his/her own behalf. In illicit practices, where there is an intention to hide the identity of the true owner of the asset, the legal owner whose name appears in a company registry, land cadastre or bank account will be different from the beneficial owner. Common techniques to separate legal and beneficial ownership in order to conceal the identity of the beneficial owner include, inter alia, use of complex, cross-border ownership chains and control structures, use of informal nominees (straw men) as company directors or shareholders, use of professional intermediaries for company administration. The Financial Action Task Force (FATF) Standards, which set out global anti-money laundering and terrorist financing standards, distinguish between basic information about a company (which includes company name, registered office, proof of incorporation, list of directors, register of shareholders), and information about the beneficial ownership of a company). Corporate registries typically (at best) collect basic company information about legal owners of corporate entities. Increasingly, however, corporate registries, primarily in Europe, have started collecting and publishing information about beneficial owners as well.   For practical purposes, many countries adopt a numerical equity ownership threshold as a trigger for beneficial ownership disclosure requirements. The threshold used, for example, in the European Anti-Money Laundering Directives is 25% ownership interest, though some regulations require disclosure at lower thresholds of 5-20%, or even disclosure with no minimum threshold. How the corrupt abuse corporate structures and arrangements In many corruption investigations, investigators must first uncover who actually benefits from the ownership of an asset – for example a company or real estate that is involved in a corrupt scheme – since the beneficial owner may be hidden behind multiple layers of shell companies or nominee company directors. Beneficial owners with criminal intent can conceal their identity through a variety of different mechanisms, for example: by creating complex and opaque legal ownership structures with corporate owners registered in jurisdictions with weak transparency regulations, by using nominees or informal proxies (e.g. family members or friends) as company directors or shareholders, or by going through professional intermediaries who protect the identity of their clients, either with complicity or unwittingly. 250 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY Evolving global standards on beneficial ownership transparency Even before the release of the Panama Papers, on the capacity of institutions to take on the task, international bodies were emphasizing the value including the verification of disclosed information; on of beneficial ownership information as a tool for the key priorities and vulnerabilities – related to money law enforcement authorities. Such information laundering or corruption – that governments are would help with investigations into corruption, money seeking to address with this tool; and in some cases on laundering and other financial crimes. The Financial data protection and privacy laws in that country. These Action Task Force (FATF), which sets global standards approaches include: on anti-money-laundering, requires that countries “take measures to prevent the misuse of legal persons • The central registry approach. A government and trusts for money laundering or terrorist financing authority collects, records, and maintains and to ensure that there is adequate, accurate and information on the beneficial ownership of timely information on the beneficial ownership and companies in a central registry. This information control of legal persons that can be obtained or may be held by a corporate registry, the tax accessed in a timely fashion by competent authorities.”6 authority, the securities regulator, the Central Since the revision of the Standards in 2012, which Bank, the Financial Intelligence Unit, or the included much more detail on what this obligation National Internal Audit Office. In some countries, entails and different mechanisms to obtain beneficial the registry is accessible only to law enforcement ownership information, a range of policy and regulatory and other government agencies (such as tax approaches have been adopted by national authorities. authorities), while other countries provide public These include requirements that companies collect access to the registry. their own beneficial ownership information and have it ready for inspection by law enforcement agencies (e.g. • The “gatekeeper” or licensed intermediary Hong Kong),7 and the creation of centralized public approach. The responsibility to collect and registers that collect beneficial ownership information record beneficial ownership information lies with for all companies registered in a jurisdiction. a professional service provider that is required to provide beneficial ownership information to Post-Panama Papers, the prospects for beneficial authorities – either on request or on a routine ownership transparency have been evolving basis. Intermediaries can be corporate service steadily. In 2014, the G20 Anti-Corruption Working providers, financial institutions, notaries, Group endorsed High-Level Principles on Beneficial lawyers, auditors, tax advisors, or real estate Ownership Transparenc y.8 Government s and professionals. A critical feature of this approach international policymaking bodies are building on the is whether professional intermediaries are well- growing attention to this agenda to push increasingly regulated, subject to licensing requirements progressive reforms. In late 2019, the U.S. House of and anti-money laundering rules, and subject to Representatives voted to require companies to submit enforceable sanctions for misreporting. This model beneficial ownership information to the Treasury is more easily implemented in contexts where Department’s Financial Crimes Enforcement Network company registration already requires a licensed (FinCEN), a measure that gained bipartisan support in intermediary, as opposed to those where a private the US Congress.9 individual can set up a company directly. A risk- based application of this approach can focus on Governments are using a range of approaches in areas of the economy considered high-risk for requiring and managing the disclosure of beneficial corruption and money laundering, such as luxury ownership information to prevent the abuse of legal real estate, luxury goods, public procurement, structures for criminal purposes. These approaches infrastructure, or extractives. vary in their reliance on public access or transparency as an accountability mechanism. The approach taken has • The company approach. This is the mos t depended in part on existing regulatory frameworks; straightforward model in that it requires that Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 251

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY companies collect and hold information about this direction include the following: their own beneficial owner(s) themselves and provide it to authorities when requested. However, • The UK and Ukraine were the first to launch national evidence from FATF’s mutual evaluations suggests public registers of beneficial ownership information that countries face challenges in ensuring that in 2016, with Slovakia following in 2017. Beneficial beneficial ownership information collected directly ownership registers can now be accessed by the from companies is accurate and up-to-date. public in Armenia, Denmark, Estonia, Poland, Reliance on this model alone, without any due Portugal, Slovenia, Ukraine, Slovakia, the UK, and diligence conducted by an independent party, is Sweden, though some of these registers impose not considered effective in guaranteeing accurate access requirements, such as fees. beneficial ownership information, as corrupt beneficial owners of shell companies are unlikely to • The EU’s Fifth Anti-Money Laundering Directive self-report their ownership interest to authorities (AMLD5), passed in 2017, requires all EU member or a government registry. states to collect and publish beneficial ownership information on companies registered in their • A combination of these approaches. Some countries jurisdiction by late 2020.12 combine elements of these approaches to great effect (e.g., the Slovak case study below). A • The Extractive Industries Transparency Initiative recent FATF report on Best Practices on Beneficial (EITI) launched a pilot sectoral approach to Ownership for Legal Persons, based on countries’ beneficial ownership transparency, to help mutual evaluations under FATF’s peer review confront the high risk of corruption in the extractive mechanism, emphasizes that a multi-pronged sectors. The EITI standard now requires all 52 approach to beneficial ownership information member countries to publish beneficial ownership disclosure and access has proven more effective data on extractive companies operating in their in preventing the misuse of legal persons than jurisdictions. any single approach.10 Given that a vital element of effective beneficial ownership disclosure • The UK Parliament voted in 2018 to require overseas is to ensure the veracity of the disclosure, the territories, including the British Virgin Islands ability of authorities to cross-check data across and the Cayman Islands, to adhere to the same different sources or the requirement that licensed transparency standards as the UK’s Companies intermediaries vouchsafe the reliability of disclosed House. In 2019, three Crown Dependencies, information11 is clearly more useful than frameworks including Guernsey, Jersey and the Isle of Man, that rely on self-reporting by companies. committed to meeting this standard by 2023.13 There is a growing momentum • Among members of the Open Government towards providing public access to Partnership (OGP), the number of governments beneficial ownership information making commitments to beneficial ownership reforms is growing year by year, with 18 active Civil society advocacy groups, thinktanks and commitments in early 2020. watchdogs have been contributing to policy developments related to beneficial ownership • In 2019, the UK with OGP and OpenOwnership disclosure. They have also been working to help launched an initiative inviting governments to solve some of the technical challenges associated endorse a new ‘global norm of beneficial ownership with establishing credible and effective public access transparency’ and a set of ambitious Disclosure disclosure systems, whether through centralized Principles for Beneficial Ownership Transparency,14 registers or other open data sources. Support for public including a commitment to open data.15 This access to beneficial ownership information gained ‘Beneficial Ownership Leadership Group’ includes significant ground at the 2016 UK Anti-Corruption Norway, Armenia, Mexico, Argentina, and Latvia, Summit, where participating governments made among others. commitments to collect beneficial ownership data and make it accessible to the public. Other developments in This momentum has strong participation from the private sector as well. In 2017, the B20 252 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY recommended that all G20 countries establish combine and make use of such information.”17 beneficial ownership action plans in a policy paper that described the benefits of transparency for business: A wide variety of stakeholders now recognizes that chiefly, the market stabilization benefits of knowing the world cannot rely on mega-leaks to expose who you’re doing business with.16 Another benefit the scale and impacts of the abuse of corporate for the private sector was emphasized in a recent structures and arrangements. Stakeholders also European Public Sector Information Directive, which acknowledge that these practices need to be prevented refers to beneficial ownership information as a high- as a matter of policy, including through public access to value dataset that should be available free for access information, thereby leveraging the ‘disinfecting effect by the public, adding that open data can “promote the of sunlight.’ development of new services based on novel ways to Emerging signs of impact While a framework for beneficial ownership reforms to increase beneficial ownership transparency transparency is urgently needed, it is not yet are an indispensable tool in the fight against corruption clear which tools or approaches may be the most and financial crime: effective. There is a growing understanding that an effective framework for beneficial ownership 1. Beneficial ownership transparency is a deterrent. transparency—meaning that the disclosure mechanism UK registered companies have been implicated is accurate, up-to-date, and accessible—has the in several recent money laundering scandals, potential to offer tremendous value to governments, including the so-called Azerbaijani and Russian markets, and society in the fight against corruption. As Laundromats, involving up to £80 million in illicit an emerging policy area, however, there is an ongoing proceeds.19 When transparency advocates noticed debate over how to achieve those objectives in different a sharp increase in registrations of a unique type of country contexts. The first public beneficial ownership UK corporate entity—Scottish Limited Partnerships registers are only a few years old, and it is too soon (SLPs)—they brought this to the attention of the to meaningfully measure their impacts on preventing authorities. UK’s beneficial ownership disclosure the abuse of corporate entities for criminal purposes. requirements had not initially applied to SLPs. Ongoing analysis of the effectiveness of different tools Registrations of SLPs rose sharply after the and approaches will be needed. disclosure requirements were introduced, revealing a loophole in the law. Lawmakers then moved to Despite implementation challenges, well-planned include SLPs in the disclosure requirements, and reforms are achieving encouraging results. registrations plummeted. Transparency showed its Implementing effective beneficial ownership disclosure value as a deterrent both in changing behaviors poses significant technical and technological when the law was introduced, and in forcing corrupt challenges, and most countries are struggling to actors to seek new avenues for concealing illicit implement FATF standards on beneficial ownership proceeds after the loophole had been addressed. disclosure, particularly as it relates to the effectiveness of disclosure mechanisms.18 Governments may also face 2. Beneficial ownership disclosure helps in the resistance to reform, either because of vested interests enforcement of illicit enrichment laws. A number against increased transparency, or because the potential of countries have illicit enrichment laws.20 When gains are misunderstood, or because of the added paired with effective disclosure systems (asset burden on companies (and/or intermediaries) engaged declarations and beneficial ownership disclosure), in legitimate business activity. However, there are some these laws can be a powerful tool to detect and promising experiences and signs of impact that should seize unexplained wealth. In financial centers, this provide encouragement. These emerging signs of tool can be useful to law enforcement, journalists progress demonstrate that carefully calibrated policy and NGOs in exposing foreign public officials Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 253

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY (politically exposed persons) seeking to conceal, interest. Beneficial Ownership Registers thus have invest and enjoy illicitly acquired wealth abroad. a valuable role to play in the oversight of public Beneficial ownership transparency has played an procurement to prevent self-dealing by politically important role in the successful use of a recently connected individuals. introduced illicit enrichment tool in the UK. Unexplained Wealth Orders (UWOs)21 allow law 4. Beneficial ownership transparency is adding value enforcement to compel individuals suspected of to accountability data ecosystems. Open data having committed a crime, or Politically Exposed standards and advances in digital governance Persons (PEPs) with assets valued over £50,000 that are making transparency reforms more impactful: are disproportionate to their income, to explain the open data is becoming more accessible, data source of the wealth, and to seize the assets if no systems are increasingly interoperable, and reasonable explanation is provided. In the first use structured data enables the aggregation and of a UWO, law enforcement used the UK’s company linking of key datasets. In 2017, a coalition register to establish that the wife of a jailed Azeri of transparency organizations launched the banker had been the beneficial owner of a UK OpenOwnership Register, which collects and links company for one day in 2016. They subsequently beneficial ownership data from registers around used a UWO to investigate the assets and compel the world, allowing users to “follow the money” information from the owner. The company’s assets, across borders.22 They are also supporting the valued at £10.5 million, were subsequently seized development of the Beneficial Ownership Data by UK authorities. Standard (BODS), a structured and standardized framework for representing beneficial ownership 3. Beneficial ownership transparency helps detect information, enabling beneficial ownership data and prevent conflicts of interest. In 2019, Czech to be connected to other key datasets, such as activists used the Slovakian beneficial ownership procurement or tax databases, locally and around register to establish that the Prime Minister was the the world. The BODS also enables more rapid beneficial owner of a company receiving European scaling-up by governments of existing sectoral Union subsidies. This is now under investigation by registers to systems with national coverage and the European Commission for potential conflict of supports the addition of new asset classes. Further reforms are in the pipeline These early signs of impact are highly encouraging, These reforms, in the UK and elsewhere, are and some reformers are expanding their beneficial intended to have a number of impacts: (i) to level ownership reform to include new stakeholders the playing field for businesses bidding for government and asset classes. For instance, the UK will collect contracts by making it more difficult to conceal conflicts information on the beneficial owners of overseas of interest using anonymously-owned companies; (ii) companies that are purchasing real estate property in to prevent real estate (and other luxury goods) from the UK in a special “overseas entities” register.23 It will being used as a destination for illicit funds; and (iii) to also include overseas companies that win government further close loopholes in the anti-money laundering contracts, requiring them to provide their beneficial framework. In a move that directly tackles the link ownership information as a condition of the award between money laundering and corruption, some of contract. Some UK lawmakers are also pushing for governments are also beginning to include beneficial the beneficial ownership of trusts to be made public ownership disclosure requirements in the income and (it is now held in a register only accessible by law asset declarations of public officials, thereby addressing enforcement, as required by the EU’s Fifth Anti-Money a significant blind spot in these tools (see Chapter 8). Laundering Directive).24 254 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY BOX 9.2 The Beneficial Ownership Data Standard (BODS) Legal and beneficial ownership information consists of data about individuals, companies, and other legal entities and arrangements, and data about the relationship between them. Effectively identifying these elements requires a range of data points. To make this information open and accessible requires that the data be published in an open format that is standard across jurisdictions. A group of experts in anti-money laundering, company data, and data standardization have developed a tool that meets these requirements. This data tool is intended to help policy makers design beneficial ownership disclosure systems that fulfil the accountability goals of the disclosure requirement while balancing data protection and privacy considerations. The Beneficial Ownership Data Standard (BODS) is a framework for representing information about people, companies, and relationships as structured data, in a standardized format that can be replicated across countries and systems. The BODS expresses this information as statements that can be linked together into a “claim about beneficial ownership made by a particular source at a particular point in time.” The necessary elements to identify a beneficial ownership relationship are summarized in the table below. The Beneficial Ownership Data Standard includes the following elements: Data about individuals Data about companies Data about relationships • Name • Name • The type of relationship, e.g. shareholding, voting rights • Official identifiers, like tax ID • Official identifiers, like official registration numbers • The level of interest, e.g. • Nationalities and tax percentage of shares held, residencies • Jurisdiction in which the and whether it’s held directly company is registered or indirectly through another • Date and place of birth entity • Founding and dissolution date • Place of residency and contact • Start and end date of the address • Address relationship • Whether they are a politically exposed person The complete data standard can be found at: https://standard.openownership.org/en/v0-2-0/index.html Across all categories of data, it should be clear to users if a piece of information is missing, and why it is missing—for instance, that it was not reported, or that the company is exempt from reporting. Missing data is also important information, and may raise a red flag to reviewers or law enforcement, for instance, if a company of interest has failed to adequately report its beneficial ownership, or if a company of interest has not updated a beneficial ownership disclosure for a long time. Statements should also come with certain metadata— data about data—that enables users to understand when the statement was made and where it originated. That way, users can tell if the information is recent and from a reliable source. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 255

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY Implementing beneficial ownership transparency: Common challenges but different paths to reform Even if many policy makers are no longer asking effective beneficial ownership transparency whether to implement beneficial ownership reforms rely on technologies that enable a range of transparency, many questions are being asked users and stakeholders to engage with the resulting about how to do it well. Governments face common data. Reformers thus need to get stakeholders challenges when implementing beneficial ownership engaged in developing a “data driven” approach transparency reforms. These include: to the design of policies and information platforms. 1. The need for effective means of verifying disclosed 4. Balancing privacy and transparency. Beneficial information. The criminal and corrupt have every ownership data incorporates identifying incentive to lie to preserve their anonymity information about individuals. Reformers will and have developed increasingly sophisticated need to balance the objectives of disclosure with techniques to elude changes in disclosure growing obligations to protect personal data. obligations. The usefulness of any registry that holds beneficial ownership information—whether 5. Balancing fighting corruption and ease of doing it is publicly accessible or only accessible to business. Disclosure obligations and verification national authorities—will succeed or fail based on mechanisms impose administrative burdens on the veracity and timeliness of the information it companies and, in the “gatekeeper” model, on holds. Registries that operate on the basis of self- professional intermediaries as well. Careful policy reporting by companies are particularly unreliable design requires striking a balance between the in this respect. Further, corporate registries in many sometimes-competing objectives of fighting countries are archival in nature and not equipped corruption and enhancing the ease of doing to cross-check or verify beneficial ownership business. While the speed of company incorporation information submitted to them by companies; is rewarded as an indicator of the ease of “Doing and certainly unable to do so in real time, as Business” it is increasingly a risk factor in the abuse such information by its nature is much harder to of anonymous company structures.25 corroborate than basic company information. 6. Tailoring the approach to an understanding of the 2. Winning political support and maintaining the risks. Corruption risks are different in every country momentum of early efforts. Beneficial ownership and are continually evolving. An assessment of the transparency is a reform that touches many risks should inform decisions about approaches stakeholders and may involve multiple government to beneficial ownership transparency systems.26 agencies and areas of law. While global standards The FATF’s 40 Recommendations (2012) require and initiatives can provide a platform and all jurisdictions to identify and assess the money opportunity for reformers to push for the creation laundering/terrorist financing (ML/TF) risks for of disclosure systems, incremental approaches their country and adopt a risk-based approach to may be needed to sustain momentum and scale up mitigating risks. This approach extends to ensuring transparency tools over time. beneficial ownership transparency and preventing the misuse of companies and trusts. The value of 3. The complex legislation and technical requirements beneficial ownership transparency extends beyond involved in setting up an effective beneficial addressing AML/CFT risks to include self-dealing ownership disclosure system. Effective mechanisms by connected elites and the capture of public funds for disclosing and verifying beneficial ownership and contracts by connected firms. These risks need information require adequate regulation of also to be considered in the design of beneficial registries, a mechanism for reporting discrepancies, ownership disclosure systems. and enforceable sanctions for misreporting. Further, 256 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY BOX 9.3 Key Data Questions for Policy Makers to Consider Embedding Data Quality Considerations in Policy Design The impact of beneficial ownership transparency reforms relies on the use of the ensuing data by law enforcement, procurement agencies, tax authorities, and civil society. The data must therefore be reliable, detailed, and useful (Box 9.2 explains the Beneficial Ownership Data Standard). Considerations about data reliability and the needs of data users must therefore be at the heart of policy design. This means that determinations about what data can and will be available, where, and in what format need to be made while drafting laws and regulations, as these are often hard to adapt later. Some jurisdictions have approached this challenge by expressing principles in the legislation and leaving more specific requirements about data and data quality to the supporting regulations. Regulations are easier to change, meaning that governments can learn and adapt from early implementation experiences. These considerations are particularly important given that this is still a new policy area and norms and best practices relating to high- quality beneficial ownership data are only just emerging and have yet to be standardized. One of the goals of the UK-led Beneficial Ownership Leadership Group is to establish and standardize these norms through a set of Disclosure Principles based on OpenOwnership’s “Five characteristics of effective beneficial ownership data” https://www.openownership.org/ uploads/oo- characteristics-effective-bo-data.pdf. In designing effective policies, the following questions may need to be answered: Beneficial Ownership Information: Data Questions that Underpin Policy Design • What types of legal entity and natural persons will be covered by the policy? • What format will the data be published in, and what will be the access levels for the public? • What definition of beneficial ownership is being used? What means and percentage of control of legal entities will be covered by the disclosure requirement? • Will there be a threshold of control that shareholders or directors must cross in order to be considered beneficial owners? How will this data be represented? • Will intermediate companies (between the beneficial owner and the disclosing company) be disclosed? • How will historical data, about past beneficial owners of companies, be stored and published? • Are there reliable identifiers that can be used for legal entities and natural persons? • What will be the requirements on companies to submit and update beneficial ownership information, and how will compliance be ensured? • What sanctions will be put in place for non-compliance against the beneficial owner and/or legal entity for failing to declare, or declaring false information? • What steps will be taken to verify the information that is submitted, and analyze submissions to identify suspicious entries for investigation? As the list above illustrates, beneficial ownership transparency may also require changes to existing areas of law. OpenOwnership’s Policy Review Tool is intended to help reformers identify relevant policy areas where changes may be necessary: https://www.openownership. org/uploads/oo-beneficial-ownership-policy- reviewer.pdf Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 257

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY 7. Ensuring effective enforcement of sanctions for or accountability blind spots to evade detection violations. A 2019 analysis of public data in the of their illicit activities. Law enforcement officials UK’s Companies House registry shows that a lack who routinely rely on cross-border cooperation of systematic verification of self-reported data, to obtain beneficial ownership information combined with a lack of enforcement of sanctions from foreign authorities are concerned that the for companies that don’t comply or that report introduction of public registries without proper incorrect information, leads to data quality issues regulation, systematic verification mechanisms, that undermine the effectiveness of the registry.27 and sanctions enforcement would simply prompt criminals to develop more sophisticated 8. Increased transparency can have unintended concealment techniques, or move their money consequences. While increased transparency is a elsewhere, thereby increasing the scale of the vital element of accountability measures, well- challenge that beneficial ownership transparency intentioned policy reforms can have unintended seeks to address. consequences. Transparency regulations should be designed with the expectation that criminals will Approaches to addressing these common challenges react swiftly and exploit any regulatory loopholes are explored in the case studies and Box 9.3. Nigeria: Incremental reforms by leveraging existing initiatives and institutions Beneficial ownership transparency requires action sectors are undertaking beneficial ownership by governments to help solve a problem that is transparency as part of their EITI commitments.30 global in scale. Existing international commitments Introducing this requirement at the sectoral level first, and initiatives thus provide a helpful springboard for by collecting data on companies that own extractive launching domestic reforms. The most prominent licenses, provides a useful testing ground for the policy, platforms for this policy agenda are the Open procedures and technology required. Nigeria is a good Government Partnership (OGP) and the Extractive example of this approach, despite having embraced a Industries Transparency Initiative (EITI). These platforms far more ambitious scope at the outset. At the London encourage implementers to meet baseline anti-money Anti-Corruption Summit in 2016, Nigeria committed to laundering and tax transparency standards (the FATF implementing a fully public central beneficial ownership Standard28 and the Standard set out by the Global register, reiterating this commitment in both their EITI Forum on Transparency and Exchange of Information beneficial ownership roadmap and their 2018 OGP for Tax Purposes29) and to surpass them. They also National Action Plan. This reform found support at the provide support to governments in meeting these highest levels of government; in 2017, the Vice President goals. OGP has partnered with OpenOwnership to noted that the government expects this reform to provide technical assistance to member countries in benefit society and business too, “not only from the meeting beneficial ownership-related commitments better business climate that results when governments under Open Government National Action Plans. better serve their citizens but also from knowing who EITI is supporting governments to meet disclosure they are doing businesses with or competing against.”31 commitments in the extractive sectors. Nigeria’s EITI multi-stakeholder group (NEITI) set Implementation of Nigeria’s in motion a plan to deliver beneficial ownership commitment to transparency began transparency for the oil, gas, and mining sectors. at the sectoral level NEITI worked with regulators in Nigeria’s Mining Cadastral Office and Department of Petroleum A number of countries with large extractive Resources to include a beneficial ownership disclosure requirement in sectoral regulation.32 They developed 258 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY template forms and procedures and have since been Stakeholder engagement is a vital piece of the reform supporting companies to comply. While EITI Nigeria process since beneficial ownership transparency reform is still working to fulfill its EITI commitments,33 this touches on a wide range of policy areas. The CAC will experience has helped pave the way for scaling be supported in engaging stakeholders as part of up disclosure requirements more broadly and Nigeria’s Open Government Action Plan. incrementally. Lessons learned Nigeria’s initial steps along the reform path Nigeria has a long way to go before being able to show progress in beneficial ownership Beneficial ownership requirements have since transparency. However, the initiation of the reform been introduced as part of a large bill reforming makes Nigeria a relevant illustration of how reforms the private sector (the 2018 Companies and that are politically and technically challenging can be Allied Matters Repeal and Re-enactment Act), introduced by leveraging international commitments which passed both houses of Parliament in 2019. and policy platforms, and by building on existing Embedding the beneficial ownership disclosure institutional frameworks. The need for new legislation, requirement within an existing institution—the institutions and resources can be significant stumbling Corporate Affairs Commission (CAC)—is a practical blocks for many countries. Scaling up these reforms measure that is helped by the fact that this move is greatly facilitated when the data is collected and coincides with the CAC’s reform and modernization of published from the outset in a structured, machine its data systems and online reporting tools. The CAC readable format, allowing each new data system to will be tasked with collecting beneficial ownership leverage existing data, thereby also reducing the information for all 3.1 million Nigerian companies, and compliance burden on users, and ensuring better data to make that information publicly available.34 A further quality. Datasets can then be compared to uncover important step in this incremental reform path will then inconsistencies or red flags and to identify reporting be to link this disclosure data to the oversight of public hurdles due to existing policy constraints or the procurement and to support the use of the data by the experiences of users. relevant authorities and interested civil society actors. Slovakia: Verifying the true owners of companies doing business with the State Slovakia was among the first countries to created for that purpose.37 The Register of Public Sector implement beneficial ownership transparency in Partners is administered by a District Court on behalf public procurement. Civil society groups called for of the Ministry of Justice. Slovakia’s approach differs a beneficial ownership register in response to long- from disclosure systems in other countries in many suspected corruption and conflicts of interest in the ways. It is particularly instructive because of the steps award of public contracts, and following public outrage Slovakia has taken to ensure the veracity of reported after the restructuring of a road construction company information. threatened to leave thousands of workers unpaid.35 The so-called Anti-Letterbox Act was passed in 2017.36 It International standards on beneficial ownership requires that companies wishing to either compete for transparency, including FATF and the EU Anti- government contracts, receive funds from the State or Money Laundering Directive, require that beneficial the EU, or obtain an extractive sector license must first ownership data be accurate and verified. This poses register as a Partner of the Public Sector in a registry an obvious challenge: where anonymity is being used Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 259

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY to conceal illicit practices, the incentives to lie are very The public can query the veracity of strong. Verifying beneficial ownership information is a the data technical challenge (how can one verify a disclosure for which no other official record exists?) and Free public access is another cornerstone of administratively difficult (who verifies, when, how often, Slovakia’s approach to verifying data. Anyone and against what thresholds?). can submit a claim establishing reasonable doubt as to the veracity of a disclosure to the registration Slovakia makes “authorized persons” authority in the District Court. If the Court finds the responsible for the verification of query reasonable, it holds a proceeding with the goal beneficial owners of verifying the data. Under Slovakian law, the Partner of the Public Sector is required to submit evidence that The approach taken in many countries is to require the beneficial ownership information is correct. If the that companies and other legal entities self- evidence is unsatisfactory, the registering authority report their beneficial owners, leaving the task can fine the company, remove it from the register, and of verifying the veracity of the disclosure to the cancel financial arrangements or contracts with the authority administering the register, or in some government. cases to a third party.38 In Slovakia, companies are required to register as a Partner of the Public Sector Lessons learned through “authorized persons,” such as attorneys, notaries, banks, or tax advisors, who must have a Slovakia has reversed the burden of proof for registered place of business in the Slovak Republic, verifying beneficial ownership, shifting the cost of and no connection to the firm. The authorized person verification from the government to companies. submits an application to the registry on behalf of Over 70 investigations have been conducted since the the firm and is required to attach a verification form register was launched, one of which produced the first demonstrating that they have authenticated the identity fine ever levied against a company for misreporting of the beneficial owners (this includes a description of beneficial ownership.40 Five companies have chosen to the ownership and management structure of the firm). end contracts with the government rather than disclose The registry can object to incomplete applications, their beneficial ownership. The Slovakian approach with an explanation of the shortcomings, and request is intuitive in many ways: it provides incentives additional information. “Authorized persons” are for authorized persons to authenticate or correct responsible for submitting changes to a registration; disclosures, and provides greater confidence to the they must also re-authenticate the beneficial owner(s) users of the data and to Slovakian civil society that the annually while the contract or financial relationship with system is credible and effective in deterring the abuses the State is in effect. that gave rise to the widespread demand for reform. While the requirement that firms engage an “authorized person” to register them as a Partner of the Public Sector carries a cost for firms, this approach to authentication helps address the challenging (and costly) task of verification for the public sector. A noteworthy aspect of the Slovakian approach is in making the “authorized person” jointly liable for the veracity of the disclosure, in that they act as the guarantor of fines levied against companies that have misreported, unless they can prove they acted with “professional diligence.”39 The system thus leverages the potential reputational and financial risk for legal professionals as a way of shoring up the objectives of the system: to establish the true owners of companies doing business with the State. 260 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY United Kingdom: Balancing transparency and privacy Critics of beneficial ownership registers have all UK registered companies (the Small Business, justifiable concerns about the implications for Enterprise and Employment Act of 2015). In the UK, data protection and privacy. Beneficial ownership beneficial owners are called “Persons of Significant information includes identifying data about individuals, Control” (PSCs), and their data is held and published most of whom may be using companies responsibly by Companies House in a fully public open data format. and would prefer not to have their corporate interests Currently, Companies House has data on over 4 million exposed. Champions of public data respond that the companies, associated with millions more beneficial right to privacy is not absolute and has been limited in owners. many cases, particularly when public safety or national security is at stake.41 International law recognizes that The UK has demonstrated that it is possible to limitations on expectations of privacy can be necessary approach the matter of privacy with nuance, to achieve legitimate policy aims. Stemming corruption offering transparency while mitigating its risks. It and illicit financial flows is clearly a legitimate policy goal. has done this in two ways: Disclosure systems need to find a balance between the accountability goals of transparency tools and rapidly • Publishing enough per sonally identif ying evolving concerns related to data privacy in the digital information to distinguish between beneficial age. Transparency, when implemented responsibly, is owners and officers, while withholding sensitive fully compatible with data protection laws. information (birthdate and residential address) for access by law enforcement for official purposes This is true even in contexts of strict data only. Public access is only given to month and year of protection laws, such as the EU’s General Data birth and a registered address for correspondence. Protection Regulation (GDPR). The GDPR gives data subjects rights over data about them, and requires • Allowing beneficial owners with privacy concerns to entities using personal data—data processors—to apply to have their information removed from the get their consent to do so. However, there are certain register. This process is rule-governed and permits exemptions to this requirement, one of which is exemptions under specific conditions unique to when there is a regulatory requirement to collect and the UK context; for instance, some companies are process data. This would be the case in any jurisdiction exempted because they fear their businesses will that requires beneficial ownership disclosure. In other be the target of protests.42 words, implementers will not be legally blocked from implementing beneficial ownership transparency for Perhaps surprisingly, the UK’s exemptions process privacy reasons; instead, they should consider privacy has not been widely popular. Out of millions of as a principle and responsibility they must take into registered beneficial owners in the UK, only around account in their implementation. A local privacy impact 300 have applied to have their information removed, assessment can help to identify any potential harm and only 30 of these applications have been granted. and suggest mitigating actions that the government It is important to note also that the UK is subject to the can take. GDPR, one of the world’s most stringent data protection regulations. While the UK provides a useful example, The UK implements beneficial getting the balance right means that every jurisdiction ownership reforms while paying due should conduct a privacy impact assessment for their regard to privacy concerns context and design an exemptions process to fit. Beneficial ownership reforms have been championed in the United Kingdom at the highest levels of government. This resulted in an amendment to the UK’s Companies Act to require disclosure from Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 261

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY Notes 1. Dalby & Wilson-Chapman (2019). Panama Papers helps 9. Parker (2019). House Passes Bill to Expose Owners of Shell recover more than $1.2 billion around the world. https:// Companies. The Wall Street Journal. https://www.wsj.com/ www.icij.org/investigations/panama-papers/panama-papers- articles/house-passes- bill-to-expose-owners-of-shell- helps-recover-more-than-1-2-billion-around-the-world/. companies-11571785516. 2. Estimates of the volume of IFFs are also made difficult because 10. FATF (2019). Best Practices on Beneficial Ownership for Legal there are different definitions of what constitutes illicit Persons. https://www.fatf-gafi.org/media/fatf/documents/ flows. On the difference between illicit financial flows, trade Best-Practices- Beneficial-Ownership-Legal-Persons.pdf. misinvoicing and tax avoidance see: Forstater (2018). Illicit Financial Flows, Trade Misinvoicing, and Multinational Tax 11. Slovakia, Jersey, Spain, and Uruguay have frameworks that rely Avoidance: The Same or Different? https://www.cgdev.org/ on licensed professional intermediaries that can be held liable sites/default/files/illicit-financial-flows-trade- misinvoicing- for reporting incorrect information to the registry. and-multinational-tax-avoidance.pdf. 12. The directive also requires states to create a register of 3. Henry (2012). The Price of Offshore Revisited: New Estimates beneficial ownership of trusts that is directly accessible for “Missing” Global Private Wealth, Income, Inequality to authorities and “obliged entities” subject to AML rules and Lost Taxes. https://www.taxjustice.net/wp-content/ (financial institutions, lawyers, tax advisors) and accessible uploads/2014/04/Price_of_Offshore_Revisited_120722.pdf. upon request to others who can demonstrate a “legitimate interest” tied to the directive’s purpose of combating money Assessing the scale of the abuse of anonymous structures for laundering. concealing illicit proceeds is made more difficult by the fact that not all holdings in secrecy jurisdictions or tax havens are 13. BBC (2019). Secret company registers in Crown Dependencies illicit proceeds. to be made public. https://www.bbc.com/news/world- europe-guernsey- 48677083. 4. Kohonen, Afari, Waris, Lopes-Filho, Lewis, Biyani, Rai, Lukin & Pyakurel (2019). Trapped in Illicit Finance: How abusive tax and 14. Declaration of national commitment to meet the Beneficial trade practices harm human rights. https://www.christianaid. Ownership Transparency: Disclosure Principles (n.d.). https:// org.uk /sites /d ef ault /files /2019- 0 9/t r ap p e d - in - illicit-finance - w w w.o p e now ne r s hip.o rg /u p loa d s /o o - dis c lo s ure - p r inc ip le s . report-sep2019.pdf. pdf. Global Financial Integrity (GFI) estimates that developing 15. Open data means that it is freely downloadable, searchable, countries lose almost USD one trillion per year through illicit and reusable by the public, without a fee, proprietary financial flows of all kinds —a number that is perhaps most software, or the need for registration. Open data is also usefully seen as suggesting the scale of the phenomenon. The machine-readable, which means it can be read and processed Economic Commission for Africa of the United Nations (ECA) by computers. has used trade statistics to estimate that between 2001 and 2010 African countries lost up to US $407 billion from trade 16. B20 (2017). Promoting Integrity by Creating Opportunities mispricing alone. for Responsible Businesses. .https://www.b20germany.org/ fileadmin/user_upload/documents/B20/b20-ctg-rbac-policy- 5. Willebois, Halter, Harrison, Park & Sharman (2011). The Puppet paper.pdf Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It. https://star.worldbank.org/ 17. Official Journal of the EU (2019). Directive (EU) 2019/1024 sites/star/files/puppetmastersv1.pdf; of the European Parliament and of the Council of 20 June 2019 on Open Data and the Re-use of Public Sector Pacini & Wadlinger (2018). How Shell Entities and Lack of Information. https://eur-lex.europa.eu/legal-content/EN/TXT/ OwnershipTransparency Facilitate Tax Evasion and Modern HTML/?uri=CELEX:32019L1024&from=EN. Policy Responses to These Problems. Marquette Law Review. ht tps://scholarship.law.marquet te.edu/cgi/viewcontent. 18. The FATF standard for evaluating the effectiveness of cgi?article=5380&context=mulr. Beneficial Ownership Transparency is Immediate Outcome 5 (IO. 5): “Legal persons and arrangements are prevented 6. The FATF was the first international body to introduce from misuse for money laundering or terrorist financing, international standards on beneficial ownership in 2003 and information on their beneficial ownership is available to and strengthened its Standards in 2012. Beneficial competent authorities without impediments.” According to an ownership transparency requirements are set out in FATF analysis of FATF mutual evaluations conducted by the World Recommendations 24 and 25. See FATF (2014). FATF Guidance: Bank, ratings of effectiveness related to beneficial ownership Transparency and Beneficial Ownership. http://www.fatf-gafi. transparency were among the poorest overall, with 90% of org /me dia /f at f/doc ument s /rep or t s /Guidance -tr ans parenc y- assessed countries rated as having either low or moderate beneficial- ownership.pdf. effectiveness and not a single country achieving a high level of effectiveness. This analysis includes 97 Mutual Evaluation 7. Hower ton (2018). How to Comply With Hong Kong’s Reports (MERs) from FATF and FATF-style Regional Bodies New Beneficial Owner Law. https://ieglobal.vistra.com/ (FSRBs). blog/2018/3/how-comply-hong- kong-s-new-beneficial- owner-law. 19. Transparency International UK (2017). Hiding in Plain Sight: How UK Companies are Used to Launder Corrupt Wealth. 8. OECD (2014). G20 High-Level Principles on Beneficial https://www.transparency.org.uk /publications/hiding-in- Ownership Transparency. ht tp://w w w.g20.utoronto. plain-sight/. ca/2014/g20_high- level_principles_beneficial_ownership_ transparency.pdf. 20. The UN Convention Against Corruption defines illicit enrichment as a “significant increase in the assets of a public In 2014, the OECD issued a Common Reporting Standard, official that he or she cannot reasonably explain in relation to which requires data points on the beneficiaries of financial his or her lawful income”. accounts. See ht tps://w w w.oecd.org/tax /automatic- exchange/common-reporting-standard/. 21. For more background on Unexplained Wealth Orders see: ht t p s://s t ar.wor ld b ank .org /co nte nt /s t ar- new s let ter- januar y- 2019#spotlight 262 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY 22. Open Ownership (2018). New on the OpenOwnership osinbajos-address- in-jakarta. Register - data from the Danish Business Register has been added. https://www.openownership.org/news/new-on-the- 32. NEITI (2018). Annual Progress Report. https://eiti.org/sites/ openownership-register-data-from-the-danish-business- default/files/documents/neiti-apr-2018-280619.pdf. register-has-been-added/. 33. By 2020, all EITI countries have to ensure that companies 23. Gov.UK (2018). Closed consultation: Draft Registration of applying for or holding a participating interest in an oil, gas Overseas Entities Bill https://www.gov.uk /government / or mining license or contract in their country disclose their consultations/draft- registration-of-overseas-entities-bill. beneficial owners. The EITI Standard also requires public officials—also known as Politically Exposed Persons—to 24. Joint Committee on the Draft Registration of Overseas be transparent about their ownership in oil, gas and mining Entities Bill (2019). Draft Registration of Overseas Entities Bill: companies. EITI standards also require that this information Report of Session 2017– 19. https://publications.parliament. be publicly available and published in EITI reports and/or uk/pa/jt201719/jtselect/jtovsent/358/358.pdf. public registries. Beneficial ownership disclosure of trusts is more challenging 34. Andah (2019). CAC Reveals Number Of Registered Companies to regulate and enforce in part because the control structure In Nigeria. https://www.concise.ng/2019/03/27/cac-reveals- of trusts is more complex than for companies, and because number-of- registered-companies-in-nigeria/. of the different legal purpose and nature of trusts in different jurisdictions. FATF, for instance, has different disclosure 35. The Slovak Spectator (2015). Small businesses cut out in requirements for companies (and other legal persons) and Váhostav case. https://spectator.sme.sk/c/20056770/small- trusts. There are also initiatives to support the creation of an businesses-cut-out-in- vahostav-case.html. international standard for the disclosure of ownership of all asset classes that are susceptible to being used to move and 36. Wessing (2017). World-Wide Rarity: Anti-Letterbox Companies conceal illicit wealth or evade taxes (real estate, luxury goods, Act in Slovakia. https://ceelegalmatters.com/slovakia/6605- etc). See for example: https://www.taxjustice.net. world-wide-rarity- anti-letterbox-companies-act-in-slovakia. 25. The World Bank’s annual Doing Business report compares 37. Firms receiving a one-off contract under EUR 100,000 in value countries’ business regulations with a focus on promoting are exempted. entrepreneurship. https://www.doingbusiness.org/en/data/ exploretopics/starting-a-business. On the risks associated 38. In Jersey, for example, this task is assigned to corporate with high speed company incorporation, see: Medium service providers, which are licensed intermediaries with (2018). Open Corporates, Fireflies and algorithms — the specific expertise in this area. The argument has been made coming explosion of companies. https://medium.com/@ that this is the most effective approach given that public sector opencorporates/fireflies-and-algorithms-the-coming- entities (and the public) lack the expertise to verify beneficial explosion-of-companies-9d53cdb8738f. ownership. See Sharman (2016). Solving the Beneficial Ownership Conundrum: Central Registries and Licenced 26. The World Bank assists countries in conducting National Intermediaries. Griffith University, Australia, for Jersey Risk Assessments (NRAs) to help them comply with FATF Finance. https://www.jerseyfinance.je/media/PDF-Marketing/ Recommendations. Over 100 countries have used the WB Jason%20Sharman%20Report%20- %20Solving%20the%20 NRA approach since 2015. The World Bank is updating Beneficial%20Ownership%20Conundrum.pdf. Governments its NRA tool with a module on legal persons to respond to are now exploring hybrid (public/private) approaches to new areas of risk, to help countries identify critical gaps in verification. The UK has undertaken a comprehensive their beneficial ownership frameworks and determine where review of the available options to increase the reliability enhanced safeguards are required to prevent their misuse for and transparency of its register of corporate entities, see: criminal purposes. Department of Business, Energy & Industrial Strategy (2019). Corporate Transparency and Register Reform: Consultation 27. Global Witness found that despite the legal requirement that on options to enhance the role of Companies House and companies disclose the identities of people with significant increase the transparency of UK corporate entities. https:// control (PSC), over 300,000 companies simply reported that assets.publishing.service.gov.uk /government/uploads/ they have no PSC; 9,000 companies named a foreign company s y s t e m /u p l o a d s /a t t a c h m e n t _ d a t a / f i l e /819 9 94 /C o r p o r a t e _ as their PSC; and nearly 7,000 companies listed a PSC who transparency_and_re gister_reform.pdf. controls over 100 companies, suggesting a nominee owner. While this may be in formal compliance with the requirement 39. “The responsibility for the correctness and accuracy of data that only those who own 25% or more of a company need to entered in the register, for the identification of the final report, it is clearly in violation of the substantive definition beneficiary and for the verification of the final beneficiary of beneficial ownership as the natural person(s) at the end identification shall lie with the public sector partner concerned of the ownership chain, who ultimately owns or controls the and with the authorised person entered in the register.” Fines company. See Global Witness (2019). Getting the UK’s House for incomplete or incorrect BO disclosures can be equal to the in Order. https://www.globalwitness.org/en/campaigns/ profit gained from the contract or transaction, or a fine up to corruption-and-money- laundering/anonymous-company- EUR 1,000,000 if the profit can’t be determined. owners/getting-uks-house-order/. 40. The Slovak Spectator (2017). Medical supplier fined for Cypriot 28. S e e h t t p : // w w w . f a t f - g a f i . o r g / p u b l i c a t i o n s / f a t f go-betweens. https://spectator.sme.sk/c/20471528/medical- recommendations/?hf=10&b=0&s=desc(fatf_releasedate). supplier-fined- for-cypriot-go-betweens.html. 29. See https://www.oecd.org/tax/transparency/. 41. Open Ownership (2019). Privacy or Public Interest? Making the Case for Public Information on Company Ownership. https:// 30. EITI requirements have prompted reform in 20 countries, w w w.o p e now ner s hip.org /upload s /p r ivac y- re p or t- s ummar y. which are now working on establishing public registers. See pdf. https://eiti.org/beneficial-ownership. 42. Gov.UK (2020). Restricting the disclosure of your information. 31. EITI (2017). Nigerian Vice President Yemi Osinbajo’s address ht t p s: //w w w.g ov.u k /g ove r n m e nt /p u b li c a t i o n s /r e s t r i c t i n g - in Jakarta. https://eiti.org/blog/nigerian-vice-president-yemi- the-disclosure-of- your-psc-information/restricting-the- disclosure-of-your-information. Enhancing Government Effectiveness and Transparency: The Fight Against Corruption 263

PART II KEY INSTRUMENTS FOR FIGHTING CORRUPTION CHAPTER 9 BENEFICIAL OWNERSHIP TRANSPARENCY References Andah (2019). CAC Reveals Number Of Registered Companies Jus tice - Net wor k _ Jan-2019.pdf. In Nigeria. https://www.concise.ng/2019/03/27/cac-reveals- number-of-registered-companies-in-nigeria/. Kohonen, Afari, Waris, Lopes-Filho, Lewis, Biyani, Rai, Lukin & Pyakurel (2019). Trapped in Illicit Finance: How abusive tax and B20 (2017). Promoting Integrity by Creating Oppor tunities trade practices harm human rights. https://www.christianaid. for Responsible Businesses. https://www.b20germany.org/ o r g.u k /s i te s /d ef a ul t /f il e s /2019- 0 9/t r a p p e d - i n - illic i t-f i na n c e - fil ea d mi n /u s e r_ u p l o a d /d o c u m e nt s /B20/ b20 - c tg - r b a c - p o lic y - report-sep2019.pdf. paper.pdf Medium (2018). Open Corporates, Fireflies and algorithms BBC (2019). 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Directive (EU) 2019/1024 increase the transparency of UK corporate entities. https:// of the European Parliament and of the Council of 20 assets.publishing.service.gov.uk /government/uploads/ June 2019 on Open Data and the Re-use of Public Sector s y s t e m /u p l o a d s /a t t a c h m e n t _ d a t a / f i l e / 819 9 94 /C o r p o r a t e _ Information. https://eur-lex.europa.eu/legal-content/EN/TXT/ transparency_and_register_reform.pdf. HTML/?uri=CELEX:32019L1024&from=EN. EITI (2017). Nigerian Vice President Yemi Osinbajo’s address in Open Ownership (n.d.) Declaration of national commitment Jakarta. https://eiti.org/blog/nigerian-vice-president-yemi- to meet the Beneficial Ownership Transparency: Disclosure osinbajos-address-in-jakarta. Principles. ht tps://w w w.openownership.org/uploads/oo- disclosure-principles.pdf. FATF (2014). FATF Guidance: Transparency and Beneficial Ownership. http://www.fatf-gafi.org/media/fatf/documents/ Open Ownership (2018). New on the OpenOwnership Register - reports/Guidance-transparency-beneficial-ownership.pdf. data from the Danish Business Register has been added. https:// w w w.o p e now ne r s hip.o rg /new s /new - o n -t he - o p e now ne r s hip - FATF (2019). Best Practices on Beneficial Ownership for Legal register-data-from-the-danish-business-register-has-been- Persons. https://www.fatf-gafi.org/media/fatf/documents/Best- added/. Practices-Beneficial-Ownership-Legal-Persons.pdf. Open Ownership (2019). Privacy or Public Interest? Making the Forstater (2018). Illicit Financial Flows, Trade Misinvoicing, and Case for Public Information on Company Ownership. https:// Multinational Tax Avoidance: The Same or Different? https:// w w w.o p e n ow n e r s hi p.o r g /u p l o a d s /p r i v a c y - r e p o r t- s u m ma r y. w w w.cg d ev.o rg /s i te s /d ef aul t /file s / illic i t-fina nc ial -flow s -t r a d e - pdf. misinvoicing-and-multinational-tax-avoidance.pdf. Open Ownership (2020). A Guide to Implementing Beneficial Global Witness (2019). Getting the UK’s House in Order. https:// Ownership Transparency. https://www.openownership.org/ www.globalwitness.org/en/campaigns/corruption-and-money- guide/. la u n d e r i ng /a n o ny m o u s - c o m p a ny - ow n e r s /g et t i ng - u k s - h o u s e - order/. Pacini & Wadlinger (2018). How Shell Entities and Lack of Ownership Transparency Facilitate Tax Evasion and Modern Gov.UK (2018). Closed consultation: Draft Registration of Overseas Policy Responses to These Problems. Marquette Law Review. Entities Bill. https://www.gov.uk/government/consultations/ ht tps://scholarship.law.marquet te.edu/cgi/viewcontent. draft-registration-of-overseas-entities-bill. cgi?article=5380&context=mulr. Gov.UK (2020). Restricting the disclosure of your information. Parker (2019). House Passes Bill to Expose Owners of Shell ht t ps://w w w.gov.uk /gover nment /p ublic ations /res tr ic ting -t he - Companies. The Wall Street Journal. https://www.wsj.com/ disclosure-of-your-psc-information/restricting-the-disclosure- articles/house-passes-bill-to-expose-owners-of-shell- of-your-information. companies-11571785516. Henry (2012). The Price of Offshore Revisited: New Estimates Sharman (2016). Solving the Beneficial Ownership Conundrum: for “Missing” Global Private Wealth, Income, Inequality Central Registries and Licenced Intermediaries. Griffith and Lost Taxes. ht tps://w w w.taxjustice.net /wp-content / University, Australia, for Jersey Finance. ht tps://w w w. uploads/2014/04/Price_of_Offshore_Revisited_120722.pdf. jerseyfinance.je/media/PDF-Marketing/Jason%20Sharman%20 Re p or t %20 -%20 Solving%20 t he%20 Be nef icial%20 Howerton (2018). How to Comply With Hong Kong’s New Ownership%20Conundrum.pdf. Beneficial Owner Law. https://ieglobal.vistra.com/blog/2018/3/ how-comply-hong-kong-s-new-beneficial-owner-law. PW YP (2018). PW YP calls for commitments on beneficial ownership disclosure and protection of civic space. https:// Joint Committee on the Draft Registration of Overseas Entities w w w.p u b li s h w h a t yo u p ay.o r g /p w y p - n e w s /p w y p - c a ll s - f o r- Bill (2019). Draft Registration of Overseas Entities Bill: Report commitments-on-beneficial-ownership-disclosure-and- of Session 2017–19. https://publications.parliament.uk/pa/ protection-of-civic-space/. jt201719/jtselect/jtovsent/358/358.pdf. The Slovak Spectator (2015). Small businesses cut out in Váhostav Knobel (2019). Beneficial Ownership Verification: Ensuring The case. https://spectator.sme.sk/c/20056770/small-businesses- Truthfulness and Accuracy of Registered Ownership Information. cut-out-in-vahostav-case.html. Tax Justice Network. https://www.taxjustice.net/wp-content/ uploads/2019/01/Beneficial-ownership -verification_Tax- 264 Enhancing Government Effectiveness and Transparency: The Fight Against Corruption