As part of the international initiative Open Government Partnership, the Memorandum of Cooperation on Developing a Verification Mechanism for Information on Ultimate Beneficial Owners. What does this mean and why do we need a document with such a long title? Let’s try to figure it out.

Why Identify Company Beneficiaries

Ukraine was one of the first countries in the world to pass a law on beneficial owners. This document, adopted in October 2014, was supposed to shed light on real company owners.

The law on beneficial owners obliges Ukrainian companies to inform who is the final recipient of profit. When a company is registered, it is mandatory to specify such individuals. All this information is stored in the Unified State Register (USR). It is a good practice applied worldwide: storing everything in a general register, including organizations, companies and private entrepreneurs.

Besides, beneficial owners can be found through the Register of Electronic Declarations. When public officials file electronic declarations, they have to specify all companies of which they (or their family members) are beneficial owners. In this case, not only Ukrainian businesses should be specified, but also companies abroad. That is, if we look at Petro Poroshenko’s electronic declaration, we will see Virgin Islands, Cyprus and Lipetsk.

A new company cannot be registered if it does not specify its beneficial owners. However, among “old” companies, only about 20% have shared information on their beneficial owners. Even though the law has been in effect for several years, the compliance rate is not that high.

This is where we’re hitting a wall. There’s the law, but no punishment for failure to comply.

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Among "old" companies, only about 20% have shared information on their beneficial owners. Even though the law has been in effect for several years, the compliance rate is not that high. 

Anastasiya Kozlovtseva, Head of International Relations and Fundraising

Why Update the USR and the Entire System for Recording Information on Beneficial Owners

Currently, all company information in the Unified State Register is entered in Ukrainian, that is using Cyrillic letters. There are also no unified rules for entering this data – there may be a wrong period or comma somewhere, the street may be wrong. This allows to hide the company’s tracks just by entering one letter wrong.

Ukraine is the first country to agree to share all information on beneficial owners with the international Open Ownership register. This is an attempt to make a register of all beneficial owners of every company worldwide. But there are a couple of obstacles to ensuring full exchange of data:

  • the data are often recorded in Cyrillic letters, so a foreigner will have a problem finding the necessary company;
  • the data are not always updated as necessary;
  • only a minority of companies have already filed the necessary information.
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Ukraine is the first country to agree to share all information on beneficial owners with the international Open Ownership register. This is an attempt to make a register of all beneficial owners of every company worldwide.

Anastasiya Kozlovtseva, Head of International Relations and Fundraising

What the Memorandum Declares and How the Registration System Will Change

There is no single mechanism for verification of beneficial owners that everyone in the world would follow. There are good practices in different countries, such as Austria. But Ukraine will be developing its own mechanism to improve exchange of this data. This is why we have signed the Memorandum, developed a Road Map specifying how it will be happening.

Currently, the general update of the Unified State Register is underway, and the technical aspect of entering information on beneficial owners will change as well. We hope that with the update, the rules for entering information will be unified, addresses will be entered based on the street register. This will have a direct impact on the quality of data, and the information will also become easier to find in the general Open Ownership register.

Apart from technical issues, there is also the issue of verifying beneficial owners – is the person named in the provided information the actual beneficial owner or is this just a front person? How do we resolve this? We can synchronize the information in the declarations and the USR.

Different public agencies have been involved in development and implementation of these documents:

  • The Ministry of Justice, responsible for the USR;
  • National information systems;
  • State Financial Monitoring, since bank transfers can show whether a person receives something from a company;
  • The NACP, tasked with verification of electronic declarations;
  • The ARMA, which works with seized assets.

A system should be generated which can synchronize and compare the necessary information from registers and public agencies. This is what will be developed as part of the Memorandum.

Transparency International Ukraine has been involved in the process since the very start. Among other things, TI Ukraine experts will be able to test data entering and provide their feedback before the system is finalized.

We expert the beta USR version to start working by the end of August, and verification mechanism tests should start by December. Still, verification will take place manually for the time being. To provide automatic data exchange among registers, regulatory policies should be adopted at the Cabinet of Ministers level.

The mechanism can help us verify if the information is truthful. Accountability for false data or disregard of the law is a separate sphere that still needs work. TI Ukraine, for its part, will advocate this process.

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We hope that with the update, the rules for entering information will be unified, addresses will be entered based on the street register. This will have a direct impact on the quality of data, and the information will also become easier to find in the general Open Ownership register.

Anastasiya Kozlovtseva, Head of International Relations and Fundraising

Source: thepage.com.ua