Brief: Online Beneficial Ownership registries
Russia’s full scale invasion of Ukraine in 2022 has become a wakeup call on many fronts. The US has built, and is trying to expand, a broad sanctions alliance against Russia. However, the Russian skill at corruption is their best asset in fighting sanctions. Corruption is all about skill in dirty financial deeds: money laundering, illicit trade, bribery, and terrorist financing – facilitated by complex and opaque ownership structures.
Russian oligarchs are excellent at making it difficult or impossible to trace the flow and ownership of illicit funds. It takes many steps to help stop the flow of illicit Russian wealth through our systems. One major policy that helps combat massive Russian corruption are publicly available beneficial ownership registries. Such registries make clear who owns what property in a nation. Some countries, such as Estonia, there are publicly available registries of corporations showing all beneficial owners of private companies (I am advocating for land registries in this article, and I am in favor of both kinds of public registry).
It is no surprise that development of publicly available beneficial ownership registries in recent years, has been led by Estonia and Ukraine. Both have taken significant steps to increase transparency in their financial systems by establishing online beneficial ownership registries. Estonia has a great Corporate registry that anyone can access online, but not a land registry. Ukraine is one of the few countries in the world to develop a public land registry. These two post-Soviet nations are continuously working on shaking off their corrupt Soviet legacy while also ridding themselves of corrupt Russian influence. Both types of registries have proven to be an effective tool in preventing corruption.
How Beneficial Ownership Registries stop Russian and Chinese corruption
Beneficial ownership registries are particularly effective in stopping corruption from foreign actors like Russia and China, who are known to use complex ownership structures to hide their involvement in corrupt activities. These regimes often use intermediaries to obscure their involvement in companies, making it difficult to trace their funds.
By requiring companies and individuals to disclose their true ownership structures, beneficial ownership registries make it more difficult for foreign actors to hide their involvement in corrupt activities. This has been particularly effective in Ukraine, where the country's registry has helped expose the corrupt activities of many foreign actors, including Russian oligarchs.
Ukraine's Registry
Ukraine has been a leader in implementing a beneficial ownership registry. The country established its registry in 2014, in response to rampant corruption that had plagued the country for decades. The registry requires companies and individuals to disclose their beneficial ownership information, including the identity of any individuals or entities that have a stake of more than 25% in a company.
Despite some accuracy and completeness issues, Ukraine's registry has been instrumental in exposing corruption that helped recover millions of dollars in stolen assets. By 2021, Ukraine was ranked first in open data development in Europe , and the property registry is a clear part of that award.
How US could benefit with a similar registry to Ukraine
The United States has not implemented a public digital beneficial ownership registry. This makes it difficult and expensive to trace the flow of illicit funds and combat corruption. Russian oligarchs have layers upon layers of shell companies that exist to hide their illicit gains and they move money in between them to make it hard to keep up. Once money winds up in real estate, without a beneficial ownership law, real estate transforms from a place to live and work into a massive physical piggy bank for ill gotten gains.
By requiring companies and individuals to disclose their true ownership structures, a beneficial ownership registry in the US would also expose corrupt activities and make it easier to recover stolen assets. Exposing financial crimes creates a better shot for honest businessmen to make deals. Beneficial ownership registries are especially useful at bringing transparency to problematic local corruption that is evident across societies.
Problems in Enforcement without a registry in the US
The lack of a beneficial ownership registry in the US has made it difficult for law enforcement agencies to identify the true owners of companies and track the flow of illicit funds. This has made it easier for criminals to hide their involvement in financial crimes, which has ultimately made it more difficult to prosecute these crimes. A number of Ukrainian lawyers with whom I spoke about the Ukrainian registry, were shocked to discover we didn’t have one. The key response they had: “how do you track financial crimes without this?” How indeed.
Without a registry, law enforcement agencies have to rely on other methods, such as interviews and financial analysis, to identify the true owners of companies. These methods are time consuming, far more expensive, and make regular white collar crime enforcement difficult or impossible. It also makes reporting on impropriety more difficult – the kind of thing that brings attention and pressure to the police, which can stop corrupt deals from being completed.
Improving Ukraine’s Registry
Although Ukraine's beneficial ownership registry has been effective in exposing corruption, there is still major room for improvement. In the past, the accuracy and completeness of the registry has not been perfect. Ukraine needs to mandate the registry be kept up to date with policies such as updating every time a property changes hands and a digital recertification every 1, 2 or 5 years.
Under wartime new problems have unfortunately risen, including fraudsters using the chaos to do schemes involving property that is not theirs. It goes without saying that criminals who steal and sell a soldiers apartment while he’s fighting should go to jail. There are many other examples of property theft in Ukraine and these need to be tamped down on and stopped completely.
Ukraine also needs to balance state security needs with accessible property needs and some parts of transparency need to be balanced against security: as an example, adding personal property to the state registry may need to wait until after the war.
The purpose of the registry was to root out Russian Oligarch money and without listing personal assets, it makes it quite easy for Oligarchs to hide funds with son-in-laws, children of mistresses, cousins, etc. Oligarchs already move fortunes around the world using semi-related proxies. As stated above there are security reasons for why Ukraine may not be able to do this until after the war, but it should be on a very long list of bureaucratic tasks when it comes to pushing forward a rebuilding Ukraine.
For whatever its weaknesses, the Ukrainian state property registry is at least a nationally existent registry and far more than most nations attempt.
Build the Registry and Keep the Russians Out!
The US needs to build a public national registry to keep the corrupt money out. We already have the white pages telling where everyone lives, and we need to add a registry saying what everyone owns. It should be much harder to hide dirty money, Russian or otherwise, across our nation. A publicly available beneficial ownership property would be available to be combed through by journalists, cops, citizens and everyone else. In the words of Justice Brandeis, “Sunlight is said to be the best of disinfectants.”
Thank you for reading.
Article by @PerceptionMoney