Beneficial ownership refers to the real person(s) who ultimately owns or controls a company or other legal entity. This information is often hidden behind complex ownership structures, which can make it difficult to track the flow of money and identify potential corruption or other financial crime.
Transparency of beneficial ownership is important for government procurement for a range of reasons, including:
- Increased transparency – it is easier to identify the real owners of companies that are bidding on contracts. This can help to prevent corruption and ensure that contracts are awarded to legitimate businesses.
- Reduced risk of fraud – potential conflicts of interest can be identified. This helps to ensure contracts are awarded fairly and that taxpayers’ money is protected.
- Improved efficiency – by making it easier to identify and vet potential suppliers. This can help to shorten the procurement process and save money.
- Increased accountability – by making it easier to track the flow of money and identify potential corruption. This can help to ensure that taxpayer funds are used wisely and that government officials are held accountable for their actions.
In recent years, there has been a growing movement within government procurement for companies to disclose beneficial ownership information. The United States, the United Kingdom, and many other countries have passed laws requiring companies to register beneficial ownership information with government agencies, but there is still work to be done. For example in the UK, the Register of Overseas Entities was introduced by the Economic Crime (Transparency and Enforcement) Act 2022 (“the ECTE Act”). The government intends to amend the ECTE Act via the ECCT Bill to ensure that overseas entities are required to record a legal entity trustee as a registrable beneficial owner, whether or not it is ‘subject to its own disclosure requirements’. The Government also intends to amend the ECTE Act, so that wherever there is a trustee in the chain of ownership of an overseas entity, it would fall under the definition of registrable beneficial owner.
For example, an overseas entity required to register may be owned by a UK company, which would meet the criteria to be recorded as a registrable beneficial owner, as it is subject to its own disclosure requirements. The UK company may in turn be owned by a legal entity trustee. Without the amendment, only the UK company would be required to register as a beneficial owner, which would mean the information about the trust would not need to be disclosed.
The government also intends to amend the ECTE Act, to provide a power for the Secretary of State to expand the description of persons who are registrable beneficial owners further, where the overseas entity is part of a chain of entities that includes a trustee.These amendments ensure the maximum amount of transparency about the involvement of a legal entity trust in a chain of ownership, given there may be complex arrangements which attempt to circumvent the requirements of the ECTE Act.
While beneficial ownerships laws are designed to make it easier for law enforcement and other authorities to track the flow of money and identify potential criminal activity, some governments do not register beneficial ownership information.These countries are often referred to as “secrecy jurisdictions” because they offer a high degree of anonymity for companies and other legal entities. This can make them attractive to criminals or others who want to hide their activities.
There are a few reasons why governments may choose not to register beneficial ownership information. Some governments may believe that it is an invasion of privacy and certainly , in November 2022, The European Court of Justice (ECJ) ruled that the requirement for member states to operate a register of beneficial ownership of companies accessible to the public is invalid on privacy grounds. Some governments worry that this information could be used to target businesses or individuals, while others may simply be reluctant to give up the power to control who has access to this information.
Irrespective of the rationale, the lack of beneficial ownership transparency makes it difficult to track the flow of money and identify potential corruption or other financial crime, which is not good for governments, or public taxes.
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