Text: Antonio Greco, Project Manager in Transparency International Latvia, antonio@delna.lv, +371 67285585.
Following the banking sector reputation crisis in February 2018 and recommendations from MONEYVAL, the Latvian government has passed a number of major reforms, demonstrating its determination to overhaul its anti-money laundering system. To make the process more effective and allow for better public monitoring, the government should also ensure that information on the true owners of companies in Latvia is available in open, machine-readable format.
The period before the summer break ended with positive numbers for Latvia’s efforts in increasing corporate transparency. According to the government, important measures introduced following the 2018 banking sector reputation crisis, such as the modernisation of the Enterprise Register (ER) and the introduction of a risk-based approach in monitoring Latvian companies, resulted in the striking-off of around 17,000 risky shell companies since the beginning of the process.
This progress did not go unnoticed by international observers. In May 2019, Latvia’s government’s representatives from the Enterprise Register and the State Chancellery were invited to share their experience in two important international forums: a European Regional Roundtable, organized in Berlin by the Secretariat of Transparency International, and the Open Government Partnership (OGP) Global Summit, hosted in Ottawa by the Canadian government. The events gathered officials and activists from Europe and beyond.
I represented Transparency International Latvia in both events, sharing my views on a wide range of topics. Discussions spanned from legislative questions such as the definition of beneficial owners and scope of registered entities, to more technical ones related to data accessibility and interoperability as well as verification mechanism to ensure the accuracy of the information submitted by companies and individuals.
The forums culminated with a high-level meeting organized at the OGP Summit in Canada by the British Government and Open Ownership aimed at creating a Beneficial Ownership Leadership Group of countries within the OGP. Countries from all over the world, including Latvia, were invited to sign a Declaration to implement, by 2023, beneficial ownership registers in open data according to the Beneficial Ownership Data Standard, which would allow the registers to “talk to each other”.
Promisingly, Latvian government representatives, on behalf of the Ministry of Justice, expressed their support for signing the Declaration this Autumn. This would be in line with the current governments’ effort to impose robust anti-money laundering standards in the country. A beneficial ownership register in open format would give a considerable support both to the prevention and sanction of corruption and to the improvement of the business climate in the country.
SOME IMPORTANT IMPROVEMENTS ARE STILL NEEDED
Beneficial ownership information in Latvia was already made publicly available by the previous government, as part of the national anti-money laundering plan. However, so far it has been behind a paywall and not downloadable in bulk. The Enterprise Register has announced that the paywall will be removed by January 2020; however, it is not clear yet if, when and how the information will be available as open data.[1] According to the ER, this is mainly due to issues of data protection and privacy.
There is certainly a need to ponder carefully how disclosure of data about beneficial owners might affect the personal security and privacy of individuals. However, this should not result in the provision of information which is not comprehensive, especially when considering the public interest that Latvia would have in it. According to a recent analysis, in the UK, where there is an exemption from beneficial ownership disclosure based on a case-by-case approach, only 30 people have been granted a justified right to remain anonymous.
Opening up Latvia’s beneficial ownership register would also be in line with the recently adopted EU Directive on Public Sector Information and Open Data, which considers the register as high-value data and encourages member states to provide it in open format. So far, very few countries in the world have done that: United Kingdom, Denmark, Ukraine and Slovakia. As such, Latvia has a great occasion to join this small group of global trendsetters in the field.
A transparent beneficial ownership register in open format is important, but for it to be really effective, it also needs advanced verification mechanisms to flag risky companies and/or individuals. Relevant trends at the international level include, for example, the submission of digital or biometric signatures and cross-referencing data with national and foreign databases to verify the identity of the persons, as well as the use advanced analytics to find patterns, identify anomalies and create alerts on suspicious individuals and companies.
In Latvia, the ER already performs inspections using national information systems to ensure that the ID of the beneficial owners is accurate, and a recent anti-corruption hackathon organized by Delna and Datu Skola has shown that civil society can also give a substantial contribution in this regard. In the hackathon, company ownership data was a key element for the creation of a prototype of a red-flagging tool for spotting risky procurement processes as well as for a data analysis of political donations by individuals affiliated with relevant companies and State-Owned Enterprises in the last political elections.
THE NEXT OGP ACTION PLAN – AN OPPORTUNITY FOR AMBITIOUS GOALS ON BENEFICIAL OWNERSHIP TRANSPARENCY
The next Open Government Partnership Action plan, whose consultations have begun on September 12, seems to be a great opportunity for the Latvian government to ensure that further updates to the beneficial ownership register are in line with international standards and latest technological developments.
Delna suggests the following points for a Beneficial Ownership commitment in the next action plan that would yield high results:
- Publish an open data register of the beneficial owners of all registered corporate entities, including those registered in foreign jurisdictions that operate in Latvia. The register should also be fully searchable, regularly updated and contain all historical changes in ownership.
- Implement the Beneficial Ownership Data Standard (BODS) to ensure disclosure meets global norms and upload the data in the Global Beneficial Ownership Register, which would allow users to look up information across countries from a single location. The UK and Ukraine, both Latvia’s strategic partners in anti-money laundering, have already joined the initiative.
- Ensure that regulations provide for the collection and verification of appropriate information and effectively sanction those who do not comply. In doing this, the Latvian government could follow Open Ownership’s new Beneficial Ownership Implementation Guide and, in cooperation with Delna and other stakeholders, use a related new tool, the Policy Reviewer, to ensure that policy and regulation in Latvia yields high-quality beneficial ownership data.
A successful implementation of such commitments in cooperation with civil society, would be the right way not only to restore Latvia’s financial sector reputation and sustainability, but also to give the country a place among global leaders in corporate transparency policy innovation.
[1] Open Data is any digital data that is made available by the government free of charge, in machine-readable format and with legal characteristics necessary for it to be used, reused, mixed and redistributed without any restriction. Machine-readable format refers to a format that allows software applications to easily identify, recognize and extract specific data and their internal structure. Examples of machine-readable format are XLSX (Excel) and CSV (comma-separated values). PDF files, on the other hand, are an example of data whose format is NOT machine-readable.
