The EITI Standard defines beneficial ownership as follows: 

2.5 f)  Definition of beneficial ownership:

i.       A beneficial owner in respect of a company means the natural person(s) who directly or indirectly ultimately owns or controls the corporate entity.

ii.      The multi-stakeholder group should agree an appropriate definition of the term beneficial owner. The definition should be aligned with (f)(i) above and take international norms and relevant national laws into account, and should include ownership threshold(s). The definition should also specify reporting obligations for politically exposed persons.

iii.   Publicly listed companies, including wholly-owned subsidiaries, are required to disclose the name of the stock exchange and include a link to the stock exchange filings where they are listed.

iv.   In the case of joint ventures, each entity within the venture should disclose its beneficial owner(s), unless it is publicly listed or is a wholly-owned subsidiary of a publicly listed company. Each entity is responsible for the accuracy of the information provided.

Oil, gas and mining projects can yield great profits both to extractive companies and governments. In many cases such projects are run by responsible companies with the necessary technical and financial capacity. However, experience has unfortunately also shown that in many cases, in particular where governance is weak, rights to extract oil and minerals may be given to companies that do not have such competence. Rather, such companies may be given access to lucrative extractive projects because their owners are politically connected, or because their owners are willing to engage in questionable deals aimed at generating quick profits for a few rather than benefits for wider society. Suspicion or confirmed wrongdoing can lead to devaluation of other extractive assets, and deter overall investment in countries rich in natural resources. Anonymous companies make it harder to curb money laundering and corruption as it enables wrongdoers to hide behind a chain of companies often registered in multiple jurisdictions. 

It has been estimated that developing countries lose USD 1 trillion each year as a result of corrupt or illegal deals, many of which involve anonymous companies. In 2013, the Africa Progress Panel suggested that the Democratic Republic of theCongo (DRC) in the period 2010-2012 lost at least USD 1.36 billion from five mining deals hidden behind a structure of complex and secret company ownership. According to DRC’s EITI Reports, this is about the same as the country’s average annual revenue from oil, gas and mining in the same time period. Disclosure of beneficial ownership will help lower the risk of financial misconduct.

The Panama Papers confirm that persons behind oil, gas and mineral extraction may well hide behind shell companies. Attention on closing down the possibilities for hiding money in places like Panama is welcome. But it will not alone put an end to financial secrecy facilitating tax dodging and corruption. It has to be matched with better rules and enforcement in countries where the money is generated in the first place, which is why EITI’s ownership requirements are so important.

The benefits of beneficial ownership transparency are numerous. It can help improve the investment climate, reduce reputational and financial risks, prevent corruption and illicit financial flows, improve the rule of law, increase trust and accountability, and enhance revenue collection.

Countries implementing the EITI may wish to consider what the Validation process will review in relation to requirement 2.5.