Creating the Register of Ukrainian Beneficiary Owners. Is there a real benefit?
In August 2017, Ukraine became the first country in the world to join the Global Register of Beneficiary Owners – the Transparency International initiative to promote transparency and prevent corruption.
As a result, the country has fully disclosed information on the final owners (beneficiaries) in all Ukrainian companies.
The process began as early as in November 2014, when the Verkhovna Rada of Ukraine adopted the Law No. 1701-18 “On Amending Certain Legislative Acts Related to Identification of Ultimate Beneficiaries of Legal Entities and Public Figures”.
Arsenii Yatseniuk, the Prime Minister acting at that time, articulated the key purpose of disclosing the data about real owners perfectly well: “Companies today are registered in offshore havens, while the real company owners can be public servants, government members, or officers of the Presidential Administration, and to find that out is impossible. Therefore, the first key objective of this law is to disclose all the real owners of any Ukrainian companies”.
Among the positive aspects, we can underscore the following:
It is somewhat easier to verify counterparties on the part of creditors or other counterparties. Creating new “self-exploding” ephemeral companies, while the shareholder’s business reputation stops being treated as a dead sound because it can be easily verified.
For the society (journalists, public opinion leaders, NGOs, etc.), it will be somewhat easier to monitor corruption risks using the data from the open registers of beneficiary owners. Then again, there will only be small “candle factories” within sight — companies owned by the low and middle tier officers, their wives and relatives.
The real money in Ukraine has long been structured via foreign jurisdictions, including the use of trust, stock or agency structures, which are virtually impossible to trace.
In practice, the disclosure of the Register of Ukrainian Beneficiary Owners has confirmed the prudence of Ukrainian beneficiaries who had structured their assets through foreign, including offshore jurisdictions.
The thing is that Ukraine still lacks real tools to disclose beneficiary owners abroad. It is no secret that many offshore structures of the Ukrainian business have “figurehead” directors and sometimes “figurehead” owners.
Formally, the law of Ukraine requires the disclosure of real beneficiaries. In practice, a Ukrainian company can submit information on the “figurehead” beneficiary, with the real beneficiary remaining outside the scope. And the foreign assets of Ukrainian citizens, including the public officers, stay in the shadow (their declaration is voluntary) by default.
Among the negative aspects, we can underscore that:
It has become easier to identify the business owners (who do not use foreign jurisdictions and the mechanism of “figurehead” owners) and wealthy people. In a situation where the law enforcement system in Ukraine has difficulties in coping with its responsibilities (to say the least) and the state has virtually lost its monopoly on violence, the availability of data in open access on thousands of beneficiaries often containing their registration address is an additional roadmap for looters, racketeers and fraudsters of all kinds.
The risks of competitors conducting Illegal takeovers and other illegal actions due to political or commercial reasons are potentially increasing (especially in the countries with a volatile political and judicial systems). However, the entrepreneurs’ safety has been never secured, and now the register is open to the general public, whereas oversight authorities, in fact, had one functioning before.
Thus, there is no need to overestimate the beneficiary disclosure initiative in Ukraine. The real solution to the corruption problem and tax evasion in Ukraine is possible only in the global context of preventing and countering tax base erosion and profit shifting, namely:
- Commitments to disclose beneficiaries in foreign structures: these processes are already underway in the UK, BVI, Hong Kong, Singapore, the Netherlands and other countries;
- OECD transfer pricing initiatives (which reduces the economic sense for structuring through law tax jurisdictions);
- Occasional information leaks similar to the Panama Papers, which removes the confidentiality insurance even in the absence of the legislative requirement for disclosure, etc.