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Curbing shell companies’ operations via beneficial ownership disclosure

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Minners on site in Nigeria. SOURCE: Google


By January 1, 2020, oil, gas and mining companies in countries implementing Extractive Industry Transparency Initiative (EITI) standard (2016) are required to publish the names of their real owners. Despite being a signatory to the standard, Nigeria struggles to avoid EITI sanction over failure to comply. KINGSLEY JEREMIAH writes on the development and the many benefits for the country.

Extrative Industries Transparency Initiative (EITI) sees a beneficial owner as the person or entity who has control over or enjoys the ultimate benefits from any business, even though the names of such individual may not appear on the official documents of the organisation.

Under the prevailing situation, beneficial owners could run shell companies, charities, foundations, trust or have nominees, who represent them on board of companies.

EITI noted that beneficial ownership is distinguished from legal ownership, in the sense that, though the legal and beneficial owners could be seen as one and the same, there are some cases, legitimate and sometimes not-so legitimate, where the beneficial owner of property may wish to remain anonymous.

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EITI therefore insisted that beneficial ownership must be a real, live person, must not be a proxy or a nominee, could be an individual who does not necessarily have an ownership stake in the company, but benefits economically from the company’s activities through other agreements or controls the company through means other than formal ownership stakes or voting rights as well as someone, who holds a certain number of shares or voting rights in a company.

Anonymous ownership of companies reportedly pose challenges to transparency, accountability and management of natural resource.
Nigeria Extractive Industry Transparency Initiative (NEITI) noted that anonymous ownership of extractive companies constitute potential and real dangers to the nation’s economic and security well-being.

The body added that such practice denies countries of valuable revenues by tax avoidance, outright tax evasion, increase the burden of corruption, money laundering, drug trafficking and contribute to terrorism financing.While the Open Government Partnership (OGP) initiative to which Nigeria is also a signatory, made beneficial ownership disclosures a critical point towards achieving openness in the extractive sector, NEITI had stated that non-disclosure was costing Nigeria and other developing countries about $1 trillion.

Just recently, NEITI equally revealed that Nigeria had been losing about $18b yearly to Illicit Financial Flows (IFFs), especially through the oil and gas sector.Linking the development to terrorism financing, the World Economic Forum had noted that terrorist group; Islamic State of Iraq and the Levant (ISIL) was in 2016 the world’s wealthiest terrorist group with an estimated yearly revenue, according to the Global Terrorism Index, peaked at $2billion in 2015.

However, ISIL’s ability to pay fighters and provide basic services have continued to wane, as global coalition against terrorism targets ISIL’s revenue sources by destroying more than 2,600 oil extraction, refinement and sale sites.The demand for disclosure of beneficial ownership has remained a global discussion.

In 2014, an international forum for the governments and central bank governors from 19 countries and the European Union otherwise known as the G20 published its High Level Principles on Beneficial Ownership, European Union equally approved the 4th Anti-Money Laundering & Financial Crime Directive (EU 2015) thereby establishing central registries of beneficial ownership for companies and for some trusts.

Reportedly, the leak of the Panama Papers, also forced European Commission to propose an amendment to the EU Directive and enlarge the scope of trusts that would be covered by this legislation.The EU also proposes public access to beneficial ownership information for most types of entities. In 2016 the UK made available a free online registry of BOs of companies in open data format.
Ukraine has also created a public registry of beneficial ownership.

Though efforts are currently being made by the Department of Petroleum (DPR), NEITI, Mining Cadastre Office in partnership with key ministries and government agencies, stakeholders have said Nigerians, especially President Muhammadu Buahri must lead the initiative through an urgent Executive Order to encourage companies to sign up.

This is because while other countries have started the implementation of the initiative, Nigeria has not made remarkable progress.
Buhari had committed Nigeria to beneficial ownership implementation at the London Summit on Anti-corruption in 2016 given the need to implement Financial Action Task Force (FATF) recommendations on Money Laundering and Financing of Terrorism.

The transparency body has disclosed that a Beneficial Ownership Committee to drive the initiative that will lead to establishment of the a register has been constituted, adding that the committee has already identified relevant frontline agencies on the move while a data collection template has been designed.

Stakeholders, including NEITI’s Director of Legal Services, Peter Ogbobine, Partner at Ikeyi Shittu & Co, Nduka Ikeyi, Chairperson Civil Society Steering Committee on NEITI board, kolawole Banwo as well as NEITI’s Remi Bello, insisted that the initiative is necessary to fight against tax evasion, corruption, conflicts of interest and illicit financial flows and curtail money laundering and terrorist financing.

If fully implemented, the experts noted that the move would help government maximize the full potential of the economy, boost investor confidence and improve investment climate. According to the stakeholders, the initiative will equally help in the fight against tax evasion, corruption, conflicts of interest and illicit financial flows and curtail money laundering and terrorist financing.

Similarly, they added that the move will strengthen natural resource governance and address the challenge of illegal mining.
The development also provides an opportunity for fair allocation of licenses, check cooperate corruption: complex cooperate structures and partnerships disguise to bid for contracts and expose corruption by politically exposed persons (PEPs), improve records and data.

With the Petroleum Industry Bill (PIB) still in limbo over two decades after it was initiated, Banwo insisted that disclosure of beneficial ownership remained a tool that would proactively address critical issues in sector.Ogbobine added that NEITI is currently encouraging a voluntary register of beneficial ownership, stressing that while other countries have made significant efforts, Nigeria is currently lacking behind in the area of implementing beneficial ownership disclosure.

Ikeyi, who noted that companies expressed commitment to and support for beneficial ownership disclosure, said the initiative is currently facing challenges on the backdrop of absence of legislation that compels beneficial ownership disclosure, limitation of exploring opportunities in existing legislation, potential overlap of responsibilities and conflict amongst government agencies, challenges to disclosure regarding indigenous and small companies, push backs and resistance to change as well as risk of provision being used by agencies of government to target political opponents.

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To fast track acceptance of the initiative, he said the President must issue a Presidential Executive Order directing each of the ministries of petroleum resources and solid minerals to exercise their statutory powers to issue regulations for mandatory beneficial ownership disclosure in the extractive industries, and establish an online beneficial ownership register freely available to the public

Ikeyi noted that the ministers in charge of the sectors must also issue regulations enabling the DPR mining office to implement a mandatory beneficial ownership disclosure and publication regime in the oil and gas sector

Calling Nigerians to support the initiative, Ikeyi noted that “both the DPR and mining office have produced template for collection BO information and format of the BO register for each sector for review,” adding that DPR and mining office BO registers would go live by October 2019 and would be accessed from the CAC BO portal when it eventually comes into effect.

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