Written by Chris Taggart and Hera Hussain
When the announcement of a public beneficial ownership register in Germany was made in November 2016, it was welcomed by the transparency community and investigative journalists. True, it wasn’t going to be free, still less open data, but it was a significant step for a country that has been long seen as a blocker in corporate transparency in Europe, and which scores just 20 out of 100 in the Open Company Data Index.
Now, it seems as if the German government has backtracked on this, under pressure from the powerful ‘family business’ lobby. This is particularly ironic given that it is less than a year ago that German newspaper Süddeutsche Zeitung, helped break the Panama Papers revelations, which showed how many rich powerful families used secret offshore corporate structures to evade tax and scrutiny.
What are the arguments being used to keep Beneficial Ownership information secret?
The primary argument appears to be that making beneficial ownership information public would expose those being revealed to “kidnapping and blackmail”. This seems a somewhat specious argument, and not just because no evidence is presented for it, but also because as the UK beneficial ownership data has shown, in 90% of the cases (and certainly virtually all small companies), the beneficial ownership information is the same as the shareholding information, and often the same as the directors… which is already public.
Where Beneficial Ownership data is important is when the shareholding data doesn’t tell the true picture, particularly when control is exercised through complex structures – using intermediary companies, trusts, nominees, and offshore vehicles. Of course, these are not used by small companies, family-owned or otherwise, but they are for organised crime, money-laundering, and to hide influence (e.g. lobbying) and tax evasion, as the Panama Papers showed.
But still, let’s put all those factors on one side, and unpick the spectres of blackmailing and kidnapping.
Does open data increase security threats to affluent beneficial owners?
First, let’s acknowledge that what we’re talking about here are security or ‘attack’ vectors – that is a means or route by which an attack may be made. Very little has been written about these in the context of beneficial ownership information, perhaps because actually it’s quite hard to come up with convincing scenario.
Let’s look at this through the eyes of a criminal, someone who, for example, is looking for a kidnap victim. If beneficial ownership were made public in Germany, they could for example, create a target list of say 30 companies (quite hard), look up who the beneficial owners are (easy), and then… what? You may know who they are, but a) you could have done the same thing with shareholder information b) you still got a lot of work to do, narrowing down the targets, doing detailed research to find their home, family and detailed movements (hard). This is a painstaking and roundabout way to finding kidnap targets, particularly when there are so many easier ways.
While there might be some rich people who might not be well known, in general they are easy to find, as affluent lifestyles are generally not hidden from the public (expensive cars, private schools etc). There’s even a list on wikipedia. And it’s not as if the beneficial ownership data gives the home addresses of the owners – just an address at which they can be contacted (for example the address of the company, which is already in the public record).
Rich people are not routinely kidnapped because they are hard to find, but because of the rule of law, and the stability that a fair, free and democratic society brings. Ironically, it is precisely this that is threatened by the rising inequality in such societies, the sense that it’s one rule for the rich, and the populism that it fosters.
The other supposed threat given by the German lobbyists is blackmailing – extortion of money or influence via the threat of revealing something secret. This is a truly bizarre suggestion in relation to public beneficial ownership, as if the information is public how can someone threaten to reveal it. In fact, it’s much more likely that it is the secrecy of private registers that will provide vectors for blackmailing.
Are there any legitimate reasons for redaction?
Of course, there are situations where being the beneficial owner of a controversial company could expose people to security risks (animal testing companies are frequently cited examples). Such situations are typically already covered in legislation relating to director information, and in the case of the UK, it extended those measures to beneficial owners, without impacting the open and public beneficial ownership register.
Analysis of the UK beneficial ownership data by Global Witness shows that out of the 1.3 million companies that have so far disclosed their beneficial ownership information, only a few hundred applied for this special treatment, out of which around 30 were granted some disclosure exemptions.
So on the one hand we’ve got powerful interests lobbying using massive amounts of F.U.D. to block corporate transparency and continue to enable the sort of egregious behaviour expose by the Panama Papers (not to mention fraud, organised crime, money laundering, corruption) and undermining competition in the process. On the other, we have a growing chorus of civil society, respected academics such as Joseph Stiglitz, and business saying that there is no societal benefit for anonymous companies.
As the President of G20, and a member of the Open Government Partnership, the German government should take this opportunity to display leadership in this most critical area –resisting the lobbying and instead focusing on the public benefit, for Germany and the wider world. The public and businesses deserve access to this information.
Picture by Steffen.