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The Litmus Test – How serious is Germany about Corporate Transparency?

Web Foundation · February 13, 2017

What’s at stake?

This Wednesday, February 15th, the German government will decide on a matter of significant importance to the country’s fight against corruption, money-laundering and financing of international terrorism. In their weekly meeting, the Cabinet is expected to initiate a bill that – once passed by parliament – will form the legal basis for the creation of a beneficial ownership register.

Recent media reports suggest that, contrary to initial plans, the coalition government intends to keep the public from knowing the ultimate owners that benefit from or control companies. This news comes as a blow to proponents who see the value of making such information publicly available. Other countries have done so as a means to work with the public to identify shell companies used by money-launderers, terrorists, smugglers and tax evaders.

What the Panama Papers have taught us

High-profile corruption and tax avoidance scandals have shown us that anonymous companies are the perfect vehicle for criminal activities. The Panama Papers also uncovered numerous examples of rich families, celebrities and politicians using offshore vehicles to hide assets from public scrutiny, from the courts, and from tax authorities. The current lack of transparency provides a tax escape hatch for the rich, and deprives the state of revenue that could be used to fund social services.

While leaks such as the Panama Papers have proven effective in uncovering shady business, they should not become the default approach to uncovering and preventing illicit money flows. Instead, the data sets that contain information needed to ensure transparent and accountable business should be published by governments in easily accessible and reusable formats.

Why the hesitation to open up this data?

The German government seems like it might give in to a handful of family-owned businesses that have publicly raised concerns over the risks of “data misuse, kidnapping and blackmailing” should the data be made accessible to the public. Is this a legitimate concern, or a smokescreen to prevent scrutiny? After all, for the vast majority of SMEs and family-owned companies, the beneficial ownership information is exactly the same as the shareholder and director information, which is already public. It’s only when the shareholding is hidden by complex corporate structures, particularly involving trusts, and corporate vehicles in opaque jurisdictions that the beneficial ownership information will tell us anything new.

In addition, if there are any genuine security issues, these can be tackled on a case-by-case basis. The UK, for instance, has had a publicly accessible register since last year and addressed these concerns by allowing companies to request restricting disclosure of their information to the public if they are at serious risk of violence or intimidation. Analysis of the UK beneficial ownership data by Global Witness shows that out of the 1.3 million companies registered, only a few hundred applied for special treatment, out of which around 30 were granted some disclosure exemptions.

This begs the question of whether some German family-owned businesses are using the security argument as a way to oppose greater transparency of their corporate ownership and control structures. While some may well have genuine security concerns, it is equally likely that powerful, well-connected families and individuals are trying to ensure that power and influence stays hidden. Not only is this profoundly undemocratic, it also gives criminals a free pass in the bargain.

Misconceptions about the nature of the register could be another explanation, as has been observed in discussions over beneficial ownership in the Netherlands: “There appears to be a misunderstanding, one based on ghost stories about the register that are doing the rounds. No private addresses would be recorded in the register, only contact details of the companies in question.”

Why beneficial ownership data must be open data

The UK experience shows that security can be ensured even when the register is accessible to the public and not only those with a ‘legitimate interest’.

What is more, the UK is also the first country to publish such data as open data – meaning it is accessible to, and reusable by anyone. This allows more eyes to examine the data and expose corruption. Civil society and media can more effectively play their watchdog role by conducting large-scale analysis of this data and combining and comparing beneficial ownership data with data from procurement or political financing. A fully open database also makes it possible to connect it with other registers – and thereby increases its effectiveness as an instrument to tackle transnational crime. Money laundering, corruption, and tax avoidance are networked problems that require networked solutions. One such solution is OpenOwnership’s Global Beneficial Ownership Register, which will serve as an authoritative and open source of global data about who owns companies.

As a member of the Open Government Partnership, the German government should be ambitious and drop any registration and access fee requirements included in an early draft of the law, and provide unrestricted access to machine-processable data. This would not only reinforce the country’s commitment to an open, transparent and participatory government, but it would also fill Germany’s slow moving open data initiative with life.

With fourteen countries committing to create beneficial ownership registries in the coming years, now is the time to lock this information open in the public interest.

What the German government should do

As Europe’s biggest economy and current G20 chair, Germany should lead by example and demonstrate its commitment to a new norm of corporate transparency that disincentivises corruption and unethical business. The German government should learn from countries like the UK that have managed to create a public register without sacrificing privacy, and prove its commitment to preventing corruption by publishing data that can be linked internationally, through tools like the Global Beneficial Ownership Register. The country has a long list of transparency challenges it needs to address over the coming years, from political lobbying and party financing to better access to government spending data.

The beneficial ownership register is a litmus test. If Germany is serious about corporate transparency, the country must seize this opportunity and pass a strong law that ensures the true beneficiaries of companies are disclosed. Nothing less will do.

This blog has been written by Andi Pawelke, Director of the Web Foundation’s Open Data Lab Jakarta and a board member of Open Knowledge Foundation Germany. The Web Foundation is a steering committee member of OpenOwnership alongside OpenCorporates, Transparency International, the B Team, ONE, Global Witness and the Open Contracting Partnership.

Read about this issue in German, in a post written by Open Knowledge Foundation Germany

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