Building Canada's Beneficial Ownership Regime

  • National Newswatch

Recent global events have placed the issue of beneficial ownership and business registries firmly into the spotlight among regulators, policy makers, and law enforcement. In Budget 2022, Finance Minister Chrystia Freeland committed to a beneficial ownership registry for corporations by the end of 2023. This is two years earlier than initially planned with the intended outcome to directly assist investigative authorities to identify the true owners of companies and trusts. This work couldn't be more important or timely.Why are beneficial ownership regimes necessary? Ultimately, beneficial ownership and business registry transparency stimulates investment, reduces transaction cost and risk, and helps to tackle corruption, fraud, and money laundering. It is widely recognised as an essential piece of information for not only delivering on the key aspects of transparency, but in preventing and investigating tax evasion, identifying sanctioned individuals, improving competitiveness, and maintaining trade.A beneficial owner is a natural person who has the right to some share of a legal entity's income or assets or the right to direct or influence the entity's activities. Ownership and control can be exerted either directly or indirectly.[1]Building Canada's beneficial ownership regime is about two things.First, it's about modernizing business processes and practices, particularly related to how businesses register their activities with government and how government keeps track of who owns what. Second, and more important, beneficial ownership is about addressing Canada's economic and national security, both of which are at risk if policymakers don't move quickly enough to modernize the regime. Enabling legislation must be passed and the adoption of technology and digital tools that hold business registry information must be updated for Canada to have a credible and useful beneficial ownership regime.Canada's goal should be to make its complex, multijurisdictional business registries cloud-based, scalable, simpler, and interoperable so this data is transparent and easily accessible under a beneficial ownership regime. Access to accurate high-quality information on the true owners of companies, trusts and properties should be available to citizens, investigative bodies, and other public sector agencies.Modernizing the beneficial ownership regime is also an important milestone for the Government of Canada to demonstrate its credentials as a global digital services leader. Modern corporate registries tied to a pan-Canadian beneficial ownership regime are all part of any government's framework policies to secure economic and national security. Today, we are witnessing a remarkable shift of the international order into alliances of countries with democratic values versus those with autocratic regimes. Without data on ultimate business ownership and transparent corporate structures, Canada is challenged to know how at risk it is in terms of its economic and national security, and most importantly, where it needs to act to ensure a resilient, safe economy and country.The good news is there are several countries who have developed best-in-class policy, legislative, and operational models in this area, the best of which includes collaboration with the private sector. Canada can find inspiration from the United Kingdom, Australia, New Zealand, and even Bermuda, on how to implement changes around beneficial ownership and the enabling business registry technology quickly, effectively, and in a manner that's efficient for taxpayers.Moving Canada ForwardCanada has faced significant criticism in recent years for its perceived lack of enforcement over both money laundering and related corruption. A 2020 report by the Criminal Intelligence Service estimates that between $45 and $113 billion is laundered annually through Canada.[2]Canada has a mixed collection of disclosure rules for corporate registries in each province and territory. None of them currently require the disclosure of the beneficial owner and few – if any – of these registries are publicly accessible or interoperable. This is a major issue.Given the speed at which global trade and commerce – and crime – takes place, governments must do two things at the same time: modernize business registries while developing and implementing a pan-Canadian beneficial ownership regime.The nature of Canada's federation means that the federal government must work with its provincial and territorial partners on this issue. The federal government and several provinces have passed legislation requiring private corporations to create and maintain their own registers of beneficial owners. These registers are a useful first step, but they do not go far enough in terms of transparency and accessibility as they are not public, nor easily accessible, or audited, and lack any effective enforcement mechanism for noncompliance.Beneficial ownership is only as effective as the business registries who hold the data. Collaboration and cooperation are needed to ensure business registries at the federal and provincial levels are open, transparent, accessible, and current.While legislative change to the relevant corporations' acts across jurisdictions is a positive first step towards a pan-Canadian beneficial ownership regime, it's important to ensure the requirements of this regime are developed at the same time as the modernization of technology and digital tools holding business registry data.Global Case StudiesThere are several global examples for policy makers in Canada to emulate when it comes to beneficial ownership reform.The United Kingdom has recently modernized its beneficial ownership regime and is quickly moving towards having registers of beneficial ownership covering three different types of assets: companies, property, and trusts. The U.K.'s Economic Crime (Transparency and Enforcement) Act 2022 was passed in just over two weeks in response to Russia's invasion of Ukraine. It brings into law a requirement that overseas entities holding UK real estate must disclose their beneficial owners. One of the most common methods used to launder money through real estate is the use of shell companies, front companies, trusts, and complex company structures established domestically or offshore. Owning a property through a legal vehicle distances the individual holding the illicit funds from ownership. In this same context, Canada would do well to shine a light on the beneficial ownership of those who own real estate in the country.Our company, Foster Moore, is working with the Australian Government to modernize business registries and provide improved digital services for corporations. The highly successful Modernizing Business Registers (MBR) program to be implemented in Australia will improve the administration of business registers and deliver a unified Australian Business Register (ABR) and including the 31 business registers held with the Australian Securities & Investment Commission (ASIC). This work will greatly improve the business interaction with government by providing a single, trusted, reliable and easily accessible business register platform for Australia. As part of the MBR program, a new Corporate Director Identification regime was introduced in 2021, making Australia one of a handful of jurisdictions to introduce a director identification number for individuals serving in this capacity.Even smaller countries such as Bermuda and New Zealand have demonstrated a path for Canada to follow when it comes to modernization. The Bermuda Ministry of Finance, Registrar of Companies (ROC), partnering with the private sector, delivered sixteen registers ranging from the various forms of Companies and Partnerships administered by the Registrar of Companies to services for individual bankruptcy. In New Zealand, the federal Ministry of Business, Innovation, and Employment has its world-leading New Zealand Companies Office. The New Zealand Companies Office has a global reputation for innovative delivery of modern registry services. The registers of companies, limited partnerships, charitable trusts, incorporated societies, motor vehicle traders, financial service providers and personal property securities are all maintained and publicly accessible.The U.K. has demonstrated it's entirely possible to pass necessary legislative changes on a timely basis while Australia, Bermuda, and New Zealand examples show having a single, reliable, easily accessible source of trusted business data is doable. These examples demonstrate it's possible to create a registry that's easy for businesses and the public to use and allow government agencies to operate more efficiently.Looking AheadAchieving Minister Freeland's beneficial ownership objective by 2023 will require adaptive and consistent policy reform, international collaboration, private and public sector innovation, implementation of smart registry platforms, and collaboration across the entire community of beneficial ownership stewards and reformers.The beneficial ownership register itself is only useful if it is accessible. Equally important is the ease of capturing the information needed for the register and in keeping that information up to date. While 2023 is not far away, there are examples from elsewhere that demonstrate how Canada can move smartly, and quickly, to implement this important policy tool.And it's important that both legislative change and technology deployment can and should be done concurrently for Canada to achieve the 2023 timeline established by Minister Freeland.Modernizing Canada's beneficial ownership regime should improve business processes and practices and address key economic and national security gaps that currently exist. If modernization is achieved, with policy and technology changes providing greater tools for authorities, Canada will have demonstrated its serious as a digital services leader while meeting its obligations to the global community.Bill Clarke is Vice President, Business Development and Partnerships at Foster Moore, the registry people. He is responsible for driving Foster Moore's business expansion plan and strategies in the North America.Justin Hygate is Vice President, Registry Innovation at Foster Moore. Before joining Foster Moore, Justin spent 26 years with the New Zealand Companies Office, during which time the Office gained an international reputation for innovative service delivery and best practice registry management.[1] Beneficial Ownership in law: Definitions and thresholds. October 2020 Open Ownership[2] Criminal Intelligence Service Canada – Report on Organized Crime in Canada 2020 – published February 2021