Who Wants Beneficial Ownership Information?

Today I provided testimony to the Senate Banking, Trade and Commerce Committee on Bill C-86, the Budget Implementation Act. This bill includes provisions to amend the Canada Business Corporations Act, intended to fulfil the announcement by the federal Finance Minister in December 2017 (together with his provincial counterparts) to make Canadian privately-held corporations more transparent. The bill would require the creation by corporations of a register of their beneficial owners, although section 21.3(2) would restrict access of this register to the corporation’s shareholders and creditors (and of course, certain government officials would have access upon request) .  While such restrictions largely echo other corporate law provisions, it is worth asking why non-governmental access should be restricted to just shareholders and creditors?

The issue of access to beneficial ownership information also comes up in the November 8, 2018 House of Commons Finance Committee report to Parliament on the Proceeds of Crime (Money Laundering) and Terrorism Financing Act (PCMLTFA) entitled CONFRONTING MONEY LAUNDERING AND TERRORIST FINANCING: MOVING CANADA FORWARD.  The report was thoroughly researched and includes 32 wide-ranging recommendations.  The report recommends the creation of a pan-Canadian government-developed registry of beneficial owners, which it believes should be made available only to certain government authorities and authorized reporting entities under the PCMLTFA.

Many expert witnesses during Parliamentary hearings (myself included) recommended that such a registry be made accessible to the public.  A fundamental question is, who wants or needs access to privately held corporations’ beneficial ownership information, and why?  This blog provides a non-exhaustive list of government and non-government agencies and organizations which would benefit from having access to beneficial ownership information. 

Government Agencies 

  • Director of Corporations, Corporations Registrar, or equivalent. This is the agency charged with overseeing the statutory compliance of corporations with the relevant laws of the federal government or provinces, typically a Business Corporations Act.  In order to ensure compliance with corporate beneficial ownership requirements, they need access to any information collected by companies and will of course be responsible for any government registry collecting and publishing that information. 

  • Revenue Canada Agency and provincial counterparts.  The Canadian Income Tax Act already requires individuals to declare their beneficial ownership of certain types of property and assets (however this information is kept confidential from other government agencies).  It would be useful for the CRA and provincial equivalents to have access to beneficial ownership information to cross-check certain individuals’ tax declarations against corporate disclosures of beneficial ownership. 

  • FINTRAC. The Proceeds of Crime (Money Laundering) and Terrorist Financing Act requires FINTRAC to make disclosures to police and, when certain conditions are met, to other designated organizations when it has reasonable grounds to suspect that designated information would be relevant to investigating or prosecuting a money laundering offense or a terrorist activity financing offence, the Centre shall disclose. For such investigative functions, it would be useful for FINTRAC to have access to beneficial ownership information. 

  • Procurement officers.  Procurement policies frequently prohibit certain individuals and entities from bidding on government contracts, for example, if they have been convicted of corruption or fraud offenses.  Federal and provincial procurement officers (including those at universities, hospitals, colleges, etc) would want access to a beneficial ownership registry to ensure that shortlisted bidders on government contracts are not disbarred entities disguising themselves behind a new incorporation.

  • Law Enforcement.  Because financial crimes often involve the use of shell corporations and other legal structures, law enforcement agencies need access to beneficial ownership information of corporations and any other entities for which it is collected. 

  • Consumer Protection Agencies.  These provincial agencies help protect the public through a number of services, including a complaints-receiving mechanism and a watchlist.[1]  Such agencies may be interested in tracking whether industries with a high number of complaints (such as home renovation services) include a number of companies with the same beneficial owner behind them. 

  • Electoral Officials.  If provincial or municipal campaign financing laws restrict totals that individuals and corporations can donate to a political party, electoral officials would wish to have access to beneficial ownership information to determine whether individuals are breaking laws by donating through multiple legal entities. 

Non-Governmental Categories.

  • Financial institutions, trust and loan companies, etc.), securities dealers, money services businesses and life insurance brokers which have statutory due diligence obligations to collect beneficial ownership information under the PCMLTFA.  The federal government requires this category of reporting entity to collect beneficial ownership information from certain clients, under the threat of sanction for non-compliance.  Because beneficial ownership information is difficult to obtain, these entities expend considerable resources trying to collect and confirm such information.  They would definitely have a strong interest in getting access to a company’s beneficial ownership information to save costs and reduce reputational and financial risk 

  • Designated Non-Financial Businesses and Professions (DNFBPs). At present, reporting entities with obligations under the PCMLTFA and related regulations, such as accountants, real estate brokers and representatives, real estate promoters, BC notaries, casinos and dealers in precious metals and stones, are exempted from the beneficial ownership identification obligations but this could change. The recent report of the House of Commons Finance Committee recommends expanding the list of reporting entities required to obtain beneficial ownership information to many others such as non-federally regulated mortgage lenders, high-value goods dealers, white label ATM operators, etc.  

  • Lawyers and others exercising non-statutory due diligence.  A number of businesses and professions regularly conduct beneficial ownership due diligence on clients even without statutory requirements, pursuant to professional regulatory requirements or good practice. 

  • Creditors.  Existing creditors already have certain rights to access shareholder registry information under corporate law in Canada.  However, accessing shareholder registries may not provide beneficial ownership information since registered shareholders may not be the same as beneficial owners (they may be nominees or banks holding investments in trust, for example).  Additionally, the mechanism for creditors obtaining registered shareholder information is cumbersome and requires a formal request.  Creditors would appreciate having access to beneficial ownership information, including for detecting fraud.

  • Better Business Bureaux, other non-governmental watchdogs.  Like consumer protection agencies, a number of private sector organizations provide a public service in monitoring, accepting complaints, and reporting on the  performance of individual businesses.  They may be interested in determining whether a new business in a category is actually started by a beneficial owner of a previously poorly-rated business.

  • Businesses conducting due diligence on prospective customers or suppliers.  Many of the thousands of business bankruptcies that occur annually across Canada can be attributed to creditors not being paid for goods or services they have already provided.   Yet there is currently no way for a business to conduct independent beneficial ownership due diligence on a privately-held corporation with which it is considering doing business.  Businesses would benefit from finding out if the beneficial owner of a potential business partner is a convicted fraudster, a person with a poor reputation in the business, or a competitor. 

  • Journalists and Investigative NGOs.  Journalists and NGOs, including those conducting research on alleged incidents of corruption, cronyism, government patronage have sought access to beneficial ownership registries in European jurisdictions pursuant to the “legitimate interest” provision in AMD4.  For example, NGOs and journalists may investigate whether bid-rigging of government contracts resulted in their issuance to entities with beneficial owners who are party donors.  In Canada, journalists have investigated money laundering linked to real estate and casinos.

  • Members of the public.  The general trend in Canada is toward greater public access about information relating to corporations, particularly publicly-traded corporations.  European Union jurisdictions have demonstrated significant public interest in access of beneficial ownership information of all corporations and other legal vehicles.  Members of the public may wish to know who are the owners of large privately-held corporations as well as smaller businesses which they may patronize. 

[1] See, e.g., Ontario Consumer Beware List,  http://www.consumerbeware.mgs.gov.on.ca/catsct/start.do?lang=en