Beneficial Ownership Register (AM0037)

3. Open and public beneficial ownerships’ register
Commitment Start and End Date Commitment Start: November 2018
Commitment End: December 2020
Lead implementing agency Ministry of Justice
Person responsible from lead implementing agency Mariam Galstyan
Title, Department Head of Anti-Corruption Policy Development Division of Anti-Corruption and Penitentiary Policy Development Department

Email: [email protected] Phone +37410-594023
Other actors involved Other state actors involved State administration bodies
Civil society, private sector FOICA, Transparency International, Armenian Lawyers' Association
Issues subject to regulation Although the legislation in the Republic of Armenia (RA) prohibits public officials to be engaged in business activities, the lack of information about the ultimate beneficial owners of legal entities may actually enable the violation of this requirement and contribute to the spread of corruption.

After the Velvet revolution in the spring of 2018 the new government launched a real and effective fight against corruption and the disclosure of information about property owners can significantly contribute to the realisation of the government’s ambitions. With this commitment the government will adopt international beneficial ownership transparency standards and will monitor abuses of company ownership for illegal purposes. Taking into account the open will of the new government to eliminate corruption in all spheres, government of RA pledged to ensure the publicity of data on the real owners of companies operating in the country.

Main objective The main objective of the commitment is to open information on companies’ real owners to prevent and identify the misuse of company ownership for corruption offenses.

The publication of information of companies’ real owners will also support tax and law agencies to enforce the laws and regulations more effectively and carry out their functions and activities. The transparency of such information will promote the engagement of citizens in the fight against corruption and can increase trust in government. At the same time, it can have a positive effect in increasing investments in the Republic of Armenia.

Brief Description of Commitment The Government is committed to develop and implement a common mechanism for identifying the real owners of companies operating in RA, by creating and launching a comprehensive open and freely accessible register of beneficial ownership.

OGP challenge addressed by the commitment Publicity, accountability, enhancement of public integrity, innovation

Relevance to OGP values The Register will provide access to actual owners’ information, increase public confidence, increase transparency and public control, and thereby improve the accountability of companies.

Ambition The commitment is exclusive for Armenia and other OGP member countries. Armenia will have an effective tool for Civil society and the State agencies to determine the ultimate beneficial owners in all sectors of the economy operating in RA. This commitment is a comprehensive and inclusive program, which will lead to positive changes including a huge impact on the fight against corruption and money laundering. By doing so, Armenia will join the group of pioneer countries in the field of Beneficial ownership transparency.
Promotes efforts for implementation of SDG Goals or Targets 16.5 Substantially reduce corruption and bribery in all their forms.
17.17 encourage and promote effective public, public- private, and civil society partnerships, building on the experience and resourcing strategies of partnerships.
Verifiable and measurable criteria for performance of commitment Start End
Ongoing Actions
1. Development of a legislative package that establishes the framework necessary to meaningfully advance on beneficial ownership transparency and implement an open register of ultimate beneficial owners.
This legislative package will be based on a comprehensive analysis of international experiences on issues such as the Beneficial Ownership Data Standard, the definition of beneficial owners, verification and registration mechanisms, and the range of required documentation.
In addition, the development of the legislative package will include consultations with stakeholders, such as representatives of civil society and the private sector, and the presentation of a consolidated package to the Prime Minister’s Staff.
2018
November 2019
June
2. Presentation of legislative drafts package to the National Assembly
2019
July 2019
September
3.Development of a database (using the Beneficial Ownership Data Standard) of ultimate beneficial owners of all companies operating in Armenia within the State Registry which will be responsible of the technical implementation and discussions with civil society and the private sectors. The database will be open and freely accessible to the public and ensure adequate use and search capabilities.
2019
May 2019
December
4. Piloting the register by entering data of ultimate beneficial owners of companies in the metal mining industry operating in Armenia. This includes collecting, verifying, publishing, and resolving system problems which are encountered during the pilot.
2019
November 2020
June
5. Launch of an open and public register of ultimate beneficial owners and parallel launch of a public awareness campaign.
2020
October 2020
December

3. Beneficial Ownership Register

Language of the commitment as it appears in the action plan: [23]

Brief description: The Government is committed to develop and implement a common mechanism for identifying the real owners of companies operating in RA, by creating and launching a comprehensive open and freely accessible register of beneficial ownership.

Milestones

3.1 Development of a legislative package that establishes the framework necessary to meaningfully advance on beneficial ownership transparency and implement an open register of ultimate beneficial owners.

This legislative package will be based on a comprehensive analysis of international experiences on issues such as the Beneficial Ownership Data Standard, the definition of beneficial owners, verification and registration mechanisms, and the range of required documentation.

In addition, the development of the legislative package will include consultations with stakeholders, such as representatives of civil society and the private sector, and the presentation of a consolidated package to the Prime Minister’s Staff. [24]

3.2 Presentation of legislative drafts package to the National Assembly

3.3 Development of a database (using the Beneficial Ownership Data Standard) of ultimate beneficial owners of all companies operating in Armenia within the State Registry which will be responsible of the technical implementation and discussions with civil society and the private sectors. The database will be open and freely accessible to the public and ensure adequate use and search capabilities. [25]

3.4 Piloting the register by entering data of ultimate beneficial owners of companies in the metal mining industry operating in Armenia. This includes collecting, verifying, publishing, and resolving system problems which are encountered during the pilot.

3.5 Launch of an open and public register of ultimate beneficial owners and parallel launch of a public awareness campaign.

Start Date: November 2018

End Date: December 2020

Context and Objectives

Armenian legislation prohibits public officials from engaging in business activities. [26] However, many cases have been reported in which officials have ownership in business companies, with ownership officially registered to other persons (including their relatives or acquaintances). Apart from violating the law, ownership of large companies by state officials contains risks of political influence on business and harms the principle of a competitive business environment. Additionally, lack of information on real owners of companies prevents identification of monopolized sectors and businesses. (It is possible for several businesses to have different registered founders but be owned by the same person.)

The Law on Combating Money Laundering and Terrorism Financing defines the concept of beneficial ownership and provides some regulations for the disclosure of and reporting on beneficial owners. [27] All organizations make a statement on their beneficial ownership during registration and when applying for state procurement tenders. These statements are publicly available for state procurement participants in the reports of the State Procurement System and in participants’ bid packages. [28] However, the information on beneficial ownership filed with the State Registry is not available to the public.

This commitment calls for the creation of a publicly available beneficial ownership registry that will be piloted in Armenia’s mining sector. This commitment will help identify conflicts of interest in cases in which a company is owned by an official. It will also ensure proper tax collection through the revealing of offshore ownership. According to statements by government representatives, the government also plans to develop mechanisms for verifying the provided information before publication. [29] However, the commitment itself does not mandate disclosure of beneficial ownership. It only covers the development of the framework related to beneficial ownership transparency. According to the commitment, the open registry will be operational by the end of the action plan implementation period (October 2020) and will include data on mining companies during the pilot stage. In addition to disclosing beneficial ownership information, Milestone 3.1 calls for consultations with stakeholders and the presentation of a consolidated legislative package related to the establishment of beneficiary ownership register to the prime minister’s staff, making the commitment relevant to civic participation.

This commitment is closely linked with the requirement of the Extractive Industries Transparency Initiative (EITI) 2016 standards to disclose beneficial ownership of oil, gas, and mining companies. [30] As a candidate country to EITI, Armenia has pledged to follow this requirement by January 2020. In January 2018, Armenia published its road map for disclosing beneficial ownership information, including milestones and deadlines. [31]

Many interviewed civil society stakeholders had a positive assessment of the commitment and expect it to eventually cover all companies. However, the civil society organizations that proposed the commitment find that it does not entirely reflect the ambition they intended. They had suggested mandatory disclosure of beneficial ownership. [32] The objective of the commitment is ambitious, but the proposed activities are limited to the creation of the registry software and piloting the registry by including mining companies.

Some stakeholders noted that including a milestone on beneficial ownership disclosure for a larger scope of companies (for example, companies with incomes above a certain threshold) [33] would have an even greater impact in this field. However, the mandatory disclosure of mining companies’ beneficial owners will be a major step. This sector contributed 3.2 percent to Armenia’s gross domestic product in 2017 [34] and has been targeted by several environmental movements. The ownership of mining companies has been a sensitive issue in Armenia, especially in recent years. There is a large amount of foreign investment, with relevant permissions provided by the former government administration. These deals have given rise to rhetoric about alleged ties and interests of officials (or ex-officials) and their lack of care about the damage to country’s natural resources. The most prominent recent case involves the Amulsar mining project, which, according to the environmentalists, endangers one of the well-known resort towns and nearby water resources. [35]

The commitment calls for continued progress in beneficial ownership transparency. Thus, it marks a major (albeit preliminary) step toward institutionalizing beneficial ownership disclosure of companies. Therefore, the potential impact is assessed as transformative. The legislative framework and software required under the commitment will serve as a basis for further enlargement of the scope of companies subject to mandatory disclosure of their owners.

Next steps

The IRM researcher recommends carrying this commitment forward to the next action plan. The government should establish mechanisms for mandatory inclusion of a larger scope of companies in the beneficial ownership registry, as well as mechanisms for monitoring and verification.

Stakeholders have stressed the importance of verifying the possibility of obtaining accurate information on beneficial owners of companies, particularly those in extractives sector. Those companies have offshore registration and use chains of ownership. Thus, real ownership is sometimes not possible to verify. [36] For this reason, mechanisms to verify the information presented in the registry must be established. Otherwise, the registry’s usefulness to prevent corruption will be questionable. [37]

International experience and recommendations should be considered when designing the oversight framework, including the following:

• Establish international cooperation to provide and obtain information held by foreign and domestic registries, exchange information on shareholders, and quickly trace a chain of legal ownership; [38]
• Give appropriate resources, capacities, and legal mandate to the registry or the relevant assigned body to carry out due diligence and verification and to apply relevant sanctions; and
• Set serious penalties for providing false information; these need to be tangible to ensure that the disclosure provisions are met—for example, heavy fines or suspension of activities. [39]

Public oversight is also important, to ensure that the registry will serve its role. The IRM researcher recommends that civil society organizations (CSOs) initiate public awareness activities and conduct monitoring and verification of the disclosed information. Toward this purpose, it is important that the information in the registry is open and free of charge for everyone.

During the discussions for the action plan development, as well as in interviews, some CSOs suggested introducing mandatory disclosure of media company ownership. [40] As noted in Section II of this report, many media outlets have political affiliations or are perceived to have them. Issues such as misinformation or hidden political propaganda by media are often raised. Disclosure of media ownership could improve transparency in the media sector and apply a more deliberate approach to news and media reports.

3. Beneficial ownership register

Aim of the commitment

The commitment aimed to implement a common mechanism for identifying the real owners of companies operating in Armenia by launching a comprehensive and freely accessible register of beneficial ownership. [1] The government would pilot the new register for companies involved in the country’s mining sector before expanding it to all other companies. This register would help to identify conflicts of interest when an official owns a company, help identify monopoly situations when companies share the same ultimate owner and ensure proper tax collection by revealing offshore ownership. [2] This commitment was closely linked with the requirement of the Extractive Industries Transparency Initiative (EITI) 2016 standards to disclose beneficial ownership of oil, gas, and mining companies. [3]

Did it open government?

Major

In April 2019, the Parliament adopted amendments to the law on state registration in order to define beneficiary ownership and the scope of information to be included in the register. [4] The Parliament also adopted amendments to the RA Mining Code to require disclosure of beneficial owners by mining companies. [5]

In March 2020, the government adopted a decision on the list of beneficial ownership data subject to being published. [6] In April 2020, mining companies began publishing information on beneficial owners on e-register.am in PDFs. [7] Preparation of the software for open data is in process, and Armenia plans to start providing data on beneficial ownership in a machine-readable format, in accordance with the Beneficial Ownership Data Standard, in 2021. [8]

As a result of this commitment’s implementation, Armenia has established the relevant legislative framework to incorporate the concept of beneficial ownership into the law on the registration of legal entities. This represents an important step toward ensuring beneficiary ownership transparency for all companies in Armenia. However, because the database software with open data and search possibilities was still in development by the end of the action plan period, the commitment is considered substantially, rather fully, implemented.

Prior to the commitment, no publicly available and comprehensive information on the beneficial ownership of companies in Armenia existed. This commitment has resulted in the disclosure and availability to the public of more information on beneficial ownership, particularly in the country’s mining sector. However, the information on beneficial ownership is currently provided in PDFs, as scanned documents, and structured in a complicated manner. This complicated form and lack of open data format requires additional expertise and effort by users to comprehend and analyze the data. [9]

According to some civil society organizations (CSOs) and investigative journalists, the existing disclosure might not provide users with a comprehensive account of beneficial ownership, due to insufficient enforcement and deficiencies in the electronic system of declarations. [10] Stakeholders also mentioned concern about company shareholders intentionally breaking up shares into amounts below 10 percent—the disclosure threshold in the legal definition of beneficial ownership—to avoid disclosure requirements. [11] Considering the current lack of open data format, the commitment has so far resulted in marginal improvements in terms of access to information on beneficial ownership. However, as mentioned above, Armenia plans to start providing the data on beneficiary ownership in machine-readable format in 2021.

Throughout the implementation process, the government consulted with citizens on the legislative changes via the e-draft.am platform. It consulted with CSOs primarily through the EITI multistakeholder group. [12] The government also engaged stakeholders through several discussions organized by its representatives, CSOs, and international organizations. [13] Armenia’s EITI multistakeholder group is composed of a nearly equal number of representatives from government, business, and civil society, [14] and consensus was reached for most of its decisions. According to Open Ownership, the government has actively engaged a wide range of CSOs, media representatives, and the private sector while developing beneficial ownership disclosure procedures for the mining sector pilot. [15]

The government considered many suggestions from civil society when making final decisions. For example, on the new beneficial ownership register, the government lowered the threshold for disclosing shareholders from 20 percent to 10 percent, as proposed by CSOs. [16] Also, the government incorporated some of the recent recommendations by CSOs in the draft amendments to the Law on State Registration of Legal Entities. [17] These included the suggestion not to necessarily consider executive heads as beneficial owners and the suggestion for the Central Bank to define the list of credible securities exchanges. [18] Furthermore, the government considered suggestions on technical issues through the process of developing the software for the open data format of public beneficial ownership information. [19] Considering the high levels of engagement with civil society during the implementation of the register, the commitment had improved civic participation in a major way.