Ensuring Public Access to Beneficial Ownership Data (LT0030)

Status quo and problem addressed by the commitment
Status quo: Directive (EU) 2015/849 obligates Member States to ensure that beneficial ownership information is stored in a central register of each Member State. This requirement is transposed into Lithuania’s national law through the Law on Prevention of Money Laundering and Terrorist Financing, which provides for obligation for legal entities to obtain, update and store accurate information on their beneficial owners and submit this information to the Information System of Participants of Legal Entities (in Lithuanian: JADIS). Although Article 25(1), which stipulates this obligation, entered into force on 1 January 2019, Lithuania has failed to put in place JADIS Subsystem of Beneficial Ownership to date, as no public funds have been allocated to this effect.

The problem: absence of JADIS Subsystem of Beneficial Ownership to collect beneficial owners’ data needed to prevent money laundering and terrorist financing and to combat informal economy; Directive (EU) 2015/849 is not implemented, and public access to beneficial ownership data is not ensured.

Problem solution/commitment: Put in place JADIS Subsystem of Beneficial Ownership to handle data of beneficial owners of legal entities

Main objective: Up and running JADIS Subsystem of Beneficial Ownership

How will the commitment contribute to the public problem? The JADIS Subsystem of Beneficial Ownership will provide for the collection of beneficial owners’ data needed to prevent money laundering and terrorist financing and to combat informal economy; Directive (EU) 2015/849 will be implemented and public access to beneficial ownership data will be ensured.

What steps will be taken towards this objective? Distribute steps and expected outcomes over time

Step and its description Expected practical outcome Start date End date 1. Designing Drawing up: designing documentation, architectural documentation, etc. 29/03/2021 09/07/2021 2. Preparing for development Transfer of analysis results to the task management system, agreeing on the prototype, procurement of development competencies 05/04/2021 09/07/2021 3. Development Software ready for installation. Ongoing programming and software configuration works meeting functional and non-functional requirements 12/07/2021 29/10/2021 4. Testing The developed software introduced in a testing environment; acceptance testing scenarios and testing methodology and plan have been prepared; successfully completed acceptance testing 23/07/2021 10/12/2021 5. Preparedness of business, and trial launch The developed software introduced in production environment 01/12/2021 31/12/2021 6. Launch of the system System launched for the use of consumers 01/01/2022

How is the commitment relevant to the values of transparency, accountability, and civic participation? This commitment will open up data and increase public access to information: Once the commitment has been fulfilled and the Information System of Participants of Legal Entities (JANGIS) has become operational, any interested party will be able to access a very wide range of information regarding beneficial owners of legal entities (such as legal entity code, name, head office; date of last revision; beneficial owner’s given name and surname, year and month of birth, country of residence, nationality, ownership and/or control rights; scope of ownership rights (shares or voting rights) held by the direct owner (percentage). The commitment will improve conditions for civil society. The commitment will improve conditions in terms of increasing public sector accountability for their actions. Once the commitment has been fulfilled, the beneficial owners’ data will be accessible to society, whose active citizens will be able to better judge the interests of those involved in public administration and make a direct influence when electing representatives of state institutions.

Action Plan Review

Commitment 1: Public access to beneficial ownership information

For a complete description of the commitment, see Commitment 1 in Lithuania’s 2021-2023 action plan here.

Context and objectives

Under this commitment, the State Enterprise Centre of Registers will create the Information System of Members of Legal Entities (JADIS) register sub-system with information on the ultimate beneficial owners of companies in Lithuania. The Fourth EU Anti-Money Laundering Directive (AMLD) of 2015 required all EU Member States to establish beneficial ownership registers, while the Fifth EU AMLD of 2018 required Member States to open their registers to the public. As of May 2021, Lithuania was one of only three EU Member States that had not yet established any type of beneficial ownership register. [1] Amendments in 2019 to Lithuania’s Law on Prevention of Money Laundering and Terrorist Financing mandated the creation of a public register as a sub-system of the JADIS. [2] Lithuania was previously unable to create a register because no state budget was allocated for the task. However, the 2021 state budget earmarked funds for the creation of the JADIS sub-system, thus enabling Lithuania to transpose the Fifth EU AMLD. [3]

Past involvement of Lithuanian banks in money-laundering schemes have raised the importance of beneficial ownership transparency in the country. A Lithuanian bank was suspected of being linked to the so-called “Troika Laundromat”, a collection of 70 offshore shell companies used to move around US$4.6bn from Russia. [4] According to investigations in 2019, the registered beneficial owners for many of these companies were proxies who were used to hide the true owners. [5] The State Tax Inspectorate (STI) notes that the lack of a beneficial ownership register hinders tax-related investigations in Lithuania. [6] The importance of beneficial ownership transparency is also illustrated by global data leaks. After the revelations of the Panama Papers in 2016, STI opened a dozen tax-related investigations which resulted in the return of approximately 400,000 euros to Lithuania’s budget. [7] According to the CEO of the investigative journalism center Siena, the lack of a public beneficial ownership register in Lithuania has made it difficult for journalists to effectively analyze the flow of money and corporate relationships. [8]

The milestones of this commitment mainly address the technical aspects of preparing the JADIS register, including designing and testing the software. The final launch is scheduled for January 2022. Transparency International (TI) Lithuania proposed the commitment during the public consultation period. The topic of beneficial ownership received the most votes from stakeholders among all submitted proposals. However, TI Lithuania’s original proposal included additional activities to provide beneficial ownership information as open data and ensure free access to information on the register. [9] These activities were ultimately not taken up by the Ministry of Justice, which is responsible for setting policies toward Lithuanian registries.

The JADIS register will be interoperable with the EU’s Beneficial Ownership Registers Interconnection System (BORIS). This will harmonize the data JADIS register with the registers of Member States and better facilitate the exchange of information. [10] The 2019 amendments to the Law on Prevention of Money Laundering and Terrorist Financing requires that companies disclose all beneficial owners at a shareholding threshold of 25 percent or higher. ^[11] The 25 percent threshold would comply with the Fifth EU AMLD and is the most common among OGP countries with beneficial ownership registers. ^[12] In case companies are late or do not provide information on their beneficial owners, the Law on the Approval, Entry into Force and Implementation of the Code of Administrative Offences is applied. For these offenses, there is a fine ranging from 30 to 1,400 euros. ^[13]

Potential for results:Substantial

This commitment could have substantial potential for results in the area of beneficial ownership transparency in Lithuania. For the first time, civil society and journalists in Lithuania and elsewhere will have access to basic information on the beneficial owners of companies registered in Lithuania. [14] The register can help stakeholders identify suspicious trends in company ownership that would not have been possible without having access to the information. The register could also help improve public trust in Lithuania’s financial sector, whose reputation was damaged by the involvement in the “Troika Laundromat” money-laundering scheme and the Panama Papers revelations. According to the CEO of the investigative journalism center Siena, publicly available beneficial ownership information is crucial for building and preserving trust in business and financial systems. Access to this data can help investigative journalists and civil society to more easily research and analyze money flows and corporate relationships. [15]

Although the creation of a public beneficial ownership register will be a significant step for Lithuania, several important questions regarding access to the data and the format in which the data is published, have not been decided yet. The action plan notes that “any interested party” will be able to access the information on beneficial owners on the JADIS register. Currently, the Ministry of Justice foresees that the public will have access to information on the register after providing one’s identity and logging in to the State Enterprise Centre of Registers website. However, it has not yet decided if users will be required to pay a fee to access the register. Users will be able to check legal entities one by one but, at this time, will not have the possibility to search by natural person or download data in bulk. The Ministry of Justice saw these restrictions as a proportionate balance between maintaining privacy and promoting transparency. According to the Deputy Minister of Justice, the ministry will wait for the Court of Justice of the European Union (CJEU) to issue a ruling on the validity of public registers of beneficial ownership. [16] The deputy minister noted that the CJEU ruling may change the current course of openness and accessibility for Lithuania’s register, but at this stage, some limitations in access may be necessary in order to guarantee the compatibility of a public register with individuals’ privacy rights. [17]

Opportunities, challenges and recommendations during implementation

According to the State Enterprise Centre of Registers, the success of the JADIS register will largely depend on the willingness of companies to provide accurate information on their beneficial owners on time. [18] In addition, the success will also depend on the application of credible sanctions for failure to do so. TI Lithuania, Siena, and Media4change remain optimistic that companies will submit their beneficial ownership information on time and that the registry will be finalized by January 2022, as set out in the action plan. Both the Ministry of Justice and the State Enterprise Centre of Registers stressed to the IRM that a risk to implementation is the limited human resources available to create a complicated system. A representative of the State Enterprise Centre of Registers said that, despite maximum efforts, there is still a risk of being ‘slightly late’ in delivering the JADIS register on time. [19]

This commitment is an important step toward addressing a major gap in Lithuania’s open government landscape. Civil society in Lithuania widely acknowledges that having a register that is open to the public is crucial for preserving trust in the country’s business and financial systems. However, key decisions related to the transparency and accessibility of the register are yet to be determined while the Ministry of Justice waits for clarity from the CJEU. Putting the register behind a paywall or disclosing data that is not user-friendly could limit its utility for investigations by civil society and watchdogs. Despite legal uncertainties, several EU Members States already offer the information on their registers as open data, free of charge, and without barriers to access. For Lithuania to maximize the usefulness of the new register for stakeholders and the public, the IRM recommends taking the following steps: