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Ukraine

Extractive Industries Transparency Initiative (UA0065)

Overview

At-a-Glance

Action Plan: Ukraine Third National Action Plan 2016-2018

Action Plan Cycle: 2016

Status: Inactive

Institutions

Lead Institution: Ministry of Coal and Energy, Ministry of Economic Development, Ministry of Finance, Ministry of the Environment, State Geology and Subsoil Resources Service.

Support Institution(s): Renaissance International Fund, German Corporation for International Cooperation(GIZ), American Chamber of Commerce in Ukraine, non-governmental organisations Dixie Group, Analytical Centre for Regional Cooperation, Energy Transparency Association, the international initiative Publish What You Pay, other civil society institutions and international organisations (by consent).

Policy Areas

Extractive Industries, Fiscal Transparency, Legislation & Regulation

IRM Review

IRM Report: Ukraine Mid-Term Report 2016-2018

Starred: Yes Starred

Early Results: Outstanding Outstanding

Design i

Verifiable: Yes

Relevant to OGP Values: Access to Information

Potential Impact:

Implementation i

Completion:

Description

Event: Implementation in Ukraine of the Extractive Industries Transparency Initiative; Implementation timeframe: 2016-2018; Entities responsible: Ministry of Coal and Energy, Ministry of Economic Development, Ministry of Finance, Ministry of the Environment, State Geology and Subsoil Resources Service.; Partners: Renaissance International Fund, German Corporation for International Cooperation (GIZ), American Chamber of Commerce in Ukraine, non-governmental organisations Dixie Group, Analytical Centre for Regional Cooperation, Energy Transparency Association, the international initiative Publish What You Pay, other civil society institutions and international organisations (by consent).; Expected results: Ensuring the: Support in the Verkhovna Rada of Ukraine for the draft Law of Ukraine “On the disclosure of information in extractive industries” (until adoption). Publication of reports in Ukrainian and English based on the standards of the Extractive Industries Transparency Initiative (December 2016, December 2017).

IRM Midterm Status Summary

5. Improve the ultimate beneficial owners’ verification system

Commitment Text:

Improvement of the mechanism for verifying information about ultimate beneficial owners.

Expected results: Implementation of mechanisms to search and display the relations between legal entities and their founders (participants), ultimate beneficial owners (controllers), including ultimate beneficial owners (controllers) of the founder, and heads of legal entities by updating the software for the Unified State Register of Legal Entities, Individual Entrepreneurs and Community Groups.

Responsible institution: Ministry of Justice.

Supporting institution: Transparency International Ukraine non-governmental organization.

Start date: December 2016 End date: July 2018

Context and Objectives

The law defines the ultimate beneficiary of a legal entity as the individual who has the ability to decisively influence, directly or through others, the operational management or business activities of that legal entity. Legally, the ultimate beneficiary has this ability irrespective of actual ownership of any interest in that legal entity.[Note188: Olyana Gordiyenko and Zoryana Matviychuk, 'Ukraine: Upfront Disclosure of Beneficial Ownership Now Required,' Global Compliance News, 27 October 2014, https://globalcompliancenews.com/ukraine-upfront-disclosure-of-beneficial-ownership-now-required/.] Information related to ultimate beneficiaries was published in the United State Register of Legal Entities, Individual Entrepreneurs and Public Organizations of Ukraine (hereinafter the United State Register). Such information included the ultimate beneficiary’s full name, state of citizenship, and passport and tax identification data. The register is publicly accessible. Tax authorities can use such information to apply the concept of beneficial (ultimate) recipient (owner) of income established by the Tax Code of Ukraine and by treaties on effective double tax.[Note189: 'Ukraine Enacts Law Requiring Mandatory Disclosure of Beneficial Owners of Companies,' Global Tax Alert, EY, 28 October 2014, http://www.ey.com/gl/en/services/tax/international-tax/alert--ukraine-enacts-law-requiring-mandatory-disclosure-of-beneficial-owners-of-companies.]

However, there are a number of challenges related to the functioning of the register and verification of its data. In the original metadata, a founder and a beneficial owner of a legal entity were coded as one entry. One address could host hundreds of enterprises. There were smaller fines for late provision of information, or responsibility was eliminated for incorrect provision of information. Currently, no state body holds responsibility for checking the information in the register.[Note190: Oleksiy Orlovsky (International Renaissance Foundation), interview by IRM researcher, 24 July 2017.] Data provided by the United State Register is not collected in a structured format. Registrars input the data as free text within a single field ('founders') of an existing company registration form. As a result, the data is not available to users in machine-readable format nor can the ministry conduct verification and data cleaning in bulk. Thus, data quality is low, which, in turn, limits the data’s use. Currently, only 16 percent of Ukrainian companies submit any information on their beneficial owners. Beneficial ownership data is collected by default at the moment of company registration. However, there is no clear deadline to register. The register does not provide information about when the data was submitted. It requires no confirmation statement, so it is not possible to know if the data remains up to date. There is no online validation of beneficial ownership data at the point of collection.

This commitment aims to improve the mechanism for verifying information on ultimate beneficial owners. The update of the software for the United State Register would improve the quality of data and lead to better search and display features. This would make it possible to identify connections among legal entities and their founders (participants), and ultimate beneficial owners (controllers) of the founder, and heads of legal entities. The improvement of the verification mechanism will help advance public access to information on the true ownership of companies. Verification of beneficial owners ensures that the register contains accurate and reliable information. Such information can be used by responsible public agencies for detecting potential conflicts of interest, for instance in public tenders.[Note191: Victor Nestulia (Transparency International Ukraine), interview by IRM researcher, 27 July 2017.] Due to this commitment’s potential to improve the access to and the usability of beneficial ownership information, anti-corruption groups, such as Transparency International Ukraine, view this commitment as having a transformative potential impact.[Note192: Viktor Nestulia (Transparency International Ukraine), interview by IRM researcher, March 2018.]

Completion

The commitment has made limited progress. The verification mechanism would need to be legally mandated by Parliament, and technical details need to be outlined in a decree by the Cabinet of Ministers.[Note193: Oleksiy Orlovsky (International Renaissance Foundation), interview by IRM researcher, 24 July 2017.]

Before the digital verification mechanism is introduced, the government needs high-quality data that is in an open data format. To fulfill this precondition, in May 2017, the government adopted regulation #339.[Note194: 'The Regulation of the Cabinet of Ministers of Ukraine on 18 May 2017 #339,' Legislation of Ukraine, the Verkhovna Rada of Ukraine: The Official Web-Portal, http://zakon2.rada.gov.ua/laws/show/339-2017-%D0%BF/paran2#n2.] The regulation supported the signing of a memorandum involving the State Agency for E-Governance, Transparency International Ukraine, and Open Ownership. The memorandum authorized the transfer of information on beneficial owners to the Global Beneficial Ownership Registry and publication of this information for the general public in open data format. The memorandum was signed soon after.[Note195: 'The Interim Report on the Realization of the Action Plan for the Implementation of the Open Government Partnership Initiative in 2016–2018,' Civil Society and Authorities: Governmental Website, accessed 13 September 2017, (link no longer accessible as of 25 April 2018) http://civic.kmu.gov.ua/consult_mvc_kmu/uploads/attach-3467-910681586.doc. ] The Ukrainian government has now opened access to information on beneficial owners in an open data format.[Note196: 'Ukraine Has Disclosed Information on Beneficial Owners in Open Data Format,' Transparency International Ukraine, https://ti-ukraine.org/en/news/ukraine-has-disclosed-information-on-the-beneficial-owners-in-the-open-data-format/.] The IRM research confirmed this information.[Note197: 'The Unified State Register of Legal Entities, Individual Entrepreneurs, and Community Groups,' Data.gov.ua, http://data.gov.ua/passport/73cfe78e-89ef-4f06-b3ab-eb5f16aea237.]

However, the transfer of the United State Register has not been completed. The Ministry of Justice has elaborated the draft technical specification of transferring the data on ultimate beneficial owners to the Global Beneficial Ownership Registry. It plans to develop the respective transferring algorithm.[Note198: Olha Saienko (Ministry of Justice of Ukraine), interview by IRM researcher, 4 August 2017.] Until then, ultimate beneficial owners can be found via two registries in an open data format: The United State Register and the Global Beneficial Ownership Registry (Ukrainian data currently unavailable). As of August 2017, the Ministry of Justice was still updating the software that would help distinguish the information on a founder and a beneficial owner of a legal entity in the United State Register.[Note199: Olha Saienko (Ministry of Justice of Ukraine), interview by IRM researcher, 4 August 2017.]

The next step involves an advanced online platform. The expert from Transparency International Ukraine explains that there is a vision, design, and technical description of the platform. The parties now have to code the IT solution for a software-enabled search for ultimate beneficial owners.[Note200: Victor Nestulia (Transparency International Ukraine), interview by IRM researcher, 27 July 2017.]

Next Steps

To fulfill the commitment on time, the government must recruit technical support for the development of the software for verifying information about ultimate beneficial owners. Crucially, the government must provide the Ministry of Justice with assistance in elaborating and introducing the software that will verify information about ultimate beneficial owners.

The IRM researcher recommends including the commitment in the next action plan. Based on the suggestions made by Open Ownership,[Note201: Zosia Sztykowski, Open Ownership, email correspondence with IRM researcher, 15 March 2018.

] the next commitment could include several changes to improve the access to and the usability of register data:

Collect structured data, improve quality of data, and allow for raising concerns.

The Ministry of Justice could adopt a system to collect data in a structured format. In such a system, company information could be submitted electronically, using in-line data entry points that allow for structured (i.e., machine-readable) information. The ministry could also explore generating unique identification numbers to differentiate individuals in the register. In addition, it could provide data about timeliness and access to historical data. These features would prevent corrupt or bankrupted individuals from hiding their past business history by simply dissolving a company and registering a new one. For example, the United Kingdom’s Companies House retains the data on defunct companies, plus historic information on a company’s directorships (though not yet on beneficial owners). This lets users see how a company’s officers have changed over time and the dates a person served.

The Ukraine system would also need to allow users to assess the trustworthiness of data and to raise red flags. For instance, if users spot a company that has not updated its beneficial ownership for several years, they could report it. This would help with verification of the data and enforcing regular updates to the register. Such a mechanism should be included in the register design.

Update regulation to close loopholes and ensure specificity.

The legislative changes and further guidance could be introduced to require a clear test of beneficial ownership for people reporting data to the register. Such guidance should outline all of the circumstances in which an individual would qualify as a beneficial owner and instruct registrants to select one of those circumstances or more. These selections must include specific details in regard to that data point. For instance, beneficial owners who control a company through a shareholding should be required to indicate the percentage of shares they own.

Moreover, once the register is launched, the IRM researcher advises establishing an evaluation to determine how successful it has been and to identify what further investigations and checks might be needed. Possible checks and investigations might include cooperation with other national authorities to gather more precise information about the chain of ownership.


Ukraine's Commitments

  1. Infrastructure data portal

    UA0070, 2018, E-Government

  2. open standard for e-system

    UA0071, 2018, E-Government

  3. Ensuring openness and transparency of selling public assets and property

    UA0072, 2018, E-Government

  4. Transparency in public procurement (Prozorro)

    UA0073, 2018, E-Government

  5. Awarenss raising about social and economic development

    UA0074, 2018, Aid

  6. e-calls for proposals to support CSOs

    UA0075, 2018, Civic Space

  7. Beneficial ownership registry

    UA0076, 2018, Beneficial Ownership

  8. Anti-corruption Training

    UA0077, 2018, Anti-Corruption Institutions

  9. Publishing environmental information

    UA0078, 2018, E-Government

  10. Database of natural resources

    UA0079, 2018, E-Government

  11. Interactive map of mines

    UA0080, 2018, E-Government

  12. Priority electronic services

    UA0081, 2018, Citizenship and Immigration

  13. online platform for executive bodies and CSOs

    UA0082, 2018, Civic Space

  14. EITI online data

    UA0083, 2018, E-Government

  15. electronic resources for education

    UA0084, 2018, E-Government

  16. online verification of education certificates

    UA0085, 2018, E-Government

  17. Free access to national repository for academic texts

    UA0086, 2018, E-Government

  18. Administrative Service Decentrilisation and Improvement

    UA0057, 2016, Capacity Building

  19. United State Portal Extension; Electronic Government Information Services Unification; Modern Tools for Electronic Identification

    UA0058, 2016, Capacity Building

  20. System for Entities Performing Government Functions

    UA0059, 2016, Capacity Building

  21. Free Urban Planning Documentation

    UA0060, 2016, E-Government

  22. Beneficial Ownership Verification System

    UA0061, 2016, Beneficial Ownership

  23. CoST Beneficial Ownership Standards

    UA0062, 2016, E-Government

  24. Transpartent Budget System

    UA0063, 2016,

  25. Starred commitment Open Public Procurement

    UA0064, 2016, Capacity Building

  26. Starred commitment Extractive Industries Transparency Initiative

    UA0065, 2016, Extractive Industries

  27. Environmental Public Monitoring

    UA0066, 2016, Environment and Climate

  28. Community Policing System

    UA0067, 2016, Education

  29. Draft Law on Public Consultations

    UA0068, 2016, Legislation & Regulation

  30. Development of E-democracy.

    UA0069, 2016,

  31. Improve government rules on CSO involvement

    UA0031, 2014, E-Government

  32. Financing of charities

    UA0032, 2014, Civic Space

  33. Not-for-profit status for CSOs

    UA0033, 2014, Civic Space

  34. Public participation law

    UA0034, 2014, E-Government

  35. Establishing Rules on Processing Official Information

    UA0035, 2014, E-Government

  36. Access to Urban Planning Documents

    UA0036, 2014, E-Government

  37. Starred commitment Access to Communist-Era Archives

    UA0037, 2014, Legislation & Regulation

  38. Starred commitment Draft law on open data

    UA0038, 2014, Legislation & Regulation

  39. Starred commitment Supervisory mechanism for the right to information

    UA0039, 2014, Legislation & Regulation

  40. Compliance with EITI

    UA0040, 2014, Extractive Industries

  41. Monitoring of infrastructure projects

    UA0041, 2014, Anti-Corruption Institutions

  42. Adopt regional anti-corruption programmes

    UA0042, 2014, Anti-Corruption Institutions

  43. Corruption risk assessment methodology

    UA0043, 2014, Anti-Corruption Institutions

  44. Starred commitment Asset disclosure on a single web portal

    UA0044, 2014, Asset Disclosure

  45. Law on administrative procedure

    UA0045, 2014, Legislation & Regulation

  46. Law on streamlining payment of administrative fees

    UA0046, 2014, E-Government

  47. Administrative services portal

    UA0047, 2014, E-Government

  48. Draft law on decentralisation of administrative services

    UA0048, 2014, Legislation & Regulation

  49. Draft law on social services

    UA0049, 2014, E-Government

  50. e-Government laws

    UA0050, 2014, E-Government

  51. Electronic readiness assessment

    UA0051, 2014, E-Government

  52. Government regulations on open data

    UA0052, 2014, E-Government

  53. Electronic democracy development roadmap

    UA0053, 2014, E-Government

  54. Open budget initiatives

    UA0054, 2014, E-Government

  55. e-Petitions

    UA0055, 2014, E-Government

  56. e-Governance training for local government

    UA0056, 2014, Capacity Building

  57. Laws on public participation

    UA0001, 2012, Civic Space

  58. Amendments to the law on community associations

    UA0002, 2012, Civic Space

  59. Amendments to resolutions on collaboration with civil society

    UA0003, 2012, E-Government

  60. Training for public servants on consultations

    UA0004, 2012, Capacity Building

  61. Harmonisation of access to information laws

    UA0005, 2012, E-Government

  62. By-laws on access to information

    UA0006, 2012, Legislation & Regulation

  63. Guidelines for classifying data

    UA0007, 2012, Public Participation

  64. Public information recording systems

    UA0008, 2012, Records Management

  65. Law on public broadcasting

    UA0009, 2012, Civic Space

  66. Public access to information in state registers

    UA0010, 2012, E-Government

  67. Starred commitment Extractive Industries Transparency Initiative

    UA0011, 2012, E-Government

  68. Law for controlling declarations of public servants

    UA0012, 2012, Asset Disclosure

  69. Public declarations of officials’ assets

    UA0013, 2012, Asset Disclosure

  70. Guidelines on conflicts of interest

    UA0014, 2012, Conflicts of Interest

  71. Updated anti-corruption laws

    UA0015, 2012, E-Government

  72. Regional anti-corruption programmes

    UA0016, 2012, E-Government

  73. Law on competitive e-government procurement

    UA0017, 2012, E-Government

  74. Starred commitment Administrative services reforms

    UA0018, 2012, E-Government

  75. Electronic access to administrative services

    UA0019, 2012, E-Government

  76. Governmental web portal of administrative services

    UA0020, 2012, E-Government

  77. Administrative services in a digital format

    UA0021, 2012,

  78. Starred commitment Regional administrative service centres

    UA0022, 2012, Public Service Delivery

  79. Programme for promotion of e-government

    UA0023, 2012, E-Government

  80. Electronic collaboration between executive agencies

    UA0024, 2012,

  81. Web-based petitions system

    UA0025, 2012,

  82. One stop shop for e-Reporting

    UA0026, 2012, E-Government

  83. E-region pilot project

    UA0027, 2012, E-Government

  84. Network of e-government practitioners

    UA0028, 2012, Public Participation

  85. Public libraries as bridges towards e-governance

    UA0029, 2012, E-Government

  86. E-government knowledge management portal

    UA0030, 2012,