Our developers have successfully integrated the new beneficial ownership data in the Companies House API from the Developer hub into Arachnys. Whilst this required additional efforts to attain full-integration, the approach paid off as the data is updated live and in real-time.
Why is real-time integration important? Risk and compliance need to move quickly on this: the legislation stipulates that nominal shareholders must now be listed on annual returns from 30th June 2016. As Companies House are adding to the new registry every day, our database is populated dynamically. Integration and a commitment to open APIs removes the need for any intermediary processes, which would impede availability. The new registry brings advantages to Arachnys D3 & Investigator in using publicly available data to search for multiple entities rather than one-by-one, going far beyond the beta service offered by Companies House itself. D3 and Investigator’s offering delivers the ability to enrich the information available on beneficial owners, follow leads into other jurisdictions around the world and matches them to workflows.
The starting pistol has been fired
The UK government has recently published the first open register of beneficial ownership. The dataset is the first of its kind to be published by any G20 country. As the Department of Business, Innovation and Skills’ own whitepaper asserts, it will serve as just one of a string of institutional initiatives to prevent cross-border financial crime. Corruption adds an estimated 10% to the costs of global business, and, according to the OECD, the losses made account for 5% of global GDP.
After the Small Business, Enterprise and Employment Act, which received Royal Assent in March 2015 and came into force in April 6th 2016, all UK companies, including LLPs, CICs and SEs, must make a statement of Persons with Significant Control (PSC). These are then divided into three types, requiring three different classes from the Companies House data: an individual, a Relevant Legal Entity (RLE) (Corporate), or a legal person (a government body or Corporate Sole).
How can the API help track beneficial ownership?
There are many reasons and definitions by which an entity could exert significant control over a company, since the definition has been extended to cover ‘natural persons on whose behalf transactions are being conducted, even where that person does not have legal ownership or control over the customer’. Variously, the means of control could involve:
Ownership of shares - such as with bearer shares, formal and informal nominee shareholders (family members or associates)
Trusts which separate legal ownership and beneficial ownership of related assets
Shell companies incorporated that have no significant operations or assets
Voting and the use of intermediaries in forming legal ownership, directorial appointment, or other methods.
Helpfully, Companies House have published a full list of the included PSCs nature of control, avoiding excuses or exemption. In practice, the greatest outcome will be publicising the RLEs who own more than 25% of the equity, whether directly or indirectly.
Example of a company showing beneficial ownership in our database, Guinness Ltd.
Constantly improving ownership data, updated in real-time
Whilst many organisations have declared whether an individual or known entity is a beneficial owner, in 8.8% of cases a beneficial owner exists and has not yet been identified. In a very slim number of cases (0.2%), beneficial owners were contacted but didn’t respond. In most individual cases these problems don’t necessarily indicate serious fraud; instead they come from misunderstandings of which data to disclose or simple oversight (Open Corporates immediately identified a limited company controlled by an identical plc, which should be declared under the regulations).
This demonstrates the clear advantages of publishing this data in real-time, rather than batch uploading or one-time publication: users of the API such as Arachnys are already contributing and improving the dataset with their implementations, right off the bat.
Equipping compliance officers and analysts with these capabilities is urgent
Since Beneficial Ownership data surveys the ultimate recipients of a financial transaction, compliance officers will benefit practically from these details being housed within our system by mapping complex ownership structures. For countries without integrated APIs such as that of the UK, tracking beneficial ownership is an extraordinarily lengthy, multi-step procedure, as this LexisNexis paper highlights. Eric Sohn, Director of Business Product at Dow Jones Risk & Compliance warns that manually searching for ownership information is a futile exercise without a supported managed service:
“[manually] researching [this] information in online records often leads to dead ends”...”company locations listed online turn out to be out of date”. This directly leads to concessions made in resource effort, which can prove fatal: “You might have 2 or 3 times as many 5% or greater owners as you have 10% or greater owners. And owners with smaller stakes have less control and influence, further reducing the impetus to cover them in research.”
Necessary concessions made in manual forms of ownership assessment severely reduce the capabilities of a compliance officer to mitigate risk - often reputational risk, but also the legal risk of dealing with an untrustworthy organisation. Banks, in particular, risk processing transactions which violate regulations such as the FCPA, the UK Bribery Act; even Section 311 of the US Patriot Act.
A regulatory or technological achievement?
The most important outcome is not only the creation of the registry, or necessarily the data itself, but that it has been integrated into the Companies House Open API, which is embedded into Arachnys D3 and Investigator. Whilst Companies House do publish the data in the beta version of their own system, accessing beneficial ownership data is essential when producing KYC or AML reports, and combining it with other sources (such as adverse media, watchlists, corporate watchlists and court records) into a custom workflow ensures that the data is auditable.
There are continuous improvements coming via the Companies House API, too: it will soon be possible to search via the beneficial owner’s name, though timescales are yet to be confirmed.
We'll be contributing to the Companies House developer forum over the coming months to help iron out the wrinkles of this exceptional opportunity. Companies House will take just under a year, publishing at 3k-4k results per day in order to fully publish the entire set of filing for UK companies, but we look forward to the prospect of other countries following suit considering the recent changes to the Fourth EU Anti-Money Laundering Directive. Previously, we’ve elaborated on the challenges of operating without this kind of access in tracking the Ultimate Beneficial Owners (UBOs) in Russia, as well as collaborating with the ICIJ on the Panama Papers. We’re looking forward to the possibilities of including more registries, as six extra countries have joined the list of nations creating lists of beneficial ownership.