Fiscal, Financial and Corporate Transparency (CA0076)

Issue to be addressed Fiscal, financial and corporate transparency is an open government policy area that requires time and persistence. While progress has been made through various past commitments, open contracting data, beneficial ownership transparency, and fiscal transparency are key components of an open government. This is especially true when it comes to managing the COVID-19 response and recovery programs, managing public funds and countering the risks of corruption. Civil society also raised the issue of the accountability of our democratic institutions becoming more privatized through technology and software, where non-state parties are increasingly dictating how certain technologies will affect citizens.

Problem statement People of Canada raised the need for increased transparency and accountability around the management of public funds during the COVID-19 pandemic and the need to incentivize the private sector to be more transparent about their ultimate owners.

Commitment The Government of Canada commits to take the first steps toward the implementation of a publicly accessible beneficial ownership registry, including engaging partners to support coordinated implementation and a harmonized approach, and monitor the strategic management of public procurement of technology and software. Overall, it will help improve corporate and governmental transparency and accountability.

Milestones

3.1 Pursuant to the Budget 2022 commitment the Government of Canada will implement a public and searchable beneficial ownership registry by the end of 2023. The registry will cover federally regulated corporations and will be scalable to allow access to the beneficial ownership data held by provinces and territories that agree to participate in a national registry (Deadline: December 31, 2023, Dept: ISED)

- 3.1.1 Summit for Democracy: The Government’s approach to beneficial ownership disclosures is informed by stakeholders’ views on specifications for a made-in-Canada solution

- 3.1.2 Federal legislative provisions necessary to implement the national beneficial ownership registry are in place in a timely manner, to support launch of the registry

- 3.1.3 The registry is accessible to the public by the end of 2023

3.2 Engage federal, provincial and territorial partners to support coordinated implementation and a harmonized approach to ultimate beneficial ownership (Deadline: December 31, 2023, Dept: ISED)

- 3.2.1 Summit for Democracy: Regular consultations are held with federal, provincial and territorial partners and counterparts to discuss a harmonized made-in-Canada solution that is scalable and can facilitate participation by the provinces and territories

- 3.2.2 Canada consults with international counterparts to acquire lessons learned and best practices for implementing a publicly accessible beneficial ownership registry

3.3 Monitor the strategic management of technology and software procurement within the Government of Canada (Deadline: June 2024, Dept. TBS)

- 3.3.1 Based on data availability, release the aggregate details of applications used by the Government of Canada

- 3.3.2 Work toward developing policy instruments for the ethical use of information technology in the Government of Canada

Action Plan Review

Commitment 3. Fiscal, financial and corporate transparency

Potential for results: SubstantialCommitment 3: Fiscal, financial and corporate transparency

Lead departments: Innovation, Science and Economic Development (ISED); Department of Finance Canada (FIN); Treasury Board of Canada Secretariat (TBS); Multistakeholder Forum

For a complete description of the commitment, see Theme 3 in: https://www.opengovpartnership.org/documents/canada-action-plan-2022-2024/

Context and objectives:

The Basel AML Index [1] which measures the risk of money laundering and terrorist financing suggests that potential for such activity has fluctuated modestly in Canada between 2016 and 2022. In 2016, the Basel AML Index ranked Canada 105^th out of 149 countries, whereas in 2022 the country was ranked 101 among 128 countries. The real estate market in the province of British Columbia has long served as a hot spot for the laundering of money through the Canadian economy. [2] The U.S. Department of State’s 2022 International Narcotics Control Strategy Report includes Canada among the 80 countries it identifies as Major Money Laundering Jurisdictions in 2021. [3]

Transparency International Canada who has long championed the benefits of establishing a national public registry of beneficial ownership has defined Canada as “one of the world’s most opaque jurisdictions when it comes to ownership of private companies and trusts” and states that “the extent and impact of foreign investment remains unknown since very little data is collected on property owners.” [4] It also merits noting that Canada’s ranking on Transparency International’s Corruption Perceptions Index (CPI) [5] has fallen during the past six years. [6] Despite being ranked 14^th (along with Estonia, Iceland, and Uruguay) among 180 countries, its CPI score has dropped from 82 in 2016 to 74 in 2022.

Commitment 3 builds on Commitment 12 from Canada’s third NAP [7] as well as Commitment 3 from its fourth National Action Plan. [8] It parallels broader international efforts [9] aimed at tackling money laundering, corruption, terrorist financing, and tax evasion by requiring federally incorporated private companies (i.e., federal corporations) [10] to retain and provide timely access to beneficial ownership information. [11] The strengthening of corporate law pertaining to beneficial-ownership requires coordination between the federal government, the provinces, and the territories, each of which have a role in regulating corporations. In June 2019, legislative amendments to the Canada Business Corporations Act (CBCA) that apply to federally incorporated private companies came into effect. With these amendments, federal corporations are now required to actively collect and maintain information about registered and beneficial shareholders having “significant control” [12] over the corporation. [13]

In both the Canada Design Report 2018-2020 and the Canada Transitional Results Report 2018-2020, Commitment 3 was assessed as not relevant to the OGP value of access to information because it was unclear that new information would be publically available. However, in its 2022 Federal Budget, the Government of Canada committed itself to:

accelerating by two years its commitment to amend the Canada Business Corporations Act to implement a public and searchable beneficial ownership registry, which will now be accessible before the end of 2023. The registry will cover corporations governed under the aforementioned Act and will be scalable to allow access to the beneficial ownership data held by provinces and territories that agree to participate in a national registry. [14]

In April 2022, an initial set of legislative amendments to the CBCA, was put forward in Bill C-19, Budget Implementation Act, 2022, No. 1, which received Royal Assent on June 23, 2022. [15] A second series of amendments to the CBCA along with additional amendments to the Proceeds of Crime (Money Laundering) & Terrorist Financing Act, [16] the Income Tax Act, [17] and the Access to Information Act, [18] were tabled in March 2023. [19] Bill C-42, An Act to amend the Canadian Business Corporations Act and to make consequential and related amendments to other Acts received Royal Assent on November 2, 2023. [20] Together, these changes require the Government of Canada to implement a public and searchable registry of information about beneficial owners of federal corporations.

The open government lens for Commitment 3 is transparency insofar as the implementation of Milestone 3.1, along with the necessary intergovernmental dialaogue specified in 3.2, serve to augment fiscal and corporate transparency for federally incorporated private companies.

Potential for results: Substantial

The potential results of Commitment 3 are substantial in terms of changing practices and the relationship between citizens and state. However, the realization of this potential hinges upon how effective the new legislation and its enforcement will be in balancing longstanding tensions between the benefits of full public access on the one hand, and concerns about the privacy, security, and investment implications of such access on the other hand. [21]

Implementing a publicly accessible beneficial ownership registry holds the promise of helping to tackle money laundering and increasing the financial transparency of federally incorporated private companies in Canada. However, in the absence of benchmarks upon which to assess change, what remains unclear, and likely will remain so in the near-to-medium term, is whether the efforts expended in creating a publicly accessible beneficial ownership registry will lead to concrete pan-Canadian improvements in corporate financial transparency. To this end, monitoring and evaluation will have an important role to play in the coming years to ensure delivery of the anticipated benefits.

Opportunities, challenges, and recommendations during implementation

The element of Commitment 3 most relevant to OGP values (Milestone 3.1) has already been largely implemented: i.e., the tabling of legislation to create a beneficial ownership registry. Milestone 3.2 deals foremost with matters of inter- and intra-governmental dialogue. Milestone 3.3 focuses on releasing—when available—“aggregate details of applications used by the Government of Canada” and the development of “policy instruments for the ethical use of information technology in the Government of Canada.” [22] As written, its connection to matters of fiscal, financial, and corporate transpracy is ambiguous.

Commitment 3 marks the end result of some seven years and two full OGP program cycles of effort. The government and civil society representatives with whom the IRM Researcher met in preparing this report all recognized the significance of the progress made on beneficial ownership in Canada. Their views diverged, however, regarding the operationalization of the link between beneficial ownership and transparency. Whereas the government representatives tended to view transparency as flowing from the actions taken to date, civil society representatives maintained there was a need for continued vigilance and more work on this front. In the words of one former civil society member of the MSF, “This is huge but it ain’t done yet!” [23]

Going forward, crucial considerations in supporting the delivery of anticipated benefits include: