Improving the Quality of Beneficial Ownership Data (CZ0042)

Brief Description of the Commitment

To analyse the effectiveness and possible shortcomings of the functioning of the beneficial ownership register and to propose possible changes and measures to improve the quality of data in the beneficial ownership register.

Problem Definition

1. What problem does the commitment aim to address? ● The Register of Beneficial Owners (RBO) is intended to be a reliable and up-to-date source of information, a service for a wide range of users. However, in view of the volume of data recorded, the records may in many cases contain inaccurate and outdated data or may be missing altogether. ● The potential high error rate and possible unreliability of the data in the register reduce its usability. Therefore, its potential to streamline several processes in which the beneficial owner is examined (awarding grants, conclusion of public contracts, application of international sanctions, client control under the AML Act, etc.) is not fulfilled. ● It is not clear to what extent the records are reliable. According to the Ministry of Justice, approximately 10% of entities failed to comply with their registration obligation (as of November 2022). Data from non-governmental organizations point to, for example, the error rate in the registrations of entities with ties to Russia. However, a comprehensive assessment of the quality and up-to-dateness of the data is lacking.

2. What are the causes of the problem? ● The Register of Beneficial Owners is a relatively new information system and the beneficial owner's institute has only been used to a greater extent (outside the AML area) in recent years. The reasons for potentially poor-quality data in the register and its unreliability may be multiple. It should be added that a comprehensive quantification of the problem, i.e., an assessment of the degree to which the records are unreliable or reliable, has not yet been carried out. ● The causes of the problem and their severity have not yet been clearly identified and analysed. However, it is tentatively considered that, when examining the main causes, attention should be paid to: ○ possible inadequate analytical work with the data in the register, lack of connection with other state administration systems or inadequate use of information technology capabilities in the management of the register (use of automated functions, calls, checks, etc.), ○ insufficient or inconsistent verification of information (including ownership structures) submitted for registration, ○ limited knowledge and tools of persons making entries and persons addressing discrepancies in the records, respectively the complexity of the issue of determining the real owners, which requires considerable erudition, ○ setting-up a system of sanctions with regard to efficiency, proportionality, administrative burden, and dissuasive effects, ○ rate of inactive or non-contact registering persons.

Commitment Description

1. What has been done so far to solve the problem? ● The beneficial ownership registration in its current form was introduced on 1 June 2021 and its functioning and use have not yet been evaluated. The information system underwent partial changes following the amendment of the Act on the Register of Beneficial Owners (amending the definition of beneficial owner). Training of senior court officials and notaries in matters of determining beneficial ownership is underway. The Ministry of Justice, in cooperation with the Financial Analytical Office, has prepared and published an extensive information material, guide to registering beneficial owners. The Government approved in their Programme Statement: ● We will enforce rules for transparent evidence of the beneficial ownership of companies that receive subsidies, investment incentives, and obtain public contracts. ● We are going to pass more laws to enhance transparency in public administration and prevent and punish corruption. We will also take other measures for this purpose, namely by establishing a single public register of grants and linking the data managed there with the beneficial ownership register, so that information on the recipients of public funds, including their beneficial owners, is freely available to the public in a transparent and remotely accessible form.

2. What solution do you propose? ● First, it is necessary to confirm the existence of foreseeable problems and identify their extent. Subsequently, it is necessary to analyse the individual possible causes of the described problems. In the light of the identified causes, possible solutions, whether legislative or non- legislative, should be analysed and proposed. The analysis should address the evaluation of the benefits and options, in particular: ○ changes to the sanctions system, ○ changes in the handling of irregularities (unification of procedures, increased expertise, charging for the change in registration by the court in irregularity proceedings) ○ the introduction of automated mechanisms in the information system (with focus on reducing the administrative burden) ○ changes in the evaluation of proposals and registration.

3. What results do we want to achieve by implementing this commitment? ● the most reliable, accurate and up-to-date information about beneficial owners in RBO.

Analysis of the commitment

1. How will the commitment promote transparency? The higher quality of data in the register significantly enhances transparency and confidence in legal entities and legal arrangements.

2. How will the commitment help foster accountability? Fundamentally. With a functional RBO, contracting authorities and grant providers will work with credible data. A higher quality of the data in the register will make the processes of public contracting authorities and granting bodies more efficient and stronger.

3. How will this commitment improve citizens' participation in the development, implementation, and monitoring of solutions adopted? N/A

Commitment Planning (Milestones | Foreseen outputs | Estimated date of completion)

Report on the state of progress of the analysis work and, where appropriate, summary of findings to date | Progress report on the completion of the milestone | 1 June 2023

Analytical material to improve the quality of data in the register of beneficial owners (including proposals for possible measures) | Analytical material | 31 August 2023

Action Plan Review

Commitment 8. Improving the quality of beneficial ownership records data