Beneficial Ownership Transparency in Public Procurement (MK0144)

Which public problem is addressed by the commitment? On 27 January 2021, the Republic of North Macedonia established the Registry of Beneficial Ownership in order to increase transparency of ownership structures among legal entities in the country and to comply with international and EU standards for combating money laundering and financing terrorism. All legal entities were given a deadline, 27 April 2021, for free-of-charge enlistment of data on beneficial ownership. As part of its enhanced accountability and responsibility measures for crisis relief awarded to individual countries to deal with the consequences of COVID-19 pandemic, IMF requires the countries that are awarded relief funds (RNM included) to implement safeguard mechanisms, including public disclosure of beneficial ownership in companies that are awarded tenders by the state. Although the requirement for information disclosure came as a result of relief efforts related to the coronavirus crisis and increased corruption risks, it becomes standard in public procurement in many countries across the world. To present, establishment of such mechanism in RNM was not possible due to nonexistence of the Registry of Beneficial Ownership. On the other hand, public procurementsin the country are continuously linked to widespread corruption and wrongdoings, suspicion of previous arrangements among companies and creation of artificial competition, which cannot guarantee the best value for the money spent. U.S. State Department’s last report on investment climate in the Republic of North Macedonia cites corruption (and nepotism) in public procurements as problem for potential investors. Transparency of data from this registry allows backtracking of actual ownership, control and ultimate beneficiaries in all legal entities. This helps the fight against corruption, reduces investment risks and improves good governance.

Main objective of the commitment The commitment implies public disclosure of information on beneficial ownership in companies that are awarded public procurement contracts in the Electronic Public Procurement System, i.e. under the section designated for notifications on contracts signed and publication of procurement contracts. This mechanism will additionally enhance anticorruption efforts, i.e. it will prevent public money ending up in private pockets of public officials; will detect and prevent unlawful arrangements among companies in public procurements and will prevent illusionary competition in tender procedures among companies with same beneficial ownership. On the other hand, it will allow the public to monitor costeffectiveness in public spending, detect the so-called red alerts for corruption, and will also support accountability in public spending.

How will the commitment contribute to addressing the public problem? Transparency in public procurements is considered an essential tool for reducing corruption and enabling fair and competitive bidding among companies. Transparency means publicly available information about the overall cycle of public procurement in order to ensure accountability. This information includes those on beneficial ownership in companies that are awarded state tenders. In that, information referred above does not concern only company managers and responsible persons, but beneficial owners, i.e. those who have final benefit from and control over the company in question. To present, such information remained unknown or unavailable not only for companies that are awarded public tenders, but for all companies in the country. Creation of the Registry of Beneficial Ownership and public disclosure of real company owners would allow this information to be known also in respect to economic operators that are awarded tenders, i.e. public procurement contracts. Implementation of this commitment will have a primarily preventive effect in respect to corruption and will allow detection and prevention of corruptive deals in public procurements. Although persons responsible for implementation of public procurements are obliged to deposit statements on conflict of interestsin procurement procedures or to recuse themselves from decision-making, this is done only in relation to already known company persons (manager, owner, etc.). Beneficial owners were not covered by this preventive measure, as they were unknown in the first place. This measure will prevent companies with conflict of interests to participate in tender procedures, and in the cases where they submit bids it would be easier to detect existence of such conflicts and to prevent corruptive actions. The commitment is expected to have positive effect in respect to increased competition, i.e. it is expected to facilitate entry of other companies in public procurements, which will inevitably lead to better quality of procurements and better public services. At the same time, the measure supports accountability and good governance of institutions due to public disclosure of information about beneficial ownership of companies that are awarded tenders.

How is the commitment relevant to OGP values? COMMITMENT IS IMPORTANT FOR TRANSPARENCY because it provides access to completely new information, improves quality of information on public procurements and completes the set of information that could allow detection and prevention of corruption, and improves public availability of information, making this piece of information public and easily available to citizens, free of charge. COMMITMENT IS IMPORTANT FOR CIVIC PARTICIPATION because it creates and improves opportunities and conditions for public participation and influence in decision-making, whereby civil society organizations and investigative journalists are able to detect and report corruption. COMMITMENT IS IMPORTANT FOR PUBLIC ACCOUNTABILITY because it creates and improves accountability rules, regulations and mechanisms for public officials.

Additional information Implementation of this commitment does not require additional budget funds because it concerns automated retrieval of information kept by the Central Register of RNM and their publication on the government’s website for public procurements (EPPS), which already allows such technical function. Link to UN Sustainable Development Goals SDG16: Peace, Justice and Strong Institutions 15 SDG target 16.10: Ensure public access to information and protect fundamental freedoms, in accordance with national legislation and international agreements SDG target 16.5: Substantially reduce corruption and bribery in all their forms Measures anticipated under this commitment contribute to improved access to public information through efficient implementation of laws and better information dissemination to citizens.

No. Milestone Indicators Activity holder Start date End date 1.1.1 Reach agreement on the criteria for discourse of beneficial ownership in public procurement contracts, method of commitment implementation and necessary legal and technical preconditions Agreement is reached on the criteria (value threshold) for public procurement contracts subject to disclosure of beneficial ownership (yes/no) Agreement is reached on specific technical solution for automated retrieval of information on beneficial ownership from the Central Registry into EPPS (yes/no) MoF, CRRNM и BPP October 2021 August 2022 1.1.2 Publish names of beneficial ownership in legal entities that are awarded public procurement contracts Number of contracts awarded according to the criteria agreed (contract value threshold) which are subject to disclosure of beneficial ownership BPP October 2022 continuous

Action Plan Review

Commitment 1.1: Public disclosure of beneficial ownership in companies that are awarded public procurement contracts

● Verifiable: Yes

● Does it have an open government lens? Yes

● This commitment has been clustered as: Public procurement transparency (Commitments 1.1, 1.3, and 2.1 of the action plan)

● Potential for results: Modest

Commitment cluster 1: Public procurement transparency

(Public Procurement Bureau, Central Register of the Republic of North Macedonia, General Secretariat at the Government of the Republic of North Macedonia, Center for Civil Communications, Institute for Democracy “Societas Civilis” - Skopje, Metamorphosis Foundation for Internet and Society)

For a complete description of the commitments included in this cluster, see Commitments 1.1, 1.3, and 2.1 in the action plan here.

Context and objectives:

The commitments in this cluster aim to enhance the transparency of North Macedonia’s public procurement system. Under Commitment 1.1, the Public Procurement Bureau (PPB) will publish information on the beneficial owners of companies that are awarded state tenders to the government’s Electronic Public Procurement System (EPPS). ^[1] Although the Central Register of the Republic of North Macedonia (CRRNM) created North Macedonia’s beneficial ownership register in January 2021, the information is accessible only upon request and payment of a fee. Commitment 1.1 will make part of this information publicly available and free of charge on the EPPS, specifically the beneficial owners of legal entities that are awarded public procurement contracts over 1,000 EUR (the legal threshold). A working group of the CRRNM, the PPB and the Center for Civil Communications will be responsible for preparing the criteria for the data that the PPB will publish. Users will be able to download the information as open data using keyword searches. ^[2]

Commitment 1.3 continues the implementation of the Law on Public Procurement. Contracting authorities will create separate tabs on their websites to publish all information and documents related to their public procurement, including links to procurement notices on the EPPS. Finally, for Commitment 2.1, the PPB will provide data on public procurement in open format, specifically as comma separated value export (CSV). According to the Institute for Democracy ‘Societas Civilis’ (IDSC), the procurement data will be modelled after the open finance portal from the previous action plan (2018–2020). [3]

Commitments 1.1. and 2.1 were proposed by civil society, though the PPB was involved in their design from the start. ^[4] Commitment 1.3 was proposed by civil society, and it mostly continues from a commitment in the previous action. ^[5] There were no significant objections during the co-creation of these commitments. While there was a discussion between the PPB and CSOs for Commitment 2.1 over what would be considered as open data format, stakeholders reached an agreement on adopting the CSV format. ^[6] The idea for public procurement as open data was discussed during previous action plans, but was finally included in this fifth action plan as it fit the current work of the PPB. This cluster's commitments support the OGP value of transparency and have activities that are verifiable.

Potential for results: Modest

North Macedonia faces challenges with corruption in public procurement, which can negatively affect foreign investment. ^[7] These commitments could strengthen public scrutiny of government spending so that corruption can be detected more easily. Though each is a positive step forward, their potential is modest due to design limitations and, in the case of Commitment 2.1, pending decisions about the scope of data to be provided in open format.

Presently, it is unclear who the real owners are of companies that are awarded public procurement contracts. As the beneficial ownership register is currently available for a fee, Commitment 1.1 will make some of its information more accessible. By having access to the beneficial owners of companies that win public procurement contracts, users can better detect conflicts of interest in the allocation of state funds. A civil society stakeholder also noted that being able to access data in machine-readable format will be a major shift in accessibility. ^[8] At present, the concluded contracts are largely available as screenshots in PDF files and there is no possibility to search for information within the files. This means that users must identify information from the documents manually and then transpose it into a machine-readable document, such as an Excel file, if they wish to analyse more than one contract at a time. The change will reduce the time that users need to download, code, and sort the data they need when conducting advanced analysis and evaluating integrity of public procurements.

However, this commitment is likely to only have modest results toward “prevent[ing] illusionary competition in tender procedures among companies with same beneficial ownership”. ^[9] Only the beneficial owners of companies that have won public contracts will be disclosed, but not those of companies that unsuccessfully bid. Without information on all bidders, users may find it difficult to detect collusion between companies who make previous arrangements to control who wins a contract. [10] In North Macedonia, public procurement contracts are evaluated based on the most economically advantageous offer and the best quality offer (Law on Public Procurement), so it is important to have an overview of all offers made and how the economic and quality criteria were concurrently considered for awarding contracts.

Regarding Commitment 1.3, public institutions have a legal obligation (under the Law on Public Procurement) to provide all information and documents on their procurement in one place. The information that public institutions will publish on their procurement tabs is already available on the EPPS. There are no sanctions for institutions that do not publish their procurement information on their webpages, nor is there a deadline by which institutions must create their procurement tabs. ^[11] In practice, larger institutions already publish procurement information on their websites, but there are over 1,300 institutions involved in public procurement in North Macedonia and some do not have their own webpages. ^[12] Also, the milestones have a target for only 50% of public institutions to have procurement tabs. Thus, this commitment on its own is unlikely to see major changes to transparency. However, in combination with the other two commitments, it can further enhance the searchability of procurement information, as users will be able to find procurement information directly on the websites of institutions, rather than having to cross check with the EPPS.

Public procurement data on the EPPS is currently not available in open format, limiting its usability for stakeholders. Under Commitment 2.1, the PPB will publish its procurement data in CSV format, in line with the Open Contracting Partnership’s Open Contracting Data Standard (OCDS). ^[13] Users will be able to browse and export data from the past three years and the PPB will create an archive going back ten years. If a user searches for all public procurements for the year 2020, for example, they will be able to download the data in CSV format, which can then be used for more advanced analysis. This commitment will also reduce the time that users need to sort through the data they need. Civil society stakeholders plan to use the data to establish an early warning system to flag suspicious trends in public procurement. Currently, this data is usually analysed in biannual intervals, but similar analysis can now be done more frequently as the data will be more easily available. ^[14] Civil society noted that it would have been better for the data to be updated automatically, as opposed to having to be updated manually. Nonetheless, the change from previously not having any information in open data is significant.

Discussions continue between CSOs (the IDSC and the Center for Civil Communications (CCC)) and the PPB about which procurement data will be published in open format. Currently available data covers only the procurement body, who won the contract, and the type of procedure. The IDSC and the CCC have additional parameters they want the PPB to include as open data and there is still a possibility for the PPB to export all its data in open format for this commitment. This would include around 20 variables that will be highly useful for analysing procurement trends, such as contract dates, information on other bidders, additional information on the procedure, and how it was implemented. If this commitment leads to all variables being published in open format, it will facilitate more serious and more in-depth analysis.

Opportunities, challenges, and recommendations during implementation

The PPB currently does not anticipate any technical difficulties for implementing Commitments 1.1 and 2.1, but a potential risk is coordinating all involved parties. ^[15] For Commitment 1.3, the largest obstacle is that not all institutions have webpages where they can publish their procurement information. Nonetheless as stated, the information is already available on the EPPS. For Commitment 2.1, as explained, the greatest limitation is the uncertainty over which data will be published in open format. However, the PPB will reportedly soon provide the IDSC and CCC with more clarity on this issue.

The IRM offers the following recommendations regarding beneficial ownership transparency:

● Expand disclosure to include all bidding companies’ beneficial owners. Commitment 1.1 is limited to the beneficial owners of companies that win public procurement bids, which obscures the full scope of public procurement calls. In future action plans, the PPB could expand disclosure to cover all companies who bid on procurement calls, and not only those awarded public contracts. Such disclosure may be useful for tackling money laundering and collusive practices.

● Publish more information from the beneficial ownership register on the EPPS beyond the names of beneficial owners. Milestone 1.1.2 calls for publishing the names of beneficial ownership in legal entities that are awarded public procurement contracts. While this is a good starting point, the PPB could publish more information, including beneficial owner’s birth month and year, their country of residence and nationality, and the nature and extent of their beneficial interest. Where publishing the more beneficial ownership data on the EPPS not possible due to privacy concerns, the PPB could link the EPPS directly to the beneficial ownership register so that users can find out more about the beneficial owner. Open Ownership has guidance on balancing privacy concerns with transparency. [16] The PPB could also engage end users of the data to establish which critical data points would be useful to publish in the EPPS.

● Strengthen existing verification process by introducing mechanisms for reporting inaccurate data on the beneficial ownership register. The Law for Preventing Money Laundering and Terrorist Financing obligates the CRNMM to verify the accuracy of the information that companies submit to the register. The CRRNM could further support the existing verification process by introducing new mechanisms for users (civil society and journalists) to report potential anomalies in the data in the register. This could allow for additional external oversight from the public and civil society without changing the existing verification process. The CRRNM could also work with the State Commission for the Prevention of Corruption and other relevant bodies when verifying beneficial ownership information.

The IRM offers the following recommendations regarding public procurement transparency:

● Ensure all data on current contracts is published in open format and available in a timely manner. To ensure maximum transparency, the PPB should open all its data in open format on current procurement contracts, with a focus on contracts for which parties can be still held responsible. It is important to ensure that the information is published in a timely manner and updated in real time (as opposed to every six months). The PPB could consider developing automatic systems for updating the data.

● Work directly with the Open Contracting Partnership (OCP) to align the EPPS with the Open Contracting Data Standard (OCDS). To ensure that the EPPS is aligned with international best practices, the PPB could explore working directly with OCP to fully adopt the OCDS [17] and implement procurement process oversight. For example, in Lithuania’s 2021–2023 action plan, their Public Procurement Office is working directly with OCP to open all its historical procurement data in OCDS. [18] The PPB could also consult OCP’s resources on adopting the OCDS. OCP has a list of indicators aligned to the end use for contracting data [19] and guidance on how to link indicators to data in OCDS format. [20] OCP also has a quick-start guide for open contracting [21] and strategic recommendations for regulating open contracting. [22]

● Train stakeholders on how to use procurement data for impact. The success of Commitment 2.1 largely depends on stakeholders’ usage of the newly opened data. Public usage of the data is critical, as the PPB may not have the capacity to monitor all procurement and ensure that public funds are spent efficiently and fairly. The PPB could train stakeholders on using procurement data. For example, in its 2016–2018 action plan, the Republic of Moldova trained small and medium enterprises, civil society, and software developers on using their new e-procurement system, MTender. [23]

● Include citizen feedback in the EPPS. The PPB could establish a feedback mechanism and opportunities for the public to act on the procurement data, such as filing complaints, reporting irregularities, or suggesting improvements. It is also important for the PPB to respond to and act on the feedback received. As an example, Ukraine launched DoZorro during its 2016–2018 action plan, which enables citizens to submit feedback, including alerts of irregularities and violations, on the ProZorro e-procurement system. [24] The PPB could publish the questions and replies on the same webpage so users can reference previously published answers.