Beneficial Ownership Verification System (UA0061)

• Ukraine's National Beneficial Ownership Register Goes Global (May 29, 2019)

Event: Improvement of the mechanism for verifying information about ultimate beneficial owners.; Implementation timeframe: 2017-2018; Entities responsible: Ministry of Justice; Entities responsible: Transparency International Ukraine non-governmental organisation.; Partners: 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.

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: August 2018

Commitment Aim:

This commitment aims to improve the mechanism for verifying information about ultimate beneficial owners of companies. More specifically, this commitment would update the software for the Unified State Register of Legal Entities, Individual Entrepreneurs and Community Groups (hereinafter the United State Register). Doing so would enable better search functions and display the relations among legal entities and their founders (participants), ultimate beneficial owners (controllers)—including ultimate beneficial owners (controllers) of the founder—and heads of legal entities.

Status

Midterm: Limited

On 20 September 2017 the Ministry of Justice issued decree #2941/5. The decree expanded the type of information on ultimate beneficiary owners that was mandatory for submission and publication. Such information included not only the personal name, family name, and patronymic of the ultimate beneficiary owner, but also the citizenship and the residential address. [91] Moreover, to comply with global open data standards, on 18 May 2017, the government adopted regulation #339. [92] This regulation authorizes the transfer of information on beneficial owners to the Global Beneficial Ownership Registry and publication of this information for the general public in an open data format. [93]^, [94] However, the government did not complete the transfer of the United State Register. The Ministry of Justice had developed draft technical specifications for transferring the data to the global registry and was planning to develop the respective transferring algorithm. As of August 2017, the Ministry of Justice was still updating the software that would help distinguish the information on a founder from the information on a beneficial owner of a legal entity in the United State Register. For more information, please see the 2016–2018 IRM midterm report. [95]

End of term: Limited

The Ministry of Justice reported that it has been working on updating the software. It also planned to introduce mechanisms to search and display the relations among legal entities and their founders (participants), ultimate beneficial owners (controllers)—including ultimate beneficial owners (controllers) of the founder—and heads of legal entities in the new release of the United State Register. [96] According to a representative of the International Renaissance Foundation, a multi-stakeholder group met only once, without any tangible effect. [97] Both the government and civil society note concerns regarding the quality and reliability of the data. [98]

The Ministry of Justice noted that there is no world best practice on verifying information on ultimate beneficial owners. Therefore, when the ministry does develop this verification, it will be an innovation. [99] A civil society expert confirmed that nowhere in the world does there exist a good model of such verification. In this expert’s opinion, only the National Bank can collect up-to-date information and introduce sanctions against those who provide false information. Those sanctions include withdrawing their licenses to conduct banking activities. [100] The Ministry of Justice was finalizing a draft law on the prevention of money laundering, which should improve the mechanism for verification of information about ultimate beneficial owners. [101] Finally, on 29 August 2018 the Ministry of Justice issued decree #2824/5. The decree requires companies to update information about their ultimate beneficial owners every time they make a change to their legal status. Such changes, however, do not include the dissolution of a legal entity. [102] While this marks some progress in disclosing more data on beneficial ownership, there have not been any major mechanisms implemented to verify the data.

Did It Open Government?

Access to Information: Did Not Change

Despite some recent legislative changes, the structure of information in the register remains the same. Also, the government did not introduce an algorithm to search and display relations between ultimate beneficial owners. As such, there have been no improvements to access to information.

Carried Forward?

When this report was written, the government had not made the fourth action plan of Ukraine available. Thus, it is not clear if the government carried this commitment forward. Given the importance of this commitment, the IRM researcher encourages the government to continue efforts to fully implement it.

[91] “The Decree of the Ministry of Justice of Ukraine #2941/5,” the Verkhovna Rada of Ukraine: The Official Web-portal, http://zakon.rada.gov.ua/laws/show/v2941323-17.

[92] “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.

[93] “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/.

[94] “The Unified State Register of Legal Entities, Individual Entrepreneurs, and Community Groups,” Data.gov.ua, No longer accessible as of February 13, 2019 http://data.gov.ua/passport/73cfe78e-89ef-4f06-b3ab-eb5f16aea237

[95] “Ukraine Mid-Term Report 2016–2018,” Open Government Partnership, https://www.opengovpartnership.org/documents/ukraine-mid-term-report-2016-2018-year-1/.

[96] Natalia Bernatska (Ministry of Justice of Ukraine), email exchange with IRM researcher, 14 September 2018.

[97] Oleksii Orlovskyi (International Renaissance Foundation), interview with IRM researcher, 4 August 2018.

[98] Victor Nestulia (Transparency International Ukraine), interview with IRM researcher, 16 August 2018.

Natalia Bernatska (Ministry of Justice of Ukraine), email exchange with IRM researcher, 14 September 2018.

[99] Ibid.

[100] Victor Nestulia (Transparency International Ukraine), interview with IRM researcher, 16 August 2018.

[101] Natalia Bernatska (Ministry of Justice of Ukraine), email exchange with IRM researcher, 14 September 2018.

[102] “The Decree of the Ministry of Justice of Ukraine #2824/5,” Liga Zakon, http://search.ligazakon.ua/l_doc2.nsf/link1/RE32430.html.