Audit of beneficial ownership register (UA0092)

Ukraine has become the first country in the world to make information on beneficial owners publicly accessible and, as a nation, to join the Global Beneficial Ownership Register. As set by legislation, legal entities are obligated to disclose information on ultimate beneficial owners when engaged in any registration activity. The Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations, is fully open and accessible to the general public and, as a result of updated software, has separate structured fields for entering necessary information on ultimate beneficial owners. Lack of a unified approach to verifying ultimate beneficiary owners compromises trust in the information in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations, which leads to faulty business and abuse, facilitating corruption, tax evasion, and the laundering proceeds of crime. In accordance with the Action Plan for implementing the Open Government Partnership Initiative in 2018–2020, as approved by the Cabinet of Ministers of Ukraine No. 1088 Ordinance of 18 December 2020, the Concept of the mechanism for verifying information on final beneficial owners contained in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations, has been developed; the latter documents are being prepared for submission thereof and for review by the Cabinet of Ministers of Ukraine. Independent audit of state registers and databases will make it possible to prepare the basis for developing and implementing a unified system for verifying information on ultimate beneficial owners. Implementing a unified approach to verifying information on ultimate beneficial owners will make it possible to identify precisely the person who exercises dominant influence over a specific legal entity’s activities and is the real owner of a company, which will create preconditions for strengthening transparent and trust-based relations between the state, society, and businesses. Proper disclosure of relevant data will help public authorities and entities exercising primary financial monitoring to verify data on beneficial owners, and will enable public control and detection of abuse, including during procurement.

Steps Responsible persons Time-frame Partners Performance indicator 1. Organising an independent audit of state registers and databases necessary for implementing the unified central executive authorities National Bank (by agreement) January–June 2021 NGO Transparency International Ukraine (by agreement) civic initiative outcomes of an independent audit of the state registers and databases necessary for implementing the unified system of verifying ultimate 18 Steps Responsible persons Time-frame Partners Performance indicator system of verifying ultimate beneficial owners (developing the methodology for verification; systematising data sets to be verified; preparing technical regulations) Open Up Ukraine (by agreement) non-profit organization Innovating Governance Association (Austria) (by agreement) YouControl LLC (by agreement) other civil society institutions and international organizations (by agreement) beneficial owners have been presented 2. Establishing and implementing the unified system for verifying ultimate beneficial owners; drawing up and adopting the relevant legal and normative acts; drafting terms of reference for development; pilot testing and putting into commercial operation the unified system for verifying ultimate beneficial owners. Ministry of Justice Ministry of Finance other central executive authorities June 2021– December 2022 NGO Transparency International Ukraine (by agreement) civic initiative Open Up Ukraine (by agreement) non-profit organization Innovating Governance Association (Austria) (by agreement) YouControl LLC (by agreement) International Renaissance Foundation (by agreement) other civil society institutions and the system for verifying ultimate beneficial owners has been created and put in place 19 Steps Responsible persons Time-frame Partners Performance indicator international organizations (by agreement) 3. Creating the interactive training course Identifying an Ultimate Beneficial Owner with tests intended for: the public registrars - as regards highquality verification and recording of information on ultimate beneficial owners; subjects of financial reporting, civil society institutions - as regards preparing information on ultimate beneficial owners with a view to registration in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations; direct promotion of proper disclosure of information on ultimate beneficial owners in Ukraine Ministry of Justice Ministry of Finance other central executive authorities January–July 2021 NGO Civil Society Development Fund (by agreement) non-profit organization Innovating Governance Association (Austria) (by agreement) International Renaissance Foundation (by agreement) Council of Europe’s project Strengthening Measures to Counter Money Laundering and Financing of Terrorism in Ukraine (by agreement) other civil society institutions and international organizations (by agreement) the interactive training course Identifying an Ultimate Beneficial Owner and tests to assess knowledge as regards identifying ultimate beneficial owners have been presented

Action Plan Review

Commitment 6: Application of a unified approach to the verification of beneficiary holders

Results Report

Commitment 6. Application of a unified approach to the verification of beneficiary holders

Implementing agency: Ministry of Justice

Context and objectives

In 2015, Ukraine became the first country in the world to make information on beneficial owners publicly accessible. All companies must submit information about their beneficial owners to the Unified State Register of Legal Entities, Individual Entrepreneurs, and Public Organizations (Unified State Register). The Unified State Register portal has separate fields for entering information on ultimate beneficial owners (UBO). [36] However, due to technical flaws and insufficient legislative framework, many companies did not provide UBO data in the register. [37] In addition, there was no unified approach to verify submitted UBO data. These problems hindered the potential of the portal to help identify corruption, tax evasion, and money laundering.

This commitment aimed to implement a unified system of UBO verification. It also entailed training data owners in providing correct UBO information and educating stakeholders in using UBO data in their monitoring activities. It followed a commitment in the previous action plan which saw limited completion. [38]

Did it open government? Marginal

The responsible agencies put in place some verification mechanisms, while CSOs completed two of the three activities, namely independent audit and online training course. With the support of the EU for Integrity Programme for the Eastern Partnership, CSOs conducted an audit of 199 state registers. The audit concluded that a unified UBO verification system would require the participation of 21 authorities and would cover 50 registers and datasets. [39] In December 2021, the State Financial Monitoring Service organized a panel discussion where the authors presented the audit findings and recommendations to state bodies. [40]

In July 2021, the State Tax Service, the Ministry of Justice and the Ministry of Digital Transformation reached an agreement to establish links between the governmental bodies holding the data needed for UBO verification. This involved an automated compliance check of the registration number on the taxpayer registration card (if available) of the UBO with the State Register of Individual Taxpayers. In September 2022, the parliament adopted amendments to simplify UBO submission procedures and mandate the verification of UBO information using the State Register of Civil Status Acts, the Unified State Demographic Register, the State Register of Taxpayers, and the information of the Ministry of Internal Affairs about missing persons and stolen (lost) documents. [41] The law provides for the establishment of a mechanism for verification by the state registrar of information on UBOs during registration and entering into the Unified State Register notes about the possible unreliability of information about the UBO and/or the ownership structure and sending an appeal to the legal entity to provide an explanation for this information. The law also provides for the creation of a system of methodological assistance to legal entities during the determination of the UBO, as well as the simplification of the submission of information about the UBO and the ownership structure. These provisions entered into force in December 2022 and partially addressed the commitment’s objective to create a unified UBO verification system. However, stakeholders mentioned a need to connect data from more agencies (including banks and law enforcement) for better verification. [42]

Steps were also taken to ensure complete and structured UBO information in the Unified State Register. Based on an Order of the Ministry of Finance, which entered into force on 11 July 2021, all legal entities that are required to publish their UBO information in the Unified State Register—including those who were already registered—had to update their UBO information within a year of the order being enforced. [43] This ensures that all companies are required to update their UBO data on a special field and makes UBO verification more feasible. However, due to martial law, the implementation of this order was suspended. The Cabinet of Ministers suspended access to the Unified State Register for the public in March 2022. [44] Although CSOs have called for reopening access (taking into account the requirements of the Law on Access to Public Information), the register was not accessible at the time of writing this report (July 2023). [45] Legal entities will be required to provide UBO information within three months after the suspension or termination of martial law. [46]

The Civil Society Development Forum, with support of the International Renaissance Foundation, launched an interactive course on "Identification of the Ultimate Beneficial Owner" in May 2021. [47] The course is open to anyone and covers how to identify UBOs and who regulates the transparency and identification of UBOs. It also provides an overview of the Ukrainian experience, international standards, and best practices in beneficial ownership transparency. [48] As of December 2021, over 15 thousand persons from Ukraine and over 1,000 persons from other countries completed the course. [49] According to a civil society representative, many civil servants had taken the course, which contributed to more effective verification. As all legal entities are required to disclose beneficial ownership, including non-profits, many CSOs also took the course to understand the process of disclosing their information and increase their capacity around UBO monitoring and verification. [50]

The IRM assesses this commitment as having produced marginal results so far, as a number of regulatory and practical steps are still needed for a functioning and comprehensive verification system. The temporary suspension of the requirement to publish UBO data and public access restrictions to the Unified State Register continue to prevent civil society and journalists from monitoring the quality and accuracy of UBO data. However, this commitment has laid the foundation for effective verification of UBO data in the future, in light of the September 2022 legal amendments and the Order of the Ministry of Finance requiring legal entities to update their UBO information. The training courses launched in May 2021 also helped civil servants and civil society better understand the requirements around UBO reporting and verification.

Looking ahead

UBO verification remains a priority for Ukraine following the recommendations from the European Commission for EU membership. [51] However, there is currently no single public authority responsible for implementing the verification process. While civil society played an active role in this and previous commitments, more government ownership is needed to complete the setup of the UBO verification system, especially as UBO verification has not been carried forward into the draft sixth action plan.

The IRM recommends the following steps: