This week, Nigeria will launch the Beneficial Ownership Register in the extractive industries in line with the global Extractive Industries Transparency Initiative (EITI) standards.
Last week, Nigeria Extractive Industries Transparency Initiative (NEITI), the government agency championing the promotion of transparency and accountability in the oil, gas and extractive industries, along with its partners, the Department of Petroleum Resources (DPR) and the Corporate Affairs Commission (CAC), spoke about how the register will work.
It was at the Roundtable on Beneficial Ownership Register in Nigeria hosted by the Media Initiative on Transparency in Extractive Industries (MITEI) to sensitize Nigerians on the benefits and significance of the register to the Nigerian economy. BUSINESS & ECONOMY EDITOR, BASSEY UDO, was there. Excerpts:
Executive Secretary, NEITI, Waziri Adio
Already, there is panic in the extractive industries, because NEITI is going to open a register of beneficial owners of oil and gas companies.
But, we have a responsibility to reassure Nigerians the register will be more about the benefits the country is going derive against the companies that have been “cheating” government and Nigerians in their operations.
If we need a more inclusive framing for this issue, NEITI will like to say the Register is not a “we, against them” issue.
It is actually a win-win thing for all Nigerians. Everyone stands to gain from having a more transparent disclosure of the identities of the owners of the assets in our extractive industries.
To the government, the register will help check tax evasion by owners of these assets. As a sector that accounts for more than 80 per cent of government revenue, we know how much we are losing as a country through not knowing who owns what in the industry.
It will also help to check money laundering, drug financing, and illicit financial flows. If the government is able to check all these things, it will definitely impact positively on the lives of citizens.
The Register will also benefit businesses.
Again, not all businesses use anonymous ownership structure or engage in bad business practices. We must see the Register in a more inclusive way. The more inclusive we see the Register, the more the government will get more support.
When people are afraid that the Register is against their interests, it is natural to expect they will resist it. So, NEITI has a responsibility to assure people that they have nothing to fear, except they are engaging in illegalities.
Having a Beneficial Ownership Register is very important. But, we should not get it twisted. A Register in not an end by itself. It can only be a means to an end.
The other issue is the lack of legal backing and how the Register affects what CAC is doing. NEITI is adopting a gradualist approach. Start something like a pilot, learn from it and grow from there.
It is not a perfect Register to address all the problems in the system. It is good to strive for perfection. But, we should not make the perfect the enemy of the good. In as much we will continue to improve, let us start with what we can do and see how we can improve and build on it.
Why we should be concerned about Beneficial Ownership Register
The case for Beneficial Ownership Register for the extractive industries cannot be over-emphasised. In 2014, One Campaign in a report, “The $1trillion scandal”, estimated that developing countries were losing $1trillion annually to shady business practices.
The money is more than the development aids they receive annually. Most of these countries, including Nigeria, are resource-dependent.
If Nigeria is the biggest resource-dependent country in Africa, we can be sure how much we have lost through shady business deals as a country.
Again, the Thabo Mbeki panel report on illicit financial flows said in 50 years, Africa lost $1 trillion, with $80 billion lost annually on the average to illicit financial flows. If a percentage of that is taken, we can see what Nigeria contributes.
If $15-18 billion of the $80 billion is lost to illicit financial flows in Nigeria, one can imagine what that can do to our economy in terms of infrastructure and development.
The fact that this huge money is lost to anonymous companies is something we should be concerned about.
It is not only government that loses to lack of transparency. Businesses and individuals do, in terms of reputation, status and shareholder value and profitability.
Having a shell company or company with anonymous or hidden ownership is not an illegal thing. It is not all the time that people use such companies for illegal activities. But, we should also know that might also provide a cover for those who might be interested in criminal activities.
Nigeria has a commitment with the EITI to ensure revenue transparency in its extractive industries, particularly on what companies pay and what government receives from the exploitation of its natural resources. This has led to several reforms in the industry
But, EITI realised that if it focused only on revenue transparency, the world would be missing a whole lot.
So, we need to know who owns what; to be sure people are not dodging taxes in the exploitation of our resources; engaging in conflict of interest and other issues.
So, the EITI is pushing the frontiers of transparency from revenue to ownership of assets and contracts.
Nigeria’s commitments & deadlines
At the London Anti-corruption summit in 2016, the Nigerian President made some significant commitments to join the Open Government Partnership; establish and open register of all owners of companies operating in Nigeria before 2019 under the National Action Plan on OGP.
As part of that plan, the government said by January 1, 2020, Nigeria was going to have a register of the beneficial owners of all the companies operating in the extractive sector.
By December 31, 2019, the government also said Nigeria was going to have the register of all owners of companies in Nigeria.
NEITI will like to clarify that the two registers are not conflicting. They are actually reinforcing each other. The register for the extractive sector can be a pathway or pilot to the other.
The extractive sector is the life wire of the country’s economy, contributing about 90 per cent to the country’s gross domestic product (GDP).
How the register will work
The Beneficial Ownership Register for all the companies covered under the NEITI audit processes, both in the oil, gas and solid minerals sectors will be unveiled on December 12, 2019.
This is a register that will be beyond companies producing or not. It will cover all companies engaged in businesses in the extractive sector.
NEITI will be working with the regulators in the extractive sector, namely the DPR – for companies in the oil and gas sector; the Mining Cadaster Office (MCO) – for companies in the Solid Minerals sector, and the CAC – for companies all companies in Nigeria.
There is a template NEITI has designed with the regulatory authorities. There is also a framework. At some point, DPR will issue a note to all the companies operating in the oil and gas sector to request additional information about their beneficial owners, including the definition of who a beneficial owner is.
The MCO has already requested that every company operating with a license in the solid minerals sector submits the information about their beneficial owners.
On December 12, NEITI will unveil the portal on Beneficial Ownership Register in the extractive industries on its website.
When the DPR and MCO are ready, they will also unveil their portals and link them to the NEITI website. Theirs will be more comprehensive. When one clicks on the NEITI link, two options will open up – the oil and gas and solid minerals.
The Corporate Affairs Commission is also working with NEITI to build a more comprehensive register for all the companies operating in all the sectors of the economy.
When CAC has completed its register, every other register will be folded and collapsed into the CAC register.
So, the NEITI register will only serve as a pilot of what Nigeria will ultimately have a beneficial ownership register.
Obstacles to beneficial ownership register
One of the major obstacles to beneficial ownership today is that there no law that expressly mandates the disclosure of beneficial owners of companies.
The only way Nigerians can get information about beneficial owners is if there is an issue in court about fraud involving the owner of a particular company. One can apply for the lifting of the veil.
Besides, one use the provision of the Freedom of Information Act to demand information about the owners of companies or ask the Public Complaints Commission to do it.
But, today, there is no law that says if a company does not disclose its beneficial owners there will be sanctions. Even if the company gives the wrong information, there is no penalty for it.
Where there is no law, there is no crime. But, this is a challenge government has to deal with as the Beneficial Ownership Register comes to stay.
But, the fact that there is no law does not stop NEITI from doing what the country has already committed itself to do under the EITI standards and the OGP.
To deal with this, regulatory authorities can make specific regulations for the orderly conduct of the sector, or the President can issue an executive order.
What CAC is doing
The Companies and Allied Matters (Repeal & Re-enactment) Bill 2019 is already before the National Assembly for amendment of provisions to take care of the issues.
The National Assembly had completed its work and sent for assent. But assent was withheld by the President.
The Attorney-General said Section 26(5) of the old CAMA, which authorizes him to vet and authorize the registration of every memorandum and articles of association of every company limited by guarantee must be maintained.
The CAC does not have any problem with that, so long as it will not touch other innovations in the amendment in the new CAMA.
The global requirement for Beneficial Ownership Register are adequately provided for in Sections 119, 791 and 868 of the new CAMA.
When issues in the Bill are sorted out, a proper legal framework or foundation for implementation will be laid down.
What CAC has done is to group businesses into sectors. Companies have been grouped according to the sectors that are contributing to the economy.
For instance, those in aviation, oil and gas, etc. have been grouped together for easy accessibility.
The information and Communication Technology architecture can then be built on the proper legal framework.
Any other makeshift arrangement for the implementation of Beneficial Ownership Register without a proper legal framework will not satisfy global requirements.
Nigeria is the 70th member of the OGP, and also aspiring to become a member of the Financial Action Task Force (FATF) for which it has already undergone Mutual Evaluation in September 2019.
Membership of these international bodies places an obligation on Nigeria to establish a Public Central Register of Beneficial Ownership.
Recommendations 8, 24, and 25 of FATF provide detailed requirements on the framework, content, operations and processes of Beneficial Ownership Register of non-governmental organizations, legal entities and legal arrangements.
Two registers are required here. One to be opened by the legal entity called Entity-level register, and the other by an authority usually the Company Registry called Public Central Register of Beneficial Ownership.
A Beneficial owner is a natural person who ultimately owns or controls a legal entity or arrangement such as a company or a trust or foundation.
Such a person under the framework is required to give notice of the fact or beneficial ownership or control to the legal entity within a specific period of time. The legal entity is also required to give notice to the Public Register within a specific period of time.
Stiff penalties are usually prescribed for failure to give the requisite notice on both the person and the legal entity.
The threshold of ownership and control, the time frame within which the notice should be filed and appropriate penalties for failure to file the returns are defined by law.
The Beneficial Ownership tool kit provides guides for the content of such legislation. General Data Protection and Privacy (GDPR) issues are factored in such legislations.
There are usually different scores in mutual evaluation for technical compliance, which evaluates laws, rules, regulations, and policies and for effectiveness.
Evaluation of the current status of Beneficial Ownership Register should begin with the examination of Sections 94.98 of the CAMA CAP C20 LFN 2004.
This law provides that a person with a substantial interest in a public company (at least 10 per cent equity) will, if required by the company, disclose the capacity which he holds such shares within 14 days of notice.
The company is then required to mandatorily open and maintain the Beneficial Ownership Register at the same place with the Register of members.
The CAC on the other hand can ask for a copy of the entire Register or part thereof and the company is obliged to furnish the copy within 14 days of demand.
Section 95(5) and 97(6) criminalizes both the substantial shareholder and the company for failure to give the requisite notice or make available a copy of the register to the CAC.
CAMA places no obligation to open and maintain a separate Register of Beneficial Ownership (Substantial Shareholding) on the CAC. This is for the obvious reason that at the time it was promulgated, the issue of beneficial ownership or significant control was not in the front burner.
Despite this challenges, the CAC still provides information on substantial ownership of beneficial ownership and directorship information to law enforcement agencies and other regulators to check illicit financial transactions and other forms of business malpractices.
Beneficial Ownership is currently not in the front burner of the global space. But, it is an absolute necessity to ensure transparency and accountability, integrity of financial system and check corruption, money laundering and financial terrorism.
But, we must advise that the issue be handled with care in order not to ruffle the country’s economy. We recall when the CAC introduced the issue of bio-data capturing which entails the directors of companies giving their means of identification and disclosure of a lot of things about them, people were panicking.
With beneficial ownership, our fear is that we might have a situation where people, rather than contributing to the economy, will wind up their companies.
For the past three years, the monitoring unit of the compliance department of the CAC has observed a series of companies being wound up by their owners who blame it on the harsh economic environment.
What DPR is doing
So far, the DPR, working with NEITI and other agencies, had developed a template for data gathering and collation of information from the covered entities on their beneficial owners
The Petroleum Industry Act provides that oil and gas assets, namely oil mining leases (OMLs) or oil prospecting licenses (OPLs) must be held by a company and not individuals.
It has to be a company. It means the data the DPR will be collecting will be through companies.
The template includes all information that will enable members of the public to eventually know who actually owns what in any company, whether local Nigerian company or multinational that holds any interest in any asset in Nigeria.
The information collected will be transferred to the Beneficial Ownership Register that is going to be open to the public.
We are also working with NEITI to bring the enabling legislation that will require companies to comply by giving the information that will be in the register.
The contractor has already been selected. The contractor is currently working on the design of the electronic platform that will host the Beneficial Ownership information.
DPR is virtually set to host the platform within a short time to be able to put up the Beneficial Ownership Register for the oil and gas industry in Nigeria.