Combatting Corruption in Public Procurement: How African Governments Can Use Beneficial Ownership as a Powerful Tool

Money laundering is wreaking havoc on African economies.

Money laundering is the process of disguising the source, ownership, or destination of money earned illegally or dishonestly by concealing it within a legal business contract. When dishonest people obtain money from illegal sources, they attempt to conceal the source of the funds in order to spend it freely.

The amount of illegal money leaving Africa is estimated to be much greater than Africa’s annual ODA (ODA). This undermines development and poverty reduction efforts by diverting funds that could be used to help citizens.

“At a time when Africa is trying to maximize domestic resource mobilization, it is losing $50 billion a year to illicit flows.” These staggering losses would be enough to fill 75 percent of the continent’s health financing gap. They are more than what would be needed to achieve Sustainable Development Goal 4 on inclusive education. And they are one third of what Africa needs annually to fund infrastructure projects.” (As Africa Loses $50 Billion Annually to Illicit Financing, Greater Global Cooperation Key for ‘Silencing the Guns’ Deputy Secretary-General Tells African Union Meeting | UN Press, 2020)

Solution: Disclose beneficial owners of businesses.

A beneficial owner is a real person who owns or runs a business (or legal entity). To comply with Anti-Money Laundering (AML) regulations and prevent financial crimes, it’s vital to know the real person you’re doing business with, regardless of how the business is structured. The only way to fully assess a company’s risk is to understand who runs it and makes a profit.

Beneficial ownership transparency is a pillar of anti-money laundering systems – so it needs to stand up. Insights from the Basel AML Index 2021

Big questions: which companies are bidding and who controls them?

The most recent beneficial data from the United Kingdom, Denmark, and Slovakia, which is now available in the Open Ownership Register, show that:

• 9.4 million people are doing business with government

• 8.5 million companies

• 23 million connections explaining how people own/control companies

What is beneficial ownership?

A company can be owned by an individual, such as Bloomberg LP, which is owned by Mike Bloomberg, or it can be owned by another company, such as PEPSICO, which owns Mountain Dew, Doritos, and Starbucks.

Whether a company is owned by a person or another company, people are nearly always at the top of the ownership chain. At the end of the day, they benefit from a company’s financial success and often share in its losses as well.

That is why it is critical to understand who owns the company. Individuals who take on financial risks for a business may or may not  be the same ones that make decisions. In that case, we must determine who is in command.

Why should the government care about who owns what?

Public procurement is big business in Africa and around the world.

“Uganda spends over 55% of its budget on public procurement.” This is equivalent to Shs.6,000 billion or $ 2.4 billion of this year’s government budget. Procurement is therefore central to achieving value for money in public expenditure and service delivery. If the government was able to achieve a 2% efficiency gain in public expenditure through procurement, this could represent $48 million annually, which is sufficient to rehabilitate 10 regional referral hospitals or finance a 17% increase in teachers’ salaries.” (World Bank, 2012)

Consider two companies that have submitted bids to supply the government with pick-up vehicles. If someone owns 100% of Company 1 and has sole authority over its board of directors, but also 50% of Company 2, that person controls Company 1 and owns half of Company 2.

When company 3 enters the bidding, the situation becomes even more complicated because the same person may be able to alter the process to give one of his companies an unfair edge over another.

Beneficial ownership lets us show how complicated business structures are and how many business interests one person might have.

Getting information about beneficial owners

Every country has its own laws about how to register a business and how information is collected and when. This could be information about who really owns something.

1. Information to find out who owns what Information about other legal bodies
2. A list of who owns what shares
3. Different types of shares have different voting rights.
4. Information about the entities in the middle of a chain of ownership
5. Rules for getting on a board

This data is often spread out across different documents, which shows how important it is to have a data standard that everyone can agree on before collecting data. The beneficial ownership data standard helps with this.

Beneficial Ownership Data Standard

The Beneficial Ownership Data Standard seeks to address the issue of dispersed data about who the true owners of a company are by establishing a standard for how this information is collected and disseminated globally. It incorporates information from various sources to assist individuals in understanding large or intricate ownership and control systems.

Combining and analyzing data from disparate sources can be difficult, costly, and time-consuming in the absence of a unified standard. The Beneficial Ownership Data Standard specifies what data should be provided and how it should be shared (in JSON format), as well as recommendations for data publication and use.

How beneficial ownership data is compiled

The schema is described using JSON, a structured data format. This schema explains how to structure and share data on the beneficial owners of a legal business. Using the common JSON format allows machines to access and analyze data, as well as allows people to quickly understand the data.

At the highest level, the Beneficial Ownership Data Standard (BODS) lets publishers make assertions about:

1. Individual identifiers and information about them.
2. Information and identifiers about a company
3. Different kinds and levels of company participation
4. Information about where something came from includes both old and new facts.
5. Placeholders are used when information needs to be hidden.

BODS is not a data model for storing information about who owns what, but it can help build systems for collecting and storing data.

References

Money Laundering – Financial Action Task Force (FATF): Money Laundering – Financial Action Task Force (FATF). (n.d.). www.fatf-gafi.org. Retrieved October 18, 2022, from https://www.fatf-gafi.org/faq/moneylaundering/

As Africa Loses $50 Billion Annually to Illicit Financing, Greater Global Cooperation Key for ‘Silencing the Guns’ Deputy Secretary-General Tells African Union Meeting | UN Press: As Africa Loses $50 Billion Annually to Illicit Financing, Greater Global Cooperation Key for ‘Silencing the Guns’ Deputy Secretary-General Tells African Union Meeting | UN Press. (2020, December 10). press.un.org. Retrieved October 18, 2022, from https://press.un.org/en/2020/dsgsm1525.doc.htm

World Bank: With efficient Procurement, Government can deliver more with less. (2012, September 22). www.worldbank.org. Retrieved October 18, 2022, from https://www.worldbank.org/en/news/opinion/2012/09/22/with-efficient-procurement-government-can-deliver-more-with-less