Complex Ownership Structures : Addressing the Risks for Beneficial Ownership Transparency

Individuals and companies are legally able to set up any type of structure they want, from a simple one where the only shareholder of the company is at the same time its beneficial owner to a very complex structure involving many layers spread across several secrecy jurisdictions. While it’s absolutely free for an honest individual (or criminal) to set up a complex ownership chain (except for some legal or incorporation fees), the real price is paid by authorities. Investigators or any authority trying to verify beneficial ownership information will need to spend increasing resources in terms of staff, technology and time to be able to determine the identity of the beneficial owner who ultimately owns or controls the entity with a very complex structure. In many cases, if the complex structure features an entity from a secrecy jurisdiction, a trust or a company with bearer shares it may be impossible to find out who the beneficial owner is.This report explains and gives examples of how complexity creates secrecy risks. It also discusses the need to regulate complexity and includes evidence of cases where complex ownership structures were abused to engage in money laundering, corruption, sanction circumvention, tax abuse, and so on. The report also considers the justification for complexity, evaluating other factors that would determine what measures are needed, especially the number of entities with complex structures and their economic significance. The paper also offers a list of factors that could create complexity such as a high number of layers, presence of entities from secrecy jurisdictions in the ownership chain, and so on. The report includes an analysis of when those factors in isolation would be inoffensive (eg a high number of layers would create no harm if only local entities are allowed to integrate into the ownership chain because the local commercial register would have information available on each layer). However, the report considers that in most cases, none of the “neutralising measures” that would render the identified factors as inoffensive in isolation are implemented and so the factors continue to pose a risk even in isolation. The report prescribes no specific policy to follow, but analyses the pros and cons of different measures (eg prohibition of complex structures versus “doing nothing”) and offers a list of actions that countries should consider, such as running an exploratory analysis of their own companies’ structures to determine outliers