Strengthening Corporate Beneficial Ownership Transparency in Canada

February 2020

Contents

1. Overview

The vast majority of corporations in Canada are law-abiding and contribute positively to the economy. They are supported in their efforts by a robust corporate governance framework that prioritizes ease of doing business,Footnote 1 promotes investment, fosters economic growth, and enables an efficient marketplace. Notwithstanding this comprehensive regime, some features of it make corporations vulnerable to exploitation by some bad actors seeking to conceal corporate ownership and control for illicit purposes, including money laundering, terrorist financing and tax evasion.

Recent international and domestic reviews and events have highlighted how greater transparency of who owns and controls corporations (i.e., the beneficial owners) could bolster law enforcement efforts to counter the misuse of corporate vehicles. For example, the Panama Papers and Bahamas leaks of 2016 and the Paradise Papers release of 2017 highlighted the scale and ease of use of corporations and other legal entities to evade or avoid taxes and facilitate criminal activities such as money laundering, terrorist financing, and corruption. Corporations should not be used for illegal activities and Canadians should not have to pay for the economic and other resulting consequences of their misuse.

The Government of Canada seeks the views of Canadians, experts and other stakeholders on making beneficial ownership information more transparent by establishing a public registry (or public registries) of beneficial ownership information for privately-held corporations. This consultation aims to consider how increasing corporate transparency through a public registry could allow Canada to more effectively combat money laundering, terrorist financing and tax evasion or avoidance, while balancing privacy concerns, and maintaining its reputation as an attractive place to invest and do business.

1.1 Context of this Consultation

Corporate governance in Canada is an area of shared responsibility amongst the federal government, provinces and territories. In December 2017, federal, provincial, and territorial finance ministers agreed in principle to pursue legislative amendments to their respective corporate law statutes to require all corporations within their jurisdictions to hold accurate and up-to-date beneficial ownership information that would be available to law enforcement, tax and other competent authorities.

In fall 2018, the Government of Canada amended the Canada Business Corporations Act (CBCA) to require privately-held, federally-incorporated corporations to create and maintain a register with certain information about their "individuals with significant control" (ISCs). In 2019, to enhance the availability of beneficial ownership information to certain authorities, the CBCA was further amended to require these same corporations make their registers of ISCs available to certain investigative bodies upon request (subject to certain conditions). British Columbia and Manitoba have passed similar legislation improving the availability of beneficial ownership information within their jurisdictions, with the Saskatchewan legislature recently introducing its own beneficial ownership bill. The remaining provinces and territories continue to work on the implementation of their own respective measures.

Then, in June 2019, federal, provincial and territorial governments participating in a special joint meeting on anti-money laundering reaffirmed their commitment to action on beneficial ownership transparency. They agreed to cooperate on initiating consultations to examine how to make beneficial ownership information more transparent through initiatives such as aligning access through public registries to combat financial crimes while prioritizing businesses' competitiveness, individuals' privacy and respecting jurisdictional responsibilities.Footnote 2

Canada is not alone in combatting the illegal use of corporations for illicit activities; several countries have added transparency requirements that compel their corporations to not only collect and record their beneficial ownership information, but also to report some or all of that information to a central registryFootnote 3, available to competent authorities. Some countries also make the beneficial ownership information held in those registries accessible to the public (i.e., a public registry).

The primary goal of the central registry model is to ensure that authorities have immediate access to accurate information on companies that incorporate in a given jurisdiction, allowing for more rapid investigations of domestic and international cases involving corporations, while minimizing the risk of tipping off parties to an ongoing investigation. If a registry is public, it could also allow for third parties, such as civil society, to review the data and flag potential discrepancies, thus contributing to data quality. Public registries could also be used by financial and non-financial businesses to conduct customer due diligence (as required under many countries' anti-money laundering legislation, including in Canada), and encourage a more open investment climate. Conversely, the establishment of a public registry also has the potential of introducing risks to the use and misuse of identifying information.

In Canada, the issues and relevant considerations regarding establishing a public registry of beneficial ownership have been the subject of recent review. In its 2018 review of Canada's anti-money laundering regime, the House of Commons' Standing Committee on Finance recommended, among other things, that the Government of Canada work with the provinces and territories to create a pan-Canadian beneficial ownership registry for all legal persons and entities, accessible specifically to competent authorities and reporting entities with customer due diligence obligations.Footnote 4

2. Consultation

2.1 Consultation Purpose

By way of this consultation, governments are seeking to build on measures already put in place to track the beneficial ownership of Canadian corporations. The overarching objective is to seek feedback on potential measures to further increase beneficial ownership transparency via a public registry (or public registries) to reduce the misuse of corporations by individuals to hide or launder money, or avoid or evade taxes, without deterring the vast majority of good corporate citizens from conducting their regular business activities that are the foundation of a prosperous Canadian economy.

The Government of Canada is releasing this consultation paper in order to hear Canadians' perspectives on the potential adoption of a public beneficial ownership registry, which — as will be explored below — could take one of a number of forms, with varying levels of accessibility. Your submissions will help us assess:

  • whether Canada should establish a public registry (or public registries) of beneficial ownership information;
  • potential ways to mitigate compliance costs for corporations;
  • how best to protect the privacy of personal information while permitting access to beneficial ownership information;
  • options for collection, storage, sharing and terms of use of beneficial ownership information;
  • verification and monitoring considerations; and
  • the potential impacts on investment, economic growth and competition, among other factors.

Acknowledging that corporate law is a shared responsibility amongst federal, provincial and territorial governments, our aim is to advance a coordinated, nationwide response that strengthens corporate transparency, while respecting our constitutional powers with respect to corporations.

2.2 Consultation Process

Stakeholders are invited to provide written comments on the consultation paper by April 30, 2020

Written comments can be sent by email to:

ic.beneficial.ownership-propriete.effective.ic@canada.ca

Comments can also be submitted by mail to:

Beneficial Ownership Transparency Consultation
Innovation, Science and Economic Development Canada
C.D. Howe Building
235 Queen Street, Room 1043A
Ottawa, Ontario K1A 0H5

Subject to the considerations below, Innovation, Science and Economic Development Canada and the Department of Finance Canada intend to make public all stakeholder responses received and/or may provide summaries of stakeholders' submissions. Stakeholders providing comments are asked to clearly indicate the name of the individual or organization that should be identified as having made the submission. Submissions would preferably be provided electronically in PDF format or in plain text to facilitate posting online.

In order to respect privacy and confidentiality, please advise when providing your comments whether you:

  • consent to the disclosure of your submission in whole or in part;
  • request that your identity and any personal identifiers be removed prior to publication; or,
  • wish that any portions of your submission be kept confidential (if so, clearly identify the confidential portions).

Information received throughout this submission process is subject to the Access to Information Act and the Privacy Act. Should you express an intention that your submission, or any portions thereof, be considered confidential, the government will make all reasonable efforts to protect this information.

The government will be responsible for managing submissions and any requests made under the Access to Information Act and the Privacy Act.

3. Introduction

3.1 Overview of the Issue

Illicit actors use a variety of means to attempt to obscure their beneficial ownership information, including through shell companies, complex ownership structures, nominee shareholders and directors, trusts, bearer shares, and other legal arrangements. These means often span international borders, blurring audit trails and preventing law enforcement and competent authorities from obtaining the information necessary to investigate illegal activities.

Beneficial owners are the natural persons who, through direct or indirect means, have ultimate ownership or exercise control over a corporation.Footnote 5 These are distinct from legal owners, who can be either a natural person or another legal person (such as another corporation or trust). Beneficial ownership can be defined based on ownership interest (for instance, directly or indirectly owning more than a certain percentage of a company, e.g., 25%) or through positions held within the legal person (giving that individual control over strategic and executive decisions) or other means. Beneficial owners also include the natural persons behind nominee shareholders, referring to individuals who serve as a registered owner of shares in a corporation or assume a management position on behalf of a beneficial owner.

Federally, the CBCA currently approaches this challenge in the form of requirements on certain corporations to collect information on "individuals with significant control". The law defines these individuals to include anyone with direct or indirect ownership or control over a significant number of shares of a corporation (i.e., 25% of the voting rights or fair market value of the outstanding shares), or who has any direct or indirect influence that, if exercised, would result in control in fact of the corporation, among other circumstances. These requirements are in line with international standards governing the definition of beneficial ownership, including those set out by the Financial Action Task Force (FATF).

The availability of timely and accurate data on the ultimate beneficial owners of companies is crucial for allowing law enforcement, tax and other competent authorities to identify the natural persons who may be implicated in suspicious activities. If these authorities cannot obtain this information (whether from financial institutions, corporate registries, or from a corporation's shareholder records), their efforts to "follow the money" in financial investigations or audits involving corporations become significantly more difficult.

Allowing individuals the flexibility they need to invest in new ventures, attract investment capital and enter new markets through legitimate corporations strengthens Canada's competitiveness as a place for doing business and directly contributes to the growth of the Canadian economy. There are justifiable reasons why investors may choose to keep their investments confidential; however, this must be balanced with the reality that some wrongdoers exploit corporate structures to hide their identities and conceal the true purpose of an account or property, or the sources or use of funds and property linked with a certain company.

3.2 How Legal Entities May Be Misused in Canada

Canada's 2015 National Inherent Risk Assessment (NIRA) assessed the country's inherent money laundering and terrorist financing risks, rating the money laundering/terrorist financing (ML/TF) vulnerabilities of legal entities to be "very high" given the relative ease with which beneficial ownership can be concealed. The vulnerability of corporations closely intertwines with the high money laundering threat posed by organized crime and professional money laundering.Footnote 6 Private corporations created in Canadian jurisdictions have been implicated in both domestic and foreign law enforcement investigations, with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) reporting that 70% of money laundering and 50% of terrorist financing cases involved legal entities. Examples of these cases include the use of legal entities to purchase real estate and other assets; the laundering of proceeds of crime through shell companies in Canada, with the funds wired to offshore jurisdictions; and the use of front companies to layer and legitimize unexplained sources of income, mingling and masking them as profits from legitimate businesses.Footnote 7

To inform investigations, Canadian law enforcement, tax and other authorities extensively use corporate registries, which the federal, provincial and territorial governments maintain for all companies that incorporate within their respective jurisdictions. While the data recorded in these registries varies by jurisdiction, it may include the entity's name, status, registered address, names and addresses of directors, as well as the persons who own certain percentages of the outstanding shares (in certain provinces). However, these registries do not record the beneficial owners of companies, which can make it difficult to understand who effectively owns and controls Canadian corporations. The Canadian Association of Chiefs of Police, expressing concerns about the timeliness and availability of this key information, has openly called for such a registry.Footnote 8

3.3 The Risks for Canadians

Canadian corporations are at risk of being used to facilitate crimes like money laundering and its underlying predicate crimes, terrorist financing and tax evasion. Left unchecked, the ongoing exploitation of these entities will result in gains for criminals, financial losses to the legitimate economy and serious social costs that are felt at all levels of government, beyond those associated with tax systems, law enforcement and criminal justice. As highlighted in the Panama Papers and other leaks of information on offshore activities, large-scale illicit financial flows may erode public confidence in government institutions and programs such as business and company regulatory processes, and tax programs. The exploitation of legal entities may also harm Canada's reputation as a destination for investment, along with the credibility of law-abiding Canadian companies.

As discussed further below, like Canada, international counterparts continue to take action to strengthen their corporate transparency regimes including many G20/OECD countries that have moved to strengthen beneficial ownership transparency frameworks in recent years.

By taking action on corporate transparency, the federal, provincial, and territorial governments

can:

  • preserve Canada's reputation as a world class, lawful, and transparent place to do business;
  • prevent criminals from misusing legal frameworks to hide or legitimize illicit activities;
  • support good corporate governance by improving transparency of how corporate ownership and control are exercised and by whom;
  • grow the legitimate Canadian economy while preventing growth in the illicit economy;
  • combat money laundering, terrorist financing, tax evasion or avoidance, and other illicit activity; and
  • improve Canada's implementation of international standards and best practices.

4. Beneficial Ownership in the Canadian Context

The requirement to report beneficial ownership is not new for many Canadian corporations. Reporting obligations have existed for years for certain corporations in specific circumstances.

4.1 Anti-Money Laundering and Anti-Terrorist Financing Requirements

Since 2014, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) has required financial institutions, securities dealers, life insurance and money services businesses to collect beneficial ownership informationFootnote 9 from their corporate clients; take reasonable measures to confirm the accuracy of information collected; and keep the information updated through ongoing monitoring. If these businesses cannot obtain this information, they must instead take reasonable measures to verify the identity of the corporation's most senior managing officer and treat the activities of that entity as high risk.Footnote 10 While these measures provide means for collecting beneficial ownership information from corporations, financial institutions have noted difficulties in meeting these requirements in practice due to the lack of reliable sources for corroborating the data provided by corporations.

4.2 Tax Reporting Requirements

The Canada Revenue Agency (CRA) also collects ownership information on legal entities under general filing requirements, such as whether a corporation is related to or is associated with another corporation, and all shareholders who own 10% or more of the shares (though these may be other legal persons rather than beneficial owners).Footnote 11 Furthermore, Canadian financial institutions must report to the CRA on certain financial accounts they maintain for non-residents of Canada, per the Common Reporting Standard (CRS) and the U.S. Foreign Account Tax Compliance Act (FATCA). Financial institutions must also provide identifying information on the non-resident controlling persons of certain corporations that derive at least 50% of their gross income from investing or trading in financial assets, or are an investment entity resident in a non-CRS jurisdiction.

4.3 Securities Law Requirements

Under the early warning/take-over bid provisions of Canadian securities laws, every acquiror (person) who acquires ownership of, or control or direction over, voting or equity securities of 10% or more of the outstanding securities in a reporting issuer must promptly disclose their name and address, number of shares, ownership percentage, among other transaction details. These reporting requirements also apply for increases in ownership, control or direction of 2% or more of the outstanding securities.Footnote 12 While undertaken for the specific purpose of promoting transparency in Canadian capital markets, these requirements illustrate how, given a compelling public interest, the disclosure of shareholder information can be required in order to prevent the misuse of legal entities.

4.4 Corporate Law Requirements to Collect Beneficial Ownership

Corporate law is an area of shared responsibility amongst the federal, provincial and territorial governments, with corporations having the option to incorporate federally, provincially, or territorially.Footnote 13 While corporate information reporting requirements are in place across these governments, there are differences between jurisdictions in requirements related to the collection, disclosure, and access to this information. In general, existing corporate registries have not traditionally held an active verification function, and there are limited means and resources in place to ensure the information that is collected is accurate and up-to-date. Under corporate law in most Canadian jurisdictions, entities are obliged to hold shareholder and director information, some of which is provided to corporate registries and made publicly available online, or by request. However–with the exception of privately-held corporations incorporated under federal law or under those of British Columbia and Manitoba–there are no requirements to date in place to collect or verify beneficial ownership information in the majority of provinces and territories.

5. Beneficial Ownership in the International Context

5.1 Global Commitments to Improve Corporate Transparency

More recently, there has also been attention to the use of front companies to evade international sanctions and to finance the proliferation of dangerous goods, resulting in heightened and sustained international focus on the importance of corporate ownership transparency. As commerce, finance, and criminal activities are increasingly transnational, the need for international cooperation and coordination in response to these issues continues to grow.

The FATF, the global anti-money laundering and anti-terrorist financing standards-setting body, has established norms to prevent legal entities from being used for criminal purposes, including by making beneficial ownership information on corporations and trusts available to competent authorities, including law enforcement and tax agencies. Canada, as a founding member of the FATF, has committed to aligning itself with these global standards.

Specifically, the FATF standards expect that all countries should ensure that competent authorities have "adequate, accurate and timely" information on the beneficial ownership and control of legal persons.Footnote 14 Finally, countries should consider measures to facilitate access to beneficial ownership information by private sector entities with customer due diligence obligations to verify ownership. To implement this requirement, FATF members could require companies or company registries to obtain and hold accurate and up to date beneficial ownership information, require companies to take reasonable measures to obtain and hold up to date information, or use a combination of existing information obtained from financial institutions, professional service providers, tax and regulatory authorities, and publicly listed companies.

In line with the FATF standards, publicly accessible beneficial ownership registries are one option that some countries have implemented to address the problem of ensuring that this information is available to competent authorities.

5.2 International Efforts to Strengthen Beneficial Ownership

As global attention to corporate transparency continues, some countries have taken steps to create their own registries of beneficial ownership. The United Kingdom was the first country to establish a free, public beneficial ownership registry for private corporations in 2016, based on the concept of people with significant control (PSCs). The UK Parliament also approved a bill in 2018 requiring British overseas territories (e.g., Cayman Islands, British Virgin Islands) to establish public beneficial ownership registries by 2020.

The European Union's Fourth Anti-Money Laundering Directive (May 2015) called on members to require corporations to hold information on their beneficial owners and to report it to a central registry. The EU's Fifth Anti-Money Laundering Directive (July 2018) subsequently extended the central registry requirement, mandating these registries be made publicly accessible and interconnected with each other by early 2020. All EU member states have since set up central registries as per the Fourth Directive, but to date only a few (including the UK, Denmark and Slovakia) have fully implemented the commitment to make these registries public.

Understanding international experiences is important for determining whether the central public registry model is the right approach for Canada. Canada can also learn from its partners on how to manage likely implementation challenges (e.g., data verification, interconnections with other registries, determining whether certain information should be withheld from public disclosure). The UK's Companies House register, one of the most prominent examples of a public beneficial ownership registry, is discussed in detail in the Annex.

6. Exploring how to make Beneficial Ownership Information more Transparent

Ministers responsible for anti-money laundering, anti-terrorist financing and beneficial ownership met on June 13, 2019 in Vancouver to discuss ways to coordinate a national strategy on anti-money laundering. At this meeting, federal, provincial, and territorial governments reaffirmed their commitment to protect the integrity of Canada's economy by improving beneficial ownership transparency. To achieve this, governments agreed to cooperate on initiating consultations on making beneficial ownership information more transparent through initiatives such as aligning access through public registries, while respecting jurisdictional responsibilities with respect to corporations.Footnote 15

Building on the June 2019 public statement, the Government proposes some questions for stakeholders' consideration around four general themes: 1) whether Canada should establish a public beneficial ownership registry (or public registries) to improve transparency; 2) features that would make a public registry (or public registries) effective; 3) whether there should be limitations to public disclosure of beneficial ownership information; and 4) other considerations around creating a public registry (or public registries). Stakeholders are welcome to raise any other issues that would assist this consultation.

6.1 Should Canada establish a Public Registry (or Public Registries) of Beneficial Ownership?

Potential Benefits of a Public Registry

Making beneficial ownership information on corporations accessible through a public registry (or public registries) could support global anti-corruption efforts and deter the misuse of corporations to obscure illicit activities, such as money laundering, terrorist financing and tax evasion or avoidance. Public access to beneficial ownership information could provide more timely access for law enforcement and tax authorities investigating cross-border financial crimes, and for civil tax audits and collection purposes. Public access could also allow third parties reviewing the data (e.g., civil society, financial institutions) to report inconsistencies to support verification of the information provided. Increased transparency may contribute to Canada's reputation as a safe destination for investment, and promote confidence in the marketplace. More open and accessible data can increase the information available for potential investors, and support more informed decision-making.

At the same time, the Government is cognizant of risks, such as the potential for identity theft, fraud and harassment that become more acute the greater the scope of information on individuals that is publicly disclosed. Although some limited information on registered shareholders of privately-held corporations is currently available to the public in many Canadian jurisdictions, any new transparency measures must be proportionate to purpose and protect privacy and confidentiality in business decision making, and continue to encourage a strong investment climate. It is important to continue to recognize that the vast majority of affected corporations, shareholders and individuals with significant control are not engaged in illicit activity.

Implementation Considerations

Acknowledging these potential benefits, there are further considerations around the organization of a public registry (or registries), reporting mechanisms, assigned responsibilities, legal powers and resources needed to support effective and efficient implementation. Timeliness and ease of access would be important for maximizing the utility of a public registry for law enforcement, tax and other competent authorities. Furthermore, taking reasonable measures to protect the privacy of investors and to mitigate the regulatory burden on law-abiding corporations are also key considerations. Recognizing the importance of preventing loopholes and opportunities for arbitrage that can be exploited across jurisdictions, best efforts will be made to advance consistent and coordinated actions, while respecting jurisdictional roles and responsibilities with respect to corporations.

Different Approaches to a Public Registry

If adopted in Canada, a public registry could take a variety of forms, such as a single, centralized registry or a network of independent provincial and territorial registries accessible through a single portal, potentially making use of existing corporate registries or purpose-built infrastructure. A hybrid model, where some provinces or territories participate in a central or linked registry while others create their own stand-alone registries may also be feasible. Regardless of approach, federal, provincial and territorial governments would need to work together on collection, storage, sharing and terms of use to produce a registry model that meets the needs of filing corporations, participating jurisdictions and end users, and to ensure consistency in type of data collected and, where feasible, validation measures used. If provincial and territorial legislation captures non-corporate entities, such as partnerships, such data could be included in the same registry or registries.

Questions for Public Comment:

  1. Should Canada establish a public registry (or public registries) of beneficial ownership for corporations, and why?
  2. If not a public registry (or public registries), should Canada establish a central registry accessible only to competent authorities? What are the advantages and disadvantages of having a central registry over a public registry (or public registries)?

6.2 If yes, what key features would make a Public Registry (or Public Registries) effective?

Reporting Obligations for Corporations

A Canadian public registry (or public registries) should capture the breadth of corporate entities in Canada, while mitigating the costs of compliance on law-abiding Canadian companies. The scope of legal entities reporting to a public registry could encompass all privately held corporations incorporated under the laws of Canada, the provinces and territories. Beneficial ownership information fed into a public registry should be consistent with existing beneficial ownership definitions and recordkeeping obligations, such as those previously set out in the CBCA for federally-incorporated, privately held corporations.Footnote 16

For corporations incorporated in jurisdictions that require them to hold beneficial ownership information, the incremental costs of submitting this information to a central registry (or central registries) are expected to be small. This is supported by a 2019 UK Government survey, which estimated the median costs to businesses of submitting the information about their current persons of significant control to their public registry to be £21 up-front and a similar amount for updating the registry when this information had changed.Footnote 17

It is also worth noting that a public registry (or public registries) could also directly support regulatory compliance with the "know your client"/customer due diligence provisions of Canada's anti-money laundering and anti-terrorist financing legislation, by assisting private sector reporting entities (e.g., financial institutions) in fulfilling their obligations to collect beneficial ownership information on their clients under the PCMLTFA. While a public registry would not eliminate the need for reporting entities to conduct their own due diligence, it could reduce their administrative burden in meeting their obligations to obtain and verify beneficial ownership information.

Cost of Access

At present, some jurisdictions make their corporate registries accessible to the public free of charge, while others operate on a cost recovery basis (either on a fee for search or subscription model, or through arrangements with private service providers to manage and operate the registry). For some provinces and territories, the costs of establishing a public beneficial ownership registry may necessitate consideration of a suitable funding model.

Verification and Monitoring

While a beneficial ownership public registry could potentially provide value to stakeholders, a lack of verification may limit the value of the data in the absence of corroborating information. Verification has been a well-publicized challenge in the UK system, which their government is working to address. A public beneficial ownership registry (or public registries), if adopted, could include an identity validation or verification mechanism to ensure that information provided by companies is accurate, comprehensive and updated in a timely manner. Ongoing monitoring could be conducted post reporting, while third parties (such as the general public or reporting entities) could be empowered to flag deficiencies for later follow-up by responsible officials.

Tasking corporate registries with these responsibilities could result in a significant change to the role and mandate of registries in Canada, which would have implications for their structure, powers and resourcing requirements. Alternatively, governments could assign this role to a separate organization with a clear enforcement and verification mandate. Furthermore, there may be opportunities for collaboration with other partners (e.g., AML/ATF regulators, law enforcement, financial institutions) to corroborate the data reported to the public registry.

Another issue for consideration is the extent to which corporations and directors should bear liability for non-compliance with reporting obligations (i.e., failing to report, not reporting on time, knowingly providing false or misleading information), and what possible enforcement actions could be taken.

Questions for Public Comment:

  1. What additional compliance costs might corporations face if required to transmit their beneficial ownership information to a national registry, and how might these costs be reduced?
  2. Should directors of a corporation be liable for non-compliance with the corporation's beneficial ownership registry obligations?
  3. Should the public be charged fees to access all or parts of beneficial ownership and other company information, to help cover the costs of implementation, verification and enforcement?
  4. What processes (if any) should be put in place for verifying the beneficial ownership information provided (e.g., proof of identification for directors, beneficial owners and/or officers/agents of a corporation)?
  5. What means could be used to verify identities (e.g., a driver's license, passport, or bio-identifiers)?
  6. How frequently should corporations be required to update the information provided to the registry?
  7. Under what circumstances, if any, should corporations be exempted from providing beneficial ownership information to a public registry?

6.3 Should there be limitations on information disclosed through a Public Registry (or Public Registries)?

Privacy, Personal Information and Access to Beneficial Ownership Information

The types of information made accessible through a public registry would need to be weighed against reasonable expectations of privacy, including the risk of making individuals with significant control vulnerable to identity theft and extortion, as well as having their personal information accessed by data harvesters or misused by foreign actors. These concerns may warrant a tiered model with varying levels of access based on the consumer of the information. Certain information could be restricted to competent authorities, and possibly private sector entities with beneficial ownership obligations under anti-money laundering legislation.

Such an approach exists in the UK, where Companies House only discloses partial birthdates and residential addresses of directors and PSCs, under strict controls, to certain public authorities such as the police. Companies House may provide other non-public information, such as email addresses provided in the course of electronically filing company information to law enforcement on request. People who may be at a high risk of violence or intimidation from being on the UK register may apply to have particular information withheld from public access. The usual residential addresses of directors and PSCs are also disclosed to credit reference agencies unless those individuals have been granted protection from making such information public.

Questions for Public Comment:

  1. What are the potential risks to beneficial owners of making their information accessible through a public registry (or public registries) (e.g., identify theft, access by hostile foreign governments)?
  2. Should certain beneficial ownership information provided to the registry be accessible only to law enforcement, tax and other authorities? Should a tiered access model be adopted based on the entity seeking the information? What information should be withheld and under what conditions?
  3. Should individual beneficial owners be able to seek exemptions from having some or all of their information made public, on grounds of safety, protecting the privacy of legitimate investment decisions, or similar reasons? Under what basis should such requests be granted?
  4. Which other organizations (e.g., FINTRAC, private sector entities with anti-money laundering obligations) should have access to the withheld information and under what conditions?

6.4 What other factors should we take into consideration when assessing the Public Registry (or Public Registries) approach?

In addition to the specific provisions that should be in place for implementing a public registry (or public registries) of beneficial ownership information, we invite participants to provide feedback on other considerations important to this consultation. Namely, the overall effectiveness of public registries in countering illicit financial flows, effects on the investment climate, international best practices in operating registries, as well as legislative or policy obstacles that might prevent the adoption of such a model in Canada.

Questions for Public Comment:

  1. In other jurisdictions, have public registries demonstrated effectiveness in ensuring accurate information, supporting investigations by law enforcement, tax, and other competent authorities?
  2. In other jurisdictions, have public registries reduced the misuse of corporations for criminal or other illicit activities?
  3. Have public registries had an effect on investment levels?
  4. Are there international best practices and experiences that Canada can learn from were it to adopt a public registry (or public registries)?

Glossary

Register: An official record of information on the beneficial owners of a corporation (e.g., names, dates of birth, addresses), that is prepared and maintained by the corporation at its registered office or at any other place in Canada designated by the director including in a central registry.

Central registry (or registries): A government-controlled database that houses corporate beneficial ownership records. The Government of Canada, provinces and territories could maintain their own central registries, or report their data to a shared database covering more than one jurisdiction. The information held within these registries would be made available to law enforcement, tax and other competent authorities, though not to the public.

Public registry (or public registries): A type of government-controlled central registry in which all or part of the beneficial ownership data held within is publicly accessible. In Canada, this could consist of a single, centralized public registry applicable to all corporations incorporated under federal, provincial and territorial laws. Access to the registry may be tiered with certain data available to law enforcement, tax and other competent authorities, though not to the public. Alternatively, the Government of Canada, provinces and territories could establish a network of independent registries of beneficial ownership, ideally accessible through a single portal, potentially making use of existing government-controlled corporate registries or purpose-built infrastructure. This model could also consist of a hybrid approach in which some governments join a single registry, while others maintain their own independent registries.

Annex A: Summary of Questions

Should Canada establish a Public Registry (or Public Registries) of Beneficial Ownership?

  1. Should Canada establish a public registry (or public registries) of beneficial ownership for corporations, and why?
  2. If not a public registry (or public registries), should Canada establish a central registry accessible only to competent authorities? What are the advantages and disadvantages of having a central registry over a public registry (or public registries)?

If yes, what key features would make a Public Registry (or Public Registries) effective?

  1. What additional compliance costs might corporations face if required to transmit their beneficial ownership information to a national registry, and how might these costs be reduced?
  2. Should directors of a corporation be liable for non-compliance with the corporation's beneficial ownership registry obligations?
  3. Should the public be charged fees to access all or parts of beneficial ownership and other company information, to help cover the costs of implementation, verification and enforcement?
  4. What processes (if any) should be put in place for verifying the beneficial ownership information provided (e.g., proof of identification for directors, beneficial owners and/or officers/agents of a corporation)?
  5. What means could be used to verify identities (e.g., a driver's license, passport, or bio-identifiers)?
  6. How frequently should corporations be required to update the information provided to the registry?
  7. Under what circumstances, if any, should corporations be exempted from providing beneficial ownership information to a public registry?

Should there be limitations on information disclosed through a Public Registry (or Public Registries)?

  1. What are the potential risks to beneficial owners of making their information accessible through a public registry (or public registries) (e.g., identify theft, access by hostile foreign governments)?
  2. Should certain beneficial ownership information provided to the registry be accessible only to law enforcement, tax and other authorities? Should a tiered access model be adopted based on the entity seeking the information? What information should be withheld and under what conditions?
  3. Should individual beneficial owners be able to seek exemptions from having some or all of their information made public, on grounds of safety, protecting the privacy of legitimate investment decisions, or similar reasons? Under what basis should such requests be granted?
  4. Which other organizations (e.g., FINTRAC, private sector entities with anti-money laundering obligations) should have access to the withheld information and under what conditions?

What other factors should we take into consideration when assessing the Public Registry (or Public Registries) approach?

  1. In other jurisdictions, have public registries demonstrated effectiveness in ensuring accurate information, supporting investigations by law enforcement, tax, and other competent authorities?
  2. In other jurisdictions, have public registries reduced the misuse of corporations for criminal or other illicit activities?
  3. Have public registries had an effect on investment levels?
  4. Are there international best practices and experiences that Canada can learn from were it to adopt a public registry (or public registries)?

Annex B Example of a Public Registry: The UK Register of People with Significant Control

In 2016, the United Kingdom introduced its register for people with significant control. UK companies, Societates EuropaeaeFootnote 18 and limited liability partnerships need to keep a register of their respective PSCs and file it with the central public register at Companies House.Footnote 19 This register is publicly accessible and searchable, and can be accessed free of charge. PSCs currently include anyone who, among other factors, holds more than 25% of shares or voting rights in a company, holds the right to appoint or remove the majority of the board of directors, or has the right to exercise or exercises significant influence or control over a company. The information on the register (e.g., each PSC's name; partial date of birth (month/year); nationality; service address; residential address; date the person became a PSC; how control is exercised) is made available to the public, though some data (including full date of birth and residential address) is not.Footnote 20 Companies must also make their PSC register available for inspection at their offices on request, while failure to provide accurate information on the PSC register and comply with notices are criminal offences, punishable with a fine or prison sentence of up to two years.

The PSC register is extensively used by law enforcement to inform criminal investigations, by financial institutions to conduct due diligence on prospective corporate clients, and by civil society organizations for research. While stakeholders generally found the PSC register to be a useful resource, they identified concerns with the accuracy of the data, noting that the register data was not definitive and did not eliminate the need to obtain corroborating beneficial ownership information from other sources.Footnote 21

Although Companies House performs basic checks on corporations' submissions, it does not verify the identities of persons with significant control or conduct other forms of due diligence, which increases the risk of inaccurate information being entered. This gap is particularly an issue for a small proportion of companies that register directly with Companies House (without using a third party service provider) and do not have a UK bank account, where they would otherwise be subject to customer due diligence by their financial institution, including providing beneficial ownership information. Companies House has identified cases of false information being filed, including fraudulent audit reports, individuals being fraudulently appointed, or companies providing false addresses.Footnote 22

Since the introduction of the PSC register in 2016, Companies House has taken measures to improve the accuracy of the data, including by introducing a feature for third parties to report suspected errors, along with requiring reporting entities to report inaccuracies in clients' beneficial ownership data. In a consultation held from May-August 2019, the UK Government sought input on proposed measures to introduce identity verification requirements for company directors, PSCs and intermediaries, as well as new approaches to improve compliance and deter misuse.Footnote 23

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