Who controls and benefits from companies in Latin America and the Caribbean?

January 9, 2023

At Iran Open Data, we have been working to make resources about open data and access to information available to open data advocates in Iran. The following blog post from Open Ownership Organisation is one of the resources we have made available in Persian. This post originally appeared here.

From September 26 to 29, America Abierta was held, a regional meeting co-organized by the Open Government Partnership , the Inter-American Development Bank , the Organization of American States and the government of the Dominican Republic. The event brought together more than 500 activists, government representatives, and regional and international organizations to discuss the future of the region in terms of transparency, democracy, and citizen participation.

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The discussion on the transparency of who controls and benefits from companies in Latin America and the Caribbean (LAC) was part of the meeting, as a conversation that undoubtedly forms part of the debate on democratic strengthening, accountability measures and the fight against corruption in the region.

The people behind chains of corporate ownership are generally known as beneficial owners. Countries such as Argentina, Paraguay and Brazil have records of final beneficiaries, although they are not publicly accessible. Others such as Chile, Colombia and the Dominican Republic are in the process of creating their own registry, while only Ecuador publishes some information on the shareholders and directors of companies registered in that jurisdiction. In addition, while 11 countries in the region are members of the Extractive Industries Transparency Initiative(EITI), the advances regarding the publication of the final beneficiaries of the companies that have or apply to have a concession or permit in the sector, continues to be minimal and based mainly on the voluntary participation of the companies.

Considering the regional scenario, América Abierta had two spaces for reflection and exchange on what opportunities, challenges and entry points exist to advance in substantive reforms that promote corporate transparency and accountability for the people who ultimately benefit from their operations. They participated in the various spaces:

  • Pamela Morales Maggio . Undersecretary of Mining. Argentina.
  • Marco Lopez Narvaez . Superintendent of Companies. Ecuador.
  • Miguel Diaz . Vice Minister of Mines. Ministry of Energy and Mines, Dominican Republic.
  • Valeria Lübbert , Executive Secretary of the Public Integrity and Transparency Commission, Chile.
  • María Baron , Global Executive Director of Legislative Directory, and President of the OGP Board.
  • Nina Sibilla . Democracy Coordinator of the FUNDEPS organization. Argentina
  • Mauricio Alarcon Salvador . Executive Director of the Citizenship and Development Foundation. Ecuador.
  • Fernando Pena . Coordinator of the Dominican Observatory of Public Policies. Autonomous University of Santo Domingo, Dominican Republic.
  • Elizabeth Mena . President of the Dominican Mining Corporation (Cormidom).

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Why, for what and for whom

One of the main benefits of having this information available to the public is the ability to be scrutinized by any interested person or institution. Although public bodies have responsibilities and interests when enforcing the law and exercising their control functions, the fact of having information on final beneficiaries openly and free of charge prevents malicious people from hiding, allows journalists and organizations to collaborate in the verification of the information and validate the declared data, and makes it easier for civil society and the government to prevent potential cases of corruption or conflicts of interest.

Data leaks such as the Panama or Pandora Papers, or journalistic investigations on business concentration in the region, have shown the usefulness of having this information. However, technical challenges in collecting, structuring and publishing data, and achieving a high reporting rate by companies, are the main obstacles to achieving ambitious reforms. Added to these challenges are resistances centered on possible risks to the safety of people when sharing information about their heritage.

One strategy to implement the reforms and move slowly but surely consists of identifying strategic or high-risk sectors (depending on the region or country in question), to stagger the requirements and test the systems and formats. Areas such as the extractive industries, the agricultural sector or those companies that have public contracts or receive state subsidies or benefits, are commonly considered strategic to start with final beneficiary reforms. This is so either because of the significant weight that the sector may have in the country's economy, or because it benefits from public resources, and therefore, with even greater responsibilities of transparency regarding their execution or exploitation of public resources. all the citizens. Such is the case of Chile, Paraguay and the Dominican Republic,Opening Extractives.

Capacities, internal rules and myths

Various challenges were presented in the exchange spaces. Below we present the main ones identified, and the reflections on each one of them.

  • Institutional and interprovincial coordination

The exchange of information between the various public agencies is a central aspect, often overlooked, but which nevertheless has a direct impact on the quality of the implementation of these reforms. There are entities with legal impediments to sharing information with others (such as fiscal secrecy if a registry is under the purview of the tax authority, or financial secrecy if the registry is under the money laundering authority or similar); At the same time, even when there are no legal impediments, the exchange and crossing of data in the necessary quality and structure, is presented as an additional complication to be taken into account.

Likewise, in federal jurisdictions (such as Argentina and Mexico) there is greater complexity, requiring not only horizontal coordination between national government areas, but also with the various provincial/state entities responsible for collecting and storing the information declared by companies.

  • Technical capabilities and human resources

The knowledge and profiles of the people who make up the teams of the implementing entities are an additional challenge to consider. Beneficial ownership transparency may be simple when considering simple corporate structures, but it is an extremely complex phenomenon when considering listed entities, public companies, investment trust funds, and the myriad of legal instruments that exist and are frequently used by part companies operating transnationally. Having trained technical teams and authorities committed to the issue is vital for effective reforms.

  • Sensitive data and personal security

It is common for people forced to declare their interest in legal entities to argue that this threatens their personal security, thus making them vulnerable to potential cases of insecurity, kidnapping, theft, etc. Although at the time of implementing this type of reform, the legal framework must be harmonized with the existing one in the locality on the protection of personal data, and clearly establish what information must be published and what must remain in the custody of government entities (according to an approach based on at risk), there is no evidence of a single case of insecurityor attack against the physical integrity of a final beneficiary where there are records open to the public. Working together with the opponents of these reforms to debunk myths and present evidence is essential to achieve ambitious reforms.

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Incentives and business concentration

Latin America and the Caribbean is an extremely unequal region, with a high concentration of wealth in a few companies. The transparency of the business sector is therefore vital: it exercises power through the financing of electoral campaigns and political parties, ownership of media outlets that outline public agendas, exploitation of natural resources, among many others. Knowing the natural persons behind the business operations, and in which businesses they participate, can collaborate with the prevention of money laundering, financing of terrorism and potential cases of corruption, while also collaborating with the effective exercise of human rights.

Furthermore, as was recently shown , this information can contribute to a transparent and responsible energy transition. Many of the region's resources are exploited by multinational companies. The transparency of the final beneficiaries allows knowing who controls the companies that extract the resources, their country of origin, the country to which they must pay taxes and the rules to which they submit such taxation. This provides additional information on whether the fiscal terms of the exploitation of natural resources are fair or whether they should be subject to additional reforms.

Extractive activities are risky investments. Due to their nature and the large amount of resources used in their operation, these activities are also subject to severe corruption risks. Given the finite number of concessions and permits, the transparency of final beneficiaries allows companies to be certain that the rules are the same for everyone and that the interest of all market participants is lawful. Likewise, the transparency of the final beneficiaries makes it easier for companies to carry out due diligence investigations in the identification of allies and partners that share the financial risks in the exploitation of extractive resources.

That is why intensive work must be done with the private sector to communicate the benefits of having this information available, and how transparency and good corporate governance can provide tangible results in terms of reputation, finance and democracy. The Open Data Barometer shows how LAC is one of the regions of the world that is furthest behind in terms of transparency of final beneficiaries, only behind Asia. Working side by side with the private sector and identifying its incentives to achieve ambitious reforms is key to systematically advancing the agenda in the region.

Opportunities and next steps

The Opening Extractives program, implemented by EITI and Open Ownership, is a global platform that seeks to support governments in implementing final beneficiary transparency reforms, while working together with data users to analyze data and add value.

In the coming years, we will work together with the governments of Chile, Ecuador, Argentina, and other interested parties, to support their reforms and promote transparency and the use of data for a democratic strengthening based on rights, transparency, and corporate accountability.

Conference photo, America Open