Exposing Beneficial Owners and Combating Corruption
Following its success in the extractive industries, Armenia is expanding its beneficial ownership register to all limited liability companies (LLCs) operating in the country.
’Beneficial ownership’ refers to an ownership or shareholder position of a company or corporation from which a person is able to benefit financially. It may be the case that a company is registered under one person’s name, so that on paper it looks like their company, but only as a way to hide who the beneficial owner is — meaning the person who financially benefits from the company.
Armenian legislation prohibits any public official from holding beneficial ownership positions, however, through complex arrangements, such as offshore registration, chains of ownership, and shell companies, corporate stakeholders are basically anonymous.
How could you trust that your politicians were making decisions impartially, or with your best interests at heart, if you had no way of knowing what other motives they might have? They might be using their official positions to award contracts or permits to companies they own. If they stand to gain financially from these decisions, it is a clear conflict of interest, and corruption. But if you’re not able to see who is making money from a deal like this, then what use are the laws prohibiting a public official also holding a beneficial ownership position? And how, under those circumstances, could a public really trust its government?
A Window into a Murky World
The creation of a Beneficial Ownership Register in Armenia introduces much-needed transparency into the political and corporate worlds, making it easier for the public and legal agencies to scrutinise potential instances of corruption and cronyism. By providing access to companies’ real owners, the register ensures a greater degree of political and corporate integrity, aiming to increase public confidence. It is also a crucial tool for tax and legal agencies to avoid money being laundered or funnelled out of the country through corporate sophistry.
Widening the Lens
Initially, the register was piloted by targeting the extractive industries as one of the commitments included in the 2018-2020 action plan. This allowed the system to be tested and refined by the State Registry, and it has since been expanded to include all LLCs operating within Armenia. Starting with the extractive sector made both fiscal and symbolic sense. These industries have long been suspected of using their international structures to avoid accountability and to get around paying their share of taxes. Symbolically, because of suspicions of ties between these businesses and politicians in the past, it also sends a message to the Armenian public that the government is serious about regaining public trust through openness, transparency, and honesty.
To strengthen the message sent by the creation of the register, its launch has been accompanied by public awareness campaigns, and by the development of penalties for companies trying to evade the register.
Ensuring the standard and reliability of the verification process is good enough, especially when companies use offshore registration and chains of ownership to obscure their structures and remains a challenge. The best way of dealing with this is through international cooperation with other nations building similar registers. This means that the records can be verified more easily and therefore are more reliable.
As the register expands to other industries, extra attention is being paid to the media in particular, as many outlets have long-standing reputations for their corrupt political affiliations. The dissemination of misinformation and propaganda have been hugely impactful in combating mistrust, and the disclosure of media ownership and beneficial relationships could improve accountability in the media sector and rebuild public trust.
A Government Taking Steps to Regain Public Trust
There have been challenges presented by the COVID-19 pandemic and as such the interoperability of databases of various state agencies isn’t quite to the levels they need to be, and so databases for some sectors have not been completed. Nevertheless, the growing Beneficial Ownership Register presents potentially a watershed moment in the Armenian Government’s attempts to expose and, by doing so, eradicate corruption, and to ultimately reform its public image so that the public can trust that the government does have their interests at heart.
PHOTO: Armenia’s Minister of Justice, Rustam Badasyan, signs a memorandum of understanding with Open Ownership.
Credit: Ministry of Justice, Armenia