April 6, 2021
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1) Executive summary
From February to May 2020, the Government of Canada undertook public consultations on the creation of one or more publicly accessible registries that identify the beneficial owners of Canadian corporations. Beneficial ownership refers to the natural persons who, through direct or indirect means, exercise ultimate ownership or control over a corporation, such as through an ownership interest or control over decision-making. This is distinct from legal ownership, which could involve other legal persons such as trusts or other corporations. Beneficial owners also refer to the natural persons behind nominee shareholders, who serve as a registered owner of shares in a corporation or assume a management position on behalf of a beneficial owner. 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.
This consultation examined the merits of beneficial ownership registries, features that would make them more effective, potential limitations on information disclosed, and other factors to be considered. Over the course of these consultations, the Government heard a clear message from a broad range of stakeholders — including law enforcement and tax agencies, industry associations, privacy commissioners, individual Canadians and civil society — that more must be done to reduce the risk of corporations being misused for illicit activities, such as money laundering and tax evasion.
To this end, nearly all parties agreed that there is a legitimate public policy rationale for housing beneficial ownership data within a central government repository. The registry (or registries, if undertaken at the provincial and territorial level) should contain accurate, verified and up-to-date data and use the latest in digital technologies. Measures should be taken to ensure the accuracy of beneficial ownership data and ease of use for individuals uploading their information to the registry, as well as those authorized to access it. Stakeholders called on the federal government to take a lead role in ensuring a seamless and standardized system interoperable with existing federal and provincial registries to reduce the need for multiple filings and facilitate compliance. Sanctions for not providing timely or accurate data to registries should be proportionate and flexible. Reasonable access fees for registry users could be considered to offset operating costs.
Public accessibility to the registry (or registries) was of significant interest to most stakeholders, who expressed divergent views. Many stakeholders advocated for full public access while others flagged significant privacy and security issues. Notwithstanding some support for public registries, public access was not considered by the majority of stakeholders as essential to achieving the policy objectives of combatting the misuse of corporations, considering the accompanying privacy and security risks. Furthermore, some parties expressed caution about the impact that public registries could have on investment, particularly given Canada's proximity to the United States. At the time of the consultation, the United States was considering a registry only accessible to authorized government authorities, an approach that has now been adopted.
A strong majority of stakeholders agreed with the concept of tiered access, in which law enforcement, tax and other authorities could have unrestricted access to beneficial ownership information, with other classes of users (e.g., private sector companies with anti-money laundering obligations) restricted to a more limited dataset, based on need to know. A phased approach was also suggested, starting with granting access to competent authorities, and gradually expanding access to other parties only once a functional, verified registry (or registries) could be put in place.
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2) Background
Although the vast majority of corporations contribute positively to society, certain features of companies can make them vulnerable to misuse for criminal activities, such as money laundering and tax evasion. When wrongdoers take advantage of the ability to create complex ownership structures and make use of nominee shareholders and directors, the identities of the natural persons or "beneficial owners" who own and control corporations can remain hidden from those who may need to know, such as law enforcement and tax authorities. The inability for competent authorities to obtain accurate and timely information on the ultimate beneficial owners of companies (whether from financial institutions, corporate registries, or from a corporation's own shareholder records) challenges their efforts to follow the money in financial investigations.
In Canada, responsibility for corporate law is shared between federal, provincial and territorial governments. Corporations Canada and its provincial and territorial counterparts maintain registries of all companies incorporated under the laws of their respective jurisdictions. Some of these registries are freely accessible by the public, while others charge fees or subscriptions to access all or part of the data. Although maintaining basic information on the corporations (e.g., company name, registered address, names and addresses of directors), they do not explicitly require companies to identify their beneficial owners. Corporate registries do not generally investigate or verify the information provided by corporations.
In addition, financial entities operating in Canada (including banks, credit unions, insurance companies and money service businesses, referred to as "reporting entities") are required under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, where a client is acting on behalf of a corporation, to identify its beneficial owners. In fulfilling these obligations, reporting entities have noted the lack of a reliable, third-party source to corroborate beneficial ownership information provided by their clients and have consistently called for additional tools to help them fulfill their due diligence requirements.
Since 2016, the Government of Canada has been working with its provincial and territorial counterparts to increase the availability of beneficial ownership information for law enforcement and tax authorities. The December 2017 Agreement to Strengthen Beneficial Ownership Transparency reached by finance ministers committed jurisdictions to require corporations to keep records of their beneficial owners and address misuse of bearer shares.Footnote 1 Through this agreement, ministers also agreed to continue existing work assessing potential mechanisms to enhance timely access by competent authorities to beneficial ownership information, such as through central registries.
Building on the 2017 commitment, federal, provincial and territorial ministers at the June 2019 special meeting of ministers responsible for anti-money laundering and beneficial ownership agreed to cooperate on initiating consultations to increase beneficial ownership transparency, in order to combat the misuse of corporations for money laundering, tax evasion and other financial crimes. To implement this commitment the Government of Canada, in February 2020, initiated public consultations on the creation of a publicly accessible registry (or registries) of beneficial ownership for corporations. The consultation period closed on May 30.Footnote 2 This report summarizes the results of the federal government's consultations, which included the participation of provincial and territorial officials.
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3) Who we heard from
Over the course of the consultations, Innovation, Science and Economic Development (ISED) and Finance Canada officials met in person or by phone with 29 organizations across Canada, in the public, private and non-profit sectors, and received 50 written submissions. A broad spectrum of stakeholders provided input, including law enforcement and tax agencies, industry associations, privacy commissioners, individual Canadians and a coalition of civil society organizations. We would like to thank all stakeholders for meeting with us to share their views and for providing thoughtful submissions.
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4) Aligning with international best practices
In recent years there has been heightened international attention to the use of corporations to conceal illicit activities, including money laundering, tax evasion and other financial crimes. Given the cross-border nature of many financial flows, governments around the world have a responsibility to prevent legal entities from being misused for criminal purposes. Under the global anti-money laundering and anti-terrorist financing standards set by the Financial Action Task Force (FATF), centralized registries of the beneficial owners of corporations are one of the tools that countries can use to ensure competent authorities have adequate, accurate and timely access to beneficial ownership information to support investigations.
Although the FATF standards do not mandate central registries of beneficial ownership, public or otherwise, many countries have implemented or are considering these to improve corporate transparency. The United Kingdom adopted the world's first free, open, publicly accessible registry of beneficial ownership for privately held corporations in 2016. Countries in the European Union, for their part, are at varying stages of implementing the European Fifth Anti-Money Laundering Directive adopted in 2018Footnote 3. This Directive requires European Union members to each implement a central registry of beneficial ownership information that is accessible to competent authorities as well as parties, such as reporting entities, that can demonstrate a "legitimate interest". The Directive also requires that certain basicFootnote 4 information on beneficial owners accessible to the public.
Mechanisms for recording beneficial ownership information, select countries
A number of stakeholders expressed concerns that the lack of beneficial ownership reporting requirements in Canada's corporate law regime makes privately held companies vulnerable to abuse. A growing number of Canadian jurisdictions are requiring companies to keep records of their beneficial owners, but the process of performing these checks can be costly, may not always permit timely access, risks tipping off entities to an ongoing investigation, and rules out large-scale data analysis on trends and typologies.
In order to align with ambitious measures taken by other countries and support efforts to counter corruption worldwide, certain stakeholders called on Canada to adopt a publicly accessible registry along the lines of the United Kingdom. Others concurred with the merits of introducing a registry reporting requirement but expressed concerns about the ramifications of public access to this information and the effect it would have on enforcement and prevention outcomes.
Stakeholders have pointed to the evolving nature of beneficial ownership transparency requirements as they are implemented in countries and jurisdictions worldwide. As countries implement measures to strengthen beneficial ownership transparency and align themselves with the FATF standards, there is a desire for Canadian governments to adopt international best practices and stay abreast of the challenges and lessons learned from embracing an increasingly transparent beneficial ownership regime. This includes understanding what measures are effective in encouraging compliance and detecting non-compliance, mechanisms to verify the accuracy of information reported to the registry, the degree to which beneficial ownership data should be made public and ensuring information remains current.
As noted in a recent FATF studyFootnote 5, an ongoing reporting requirement for companies, the use of different verification means to ensure data accuracy, access by competent authorities as well as proportionate and dissuasive sanctions. are keys to an effective registry, which can supplement other means for obtaining beneficial ownership information.
Finally, several stakeholders recommended that the federal government engage in further consultations with authorities from other countries with and without public registries to better understand the efficacy and impact of beneficial ownership registries and lessons learned. Many of these stakeholders acknowledged the evolving nature of best practices influencing beneficial ownership transparency and the spectrum of options for implementation. In this context, it is important that Canada takes an evidence-based approach.
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5) Implementing a central and seamless regime
Centralized access
Stakeholders agreed that Canada should do more to deter and detect the misuse of Canadian corporations, aligning itself with emerging international best practices related to beneficial ownership transparency, while minimizing the risk of disparities arising as provinces put in place measures to collect beneficial ownership information. To this end, nearly all parties agreed that there was a legitimate public policy rationale for creating a central registry (or registries) to house beneficial ownership data. With respect to the current federal obligations on companies to obtain and record the identities of their beneficial owners, stakeholders cited the time and resource intensive nature of the tracing process. Stakeholders agreed that immediate data access for law enforcement, tax and other competent authorities could shorten the time required, giving investigators a clearer starting point to trace ownership without potentially tipping off the entity. Centralization could also permit large-scale data analysis for understanding trends and typologies on how corporations are being used.
Harmonization of requirements and interoperability
Several stakeholders emphasized that requirements on corporations to identify and report their beneficial owners to central registries should be harmonized across jurisdictions to the extent possible, with the enabling statutes consistent in their definitions and applications. Some parties pointed to discrepancies with the definitions of beneficial ownership within the various governing statutes and the threshold above which owners must report their holdings, such as the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), the Canada Business Corporations Act and equivalent provincial legislation, as well as the Income Tax Act. Some parties recommended mirroring the approach taken in Canadian securities laws, where provinces agree to adopt similar legislation but make carve-outs via regulations as needed. It was suggested that failure to ensure consistent requirements going forward could compound interoperability issues within Canada's beneficial ownership regime. Some stakeholders called for the 25% beneficial ownership threshold (used in Canadian legislation and other FATF member jurisdictions) to be lowered to 10%.
Similar views were expressed in relation to ensuring cross-jurisdictional standardization of data requirements, file formats, technical interfaces and interoperability between federal and provincial registries. For maximum usability, stakeholders noted that such a registry should be searchable across a variety of relevant fields, including director, beneficial owner and company number.
Comprehensive coverage of other legal persons and arrangements
Stakeholders observed that requirements on corporations to report their beneficial ownership information to central registries ought to encompass trusts and partnerships, which fall under provincial jurisdiction. Recognizing that criminals can and will migrate to the least transparent vehicles, such a move would ensure consistent treatment and avoid creating further incongruence in the market.
Federal leadership
Stakeholders called on the federal government to take a lead role in ensuring a seamless and standardized model interoperable with existing federal and provincial registries to avoid multiple filings and creating a seamless interface and experience. Concerns regarding the potential lack of sufficient harmonization and corresponding impacts to the ease of doing business and investment led many stakeholders to advocate for a federally-coordinated beneficial ownership registry, which would either compile data across provincial and territorial registries, or provide a central portal for accessing provincial and territorial data concurrently.
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6) Removing anonymity while protecting privacy
Public accessibility to a beneficial ownership registry was a subject of significant interest to most stakeholders. Although some stakeholders supported a public registry, others asserted that public access was not essential to achieving the policy objectives of combatting the misuse of corporations, and warned of the accompanying privacy and security risks. While stakeholders generally agreed that the beneficial owners should not be able to remain anonymous from law enforcement and tax authorities, comparatively fewer believed that the full names or personal details of beneficial owners should be made public. In fact, nearly all acknowledged that there are valid risks to privacy and security harms arising from disclosure of identifying information and that once the information enters the public sphere, it would be difficult to retract or control its use for unintended purposes.
Stakeholders acknowledged that some jurisdictions already disclose the names and addresses of officers and directors, and that this level of disclosure should extend to beneficial owners. In their view, not all information about an individual should be considered personal information and the context in which the information appears is important in determining whether its disclosure infringes on reasonable expectations of privacy. These stakeholders argued that the benefits of disclosure of partial information could outweigh the risks, provided that privacy protections are explicitly spelled out in the enabling legislation underpinning the beneficial ownership regime.
Public access — safety and privacy
Certain groups of stakeholders cited safety concerns that could affect their members or their members' families if beneficial ownership data were publicly accessible, including extortion and kidnappings. Depending on the categories of personal information posted publicly, beneficial owners could be at high risk of fraud and identity theft, with small businesses being disproportionately vulnerable. Business stakeholders cautioned against indiscriminate public access, as it could allow ownership data to be scraped by third parties or otherwise misused for unintended commercial purposes. Public access could also lead to data being misinterpreted by observers to make unsubstantiated allegations about an individual's finances or business associates, harming their ability to make business dealings or access financial services in the future. While many parties acknowledged the role of an exemption regime in alleviating safety concerns, where individuals could apply to have certain details withheld from public access, others were unconvinced of the efficacy or immutable nature of such a regime.
Concerns were similarly raised in relation to ensuring the privacy of beneficial ownership data for legitimate business reasons such as succession planning, competitive positioning and not tipping off competitors to mergers and acquisitions. Maintaining the security of data holdings on a public registry against unauthorized use was a significant concern, as a public-facing registry could be at higher risk of a data breach. These stakeholders believed that having a registry in itself would contribute to Canada's business confidence and confidence by foreign investors, though public access would not be necessary for these benefits to be enjoyed.
Phased-in approach
The majority of stakeholders agreed that access to the central registry (or registries) should be tiered, with law enforcement, tax and other competent authorities having access to the full spectrum of beneficial ownership information. Other classes of users, such as private sector "reporting entities", could receive access to a more limited dataset, accessible on a need to know basis or using a zero-knowledge proof method of access. To this end, several stakeholders recommended that the federal government proceed with caution on implementing a public registry in the short term, instead recommending a stepped or phased approach. In this way, access would be initially restricted to law enforcement, tax and other competent authorities, and gradually expanded to other entities and eventually the public only following careful planning, consultation, evaluation and implementation at each stage.
Supporters of a staged approach believed that it would afford government policymakers greater opportunity to consider a framework and governance structure for an exemption regime inclusive of the types of exemptions that would be granted, the duration of such exemptions and the process for managing risks to personal security and security of data holdings. It would also afford time for developing and refining the core technology elements for ensuring that any registry solution is functional, verifiable and easy to use. Other stakeholders suggested that more targeted consultations related to the data elements to be held in the registry and those eligible to access them.
Exemption regime
Stakeholders generally agreed that if a public registry were established, beneficial owners who believe themselves or their families to be at personal risk should have the right to seek an exemption from disclosure of their personal information in the public registry. Stakeholders held a variety of views as to the stringency and rigour of an exemption regime, and whether exemptions from disclosure should be permanent versus time-limited. Some parties expressed caution about potential gaming of the exemption regime and the need for strict controls to confirm the threats claimed by the requesting parties. Stakeholders generally acknowledged that careful time and consideration would need to be given to establish an exemption regime and that such regime would not shield beneficial ownership information from review by law enforcement, tax and other competent authorities.
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7) Ensuring Credible Registry Data
Stakeholders concurred that holding accurate, verified information was key to a credible and reliable registry, and for many this meant that government(s) responsible for the registries would need to take the lead in ensuring data integrity. With respect to ensuring accuracy of the data held in the registry, stakeholders held a range of views on potential verification methods, each with varying degrees of costs and complexity.
As an initial review mechanism, many parties suggested that governments could conduct basic due diligence on filings received, using technological solutions to identify problematic or suspicious filings that the registry can follow up for clarification. As examples of indicators that could be used to flag filings thought to be at risk of misuse, corporations with foreign or non-resident beneficial owners could be deemed higher risk and subject to greater scrutiny.
Respecting who should verify the beneficial ownership data, some stakeholders believed that the identities of beneficial owners could be validated through professional attestation (e.g., by a notary, accountant or lawyer). Others cautioned about the added costs and complexity of an attestation requirement for law-abiding businesses seeking to incorporate quickly and at a low cost, and the liabilities it would impose on attesters.
Several stakeholders saw the potential for cross-referencing data held by the registry or registries against that held by other government agencies (e.g., tax authorities), as well as allowing third parties to flag deficiencies in a certain corporation's information. In this regard, it was suggested that there could be a requirement for reporting entities to report any discrepancies between their client records and a client's registry filings, for follow-up by the registry. Many opposed this view, suggesting that the detection and investigation of inconsistencies should be left to the registrar.
Some stakeholders believed existing forms of government-issued identification such as drivers' licenses and passports were sufficient while others believed signed attestations from beneficial owners should suffice provided there were penalties for those that provide false information. Some stakeholders pointed to the verification methods set out in the PCMLTFA as guidance for acceptable methods.Footnote 6 As well, many considered that unique identifiers, linked to an individual's name, the month and year of birth, citizenship, country of principal residence, and address of correspondence could be used to identify a beneficial owner with interests in multiple companies. Stakeholders expressed mixed views about the potential use of biometrics given the heightened privacy sensitivities around their use.
Some stakeholders believed that giving the public access to the registry would contribute to the verification and strengthen the quality of data in the registry. These parties were of the view that public scrutiny would lead to identification of information gaps, the identification of false or incomplete information, and detection of crime and corruption.
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8) Minimizing the Cost and Compliance Burden to Corporations
Canada has a global reputation as a country that facilitates the ease of doing business. This includes making it easy for Canadians to start a business by ensuring that companies can be incorporated speedily and at a low cost. Many stakeholders expressed concerns that new reporting obligations could significantly add to the costs of running their business and compliance burden associated with new legislative and regulatory reporting obligations.
Updating and reporting obligations
To reduce the cost and compliance burden several stakeholders recommended adding beneficial ownership reporting obligations to companies' existing requirements to provide annual filings to the corporate registries. Others suggested using data collected through tax filings to populate the registry automatically as a straightforward and reliable means for ongoing data collection. Furthermore, there was general agreement that event-driven updates should be required following material changes to a company's individuals with significant control, complementing the baseline annual reporting. Many companies are only active for one year, after which they are dissolved. Event-driven updates could reduce the ability for illicit actors to circumvent the annual reporting obligation. Stakeholders suggested a range of timelines for making the necessary updates (e.g., 14-30 days), with potential for alignment with the existing obligations in the Canada Business Corporations Act and equivalent provincial legislation.Footnote 7
Leveraging guidance and facilitating compliance
Many stakeholders argued that any new registry reporting requirement should be accompanied by an awareness campaign to make sure that corporations clearly comprehend their filing obligations, interpret their obligations consistently, and understand why compliance is important. Any filing system should be online and easy to use, minimizing paper-based processes to reduce administrative costs. Fillable forms, drop-down menus and similar features may be used to reduce the potential for errors in the data. Quarterly email updates could be used to prompt filers to report if there are changes to a company's beneficial owners, to encourage compliance.
Access costs
Stakeholders who advocated for a public registry generally also supported free access, arguing that a paywall would undermine the benefits of increasing corporate transparency. Others, however, saw user fees as a way to deter frivolous searches, and "data mining" by those who might seek to profit from or misuse the personal data of beneficial owners. Several parties, including those with anti-money laundering obligations, supported options for a subscription service or user fee model, depending on how often they would need to consult a registry. Alternatively, others suggested that the costs of operating the registry could be included in incorporation fees.
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9) Enforcement Measures
Stakeholders generally agreed that penalties for corporations that neglect to report accurate and timely information to the registry should be proportionate and flexible, taking into account the degree and nature of non-compliance. Many stakeholders agreed that penalties ought to ensure that companies report timely and truthful data, while not excessively penalizing deficiencies best addressed through education and guidance. Most stakeholders supported the use of a range of graduated measures including automated reminders, scaling up to administrative monetary penalties (AMPs), deregistration, and criminal liability for more serious violations.
Outreach, warnings and penalties
Stakeholders agreed that sanctions associated with the beneficial ownership regime should be flexible with a range of administrative and criminal penalties reflecting the nature and severity of non-compliance. Minor violations, such as late filings, could be addressed though education and reminders emphasizing why compliance is important, given the impacts of financial crime on communities and businesses. AMPs could be reserved for more serious violations (e.g., knowingly providing false information, repeated non-compliance), potentially scaling in severity for companies that do not promptly address outstanding deficiencies.
Directors' liability
Some stakeholders suggested that company directors and officers should be held responsible for a corporation's non-compliance with beneficial ownership reporting obligations, treated similar to a breach of fiduciary duty. Conversely, many of the same stakeholders recognized that enforcing these requirements against non-resident directors could be a challenge.
Deregistration
Deregistration of a non-compliant corporation was suggested as one of the most powerful tools available to a corporate registry. As this step could have serious practical consequences for companies, the threat of deregistration could be effective at encouraging compliance in certain circumstances.
Criminal liability
In the framework of a proportionate scheme, criminal penalties up to and including imprisonment was also raised as an appropriate response to cases of serious and deliberate non-compliance. Such provisions, some felt, were necessary to further deter the misuse of corporations, while potentially giving law enforcement leverage against companies under investigation.
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10) Leveraging new technologies
A majority of stakeholders recommended that Canada capitalize on the emergence of advanced technologies and incorporate these into the design and implementation of Canada's beneficial ownership registry(ies). Many believe that the use of advanced technologies will reduce the burden on corporations, provide a seamless inquiry interface and enhance verification and security. A variety of proposals were made along the spectrum from using drop down menus and application programming interfaces (APIs) to ease registration use and access to using encryption-based services and blockchain to enhance security and using digital IDs, advanced analytics and artificial intelligence to support verification and data integrity.
Unique ID
Numerous stakeholders noted that the use of unique digital identifier could help identify beneficial owners and to provide insight into the number of corporations in which an individual beneficial owner have ownership interests. These stakeholders argued that a government issued digital ID provided the most efficient and secure method to confirm identities that could enable cross-referencing of beneficial owners of multiple corporations and businesses. Stakeholders pointed to digital ID solutions currently being studied or implemented in various federal government bodies and in some provinces. Some stakeholders suggested the federal government adopt recommendations put forward by the Digital ID and Authentication Council of Canada in order to eliminate any coverage issues that could arise when selecting a particular solution.
Drop down menus, AI, analytics
Several stakeholders pointed to technologies currently deployed in various countries as examples of applications facilitating ease of use to those who interface with a registry. Other stakeholders pointed to the best practices documented by the FATF and the role that technology can play to facilitate the identification checking, validation and tracing of beneficial owners.
In sum, there is general agreement that the optimal use of technology will be important in the successful functioning, overall security and cost of compliance for transmitting information to a registry or registries. Leveraging existing and emerging technologies will be essential to establish a cutting-edge registry with credible and reliable beneficial ownership information and to keep compliance burden to a minimum for all parties.
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11) Conclusion
Over the course of the consultations, the Government of Canada heard a clear message from stakeholders that action is needed to address the risk of corporations being misused for illicit activities. To this end, stakeholders across the spectrum supported the idea of a central registry (or registries) of beneficial ownership information as an effective tool in making sure that law enforcement, tax and other authorities obtain the information they need to identify the natural persons who own and control Canadian corporations. While there were more mixed views on the value and merits of public access, stakeholders broadly emphasized measures to encourage compliance, ensure data quality and seek regulatory alignment as crucial to an effective system.
As this consultation ends, strengthening corporate beneficial ownership transparency remains a priority of the Government of Canada. Work should continue on advancing a coordinated approach to strengthening beneficial ownership, while respecting jurisdictional responsibilities with respect to corporations. Building on this feedback, the Government will continue to explore options for central registry (or registries) of beneficial ownership, in cooperation with provincial and territorial partners.