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More beneficial ownership loopholes to plug: circular ownership, fragmented control and companies as parties to the trust

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Beneficial ownership transparency has been defined as a key tool to tackle tax abuse, money laundering, corruption and the financing of terrorism among other illicit financial flows. It involves identifying the individuals (“beneficial owners”) who ultimately own, control or benefit from companies, partnerships, trusts and any other type of legal vehicles.

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As described  in our briefing on the state of play of beneficial ownership, more than 40 jurisdictions have or will soon have beneficial ownership registries. Some countries already provide public online access for free and in open data format.

However, several loopholes in beneficial ownership regulations for companies and trusts prevent registries from being truly effective. For instance, most beneficial ownership definitions apply very high thresholds (eg “more than 25 per cent” of ownership or voting rights) for an individual to be considered a beneficial owner. There’s also the issue of verifying information to make sure that people don’t lie.

Beneficial ownership regulations do usually also require the identification of the person with effective control or influence over the legal vehicle. However, this can be more difficult to do. Those checking beneficial ownership information will most likely find it easier to follow mechanical rules based on thresholds for ownership or voting rights to identify the person with effective control, regardless of whether the rules can truly suss out the person who truly has effective control over a legal vehicle.

Two loopholes allow individuals to control legal vehicles despite having very limited ownership interests, fooling any mechanical rule that considers only ownership thresholds:

Circular ownership

In the example pictured here, beneficial owner “Mary” would avoid being identified as a beneficial owner because she only has 2 per cent of shares and voting rights in company A, way below the 25 per cent threshold.

However, she controls company A because there is no other owner. The rest is just a circular ownership structure (company C owns company B. Company B owns company A, and company A owns company C).

While this simplified version makes the circular ownership structure obvious, if the legal ownership chain involved 10 different layers of companies (instead of only companies B and C), all incorporated in different countries, it would be much less obvious that a circular ownership structure is taking place.

Global Witness analysed UK’s Companies House data and found that 487 UK companies are part of circular ownership structures.

How to solve this loophole? Beneficial ownership registration must include the full ownership chain and circular ownership must be explicitly prohibited.

Control with fragmented ownership

In this second case illustrated here, it would appear again that no individual passes the 25 per cent threshold required to be identified as a beneficial owner of company A, especially Mary who only holds an indirect 3.4 per cent in company A through an ownership chain starting with company E. However, Mary should be considered a beneficial owner of company A because she is a beneficial owner of company E, that in turn controls company D and so on up to company B which controls 51 per cent of company A.

How to solve this loophole? Beneficial ownership registration must include the full ownership chain, and control at each layer should be considered when determining the beneficial ownership of company A.

Companies as parties to a trust

This loophole prevents a person from being identified as a beneficial owner of a trust despite having a large interest in the trust.

In the case of trusts, every party to the trust must be identified as a beneficial owner: the settlor(s), trustee(s), protector(s), beneficiaries and any other person with significant control over the trust. The problem is when a party to the trust is in itself a company. For example, if the trustee is a company, or if beneficiaries have interests in the trust through a company.

In the case illustrated here, while regulations don’t always state this explicitly, a holistic interpretation of beneficial ownership laws would require applying the corresponding definition to each type of legal vehicle. One would start applying the beneficial ownership definitions for trusts and try to identify every party. However, if one of the parties is a company, one would have to apply the definitions for companies, ie the 25 per cent ownership threshold.

In this example, the first two individuals which only hold 1 per cent each of interests in the trust (ie a right to obtain 1 per cent of the trust’s income or capital) are identified as beneficial owners because they are parties to the trust and thresholds are irrelevant for trusts. In contrast, Mary and the other person hold their interests in the trust through a company. Consequently, only the man passes the threshold of 25 per cent. This means that Mary, who indirectly holds an interest in the trust of 23.5 per cent (way more than the first two individuals) is not identified as a beneficial owner. In other words, by interposing a company as a party to the trust, it is possible to apply very high thresholds to the beneficial owners of trusts (which are not supposed to depend on thresholds).

How to solve this loophole? Every party to the trust should be identified as a beneficial owner. If companies are parties to the trust, every individual who holds at least one share or vote in the company should also be considered a beneficial owner of the trust (as if the company did not exist).

Source: Tax Justice Network

Our paper on beneficial ownership verification suggests other ways to prevent similar schemes, for example by establishing limits on the length of the ownership chain. People should be allowed to create many layers or complex combinations of trusts and companies only if they can prove there is a good reason to do it – achieving secrecy or minimising taxes should not be considered valid reasons!

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Right to Repair Bill Introduced in Congress

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Hot on the heels of last week’s victory in the New York state senate, the fight for Right to Repair comes to the US Congress. Today, Congressman Joe Morelle (D-NY) introduced the first broad federal Right to Repair bill: the Fair Repair Act.

“As electronics become integrated into more and more products in our lives, Right to Repair is increasingly important to all Americans,” said Kyle Wiens, iFixit CEO. Lawmakers everywhere are realizing the need to protect our Right to Repair—along with progress in the EU and Australia, 27 US states introduced Right to Repair legislation this year, a record number.

“Every year I’ve worked on Right to Repair, it’s gotten bigger, as more and more people want to see independent repair protected,” said Gay Gordon-Byrne, Executive Director of Repair.org. Rep. Joe Morelle has been a champion for much of that journey, sponsoring legislation while in the Statehouse in Albany starting in 2015. Everywhere you go, people just want to be able to choose for themselves how to fix their stuff. You’d think manufacturers would wise up.”

Congressman Joe Morelle’s federal bill would require manufacturers to provide device owners and independent repair businesses with access to the parts, tools, and information they need to fix electronic devices.

“For too long, large corporations have hindered the progress of small business owners and everyday Americans by preventing them from the right to repair their own equipment,” said Congressman Morelle. “It’s long past time to level the playing field, which is why I’m so proud to introduce the Fair Repair Act and put the power back in the hands of consumers. This common-sense legislation will help make technology repairs more accessible and affordable for items from cell phones to laptops to farm equipment, finally giving individuals the autonomy they deserve.”

“Right to Repair just makes sense,” said Nathan Proctor, U.S. PIRG Senior Right to Repair Campaign Director. “It saves money and it keeps electronics in use and off the scrap heap. It helps farmers keep equipment in the field and out of the dealership. No matter how many lobbyists Apple, Microsoft or John Deere and the rest of the manufacturers throw at us, Right to Repair keeps pushing ahead, thanks to champions like Rep. Joe Morelle.”

“At iFixit, we believe that big tech companies shouldn’t get to dictate how we use the things we own or keep us from fixing our stuff.” said iFixit’s US Policy Lead, Kerry Maeve Sheehan. “We applaud Congressman Morelle for taking the fight for Right to Repair to Congress and standing up for farmers, independent repair shops, and consumers nationwide.”

We’re pleased to see Congress taking these problems seriously. In addition to supporting Congressman Morelle’s Fair Repair Act, we urge Congress to pass much-needed reforms to Section 1201 of the Copyright Act, to clarify that circumventing software locks to repair devices is always legal, and to expressly support the Federal Trade Commission’s authority to tackle unfair, deceptive, and anti-competitive repair restrictions.

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For a healthier planet, management must change

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Our environment sustains all life. Both human and wildlife. When habitat degrades, the lives of all that depend on it also deteriorate: poor land = poor people and social breakdown.By Sarah Savory, Zimbabwe

In Zimbabwe (like many other countries in arid areas with seasonal rainfall) we are facing the many symptoms and signs of our country’s advancing desertification: ever-increasing droughts, floods, wildfires, poverty, poaching, social breakdown, violence, mass emigration to cities, biodiversity loss and climate change. No economy can survive if we destroy our soil – the only economy that can ultimately sustain any community, or nation, is based on the photosynthetic process — green plants growing on regenerating soil.


So, if we wanted to find out the optimum way to manage our wildlife, people and economy, logically, shouldn’t we be looking at our National Parks for the best examples of what we can do for our environment? Because in national parks, we not only have the best management the world knows, we don’t have any of the issues that are normally blamed for causing desertification: ignorance, greed, corruption, corporations, livestock, coal, oil, etc. Let’s do that now…the following are all photos taken in our national parks (the first 3 were taken in May right after the rainy season when they should still be looking their best!)

As you can see from those photos, some of the worst biodiversity loss and land degradation we have in Zimbabwe is occurring IN our National Parks. But, as I pointed out, those have been run using the best management known to us and have been protected and conserved for decades. We’ve clearly been missing something…

The above 8 pictures are a mixture of National Parks and Communal Land…can you tell which is which?

We are seeing this land degradation both inside and out of our Parks because there is an over-arching and common cause of desertification that nobody has understood, or been able to successfully address, until recently.

We spend our lives blaming resources for causing the damage (coal, oil, livestock, elephants, etc) but resources are natural, so how could they possibly be to blame? Only our management of them can be causing the problem.

ALL tool using animals (including humans) automatically use a genetically embedded management framework…and every single management decision made is in order to meet an objective, a need, or to address a problem. And those decisions are made with exactly the same framework, or thought process and for exactly the same reasons, whether it is an animal or a human.

For example, a hungry otter has an objective: he wants to break open a clamshell because he needs to eat. He uses a simple tool (technology, in the form of a stone) to do so. He does this based on past experience or what he learned from his mother.

Or, the president of the United States has an objective: to put a man on the moon within a decade. He and his team use the same tool (technology, but various and more sophisticated forms of it) and base their choices on past experience, research, expert advice, and so on. It’s the same process, or framework, in both cases, only the degree of sophistication has varied.

A screen shot taken from a short video clip we took with a film crew last month, of 4 different areas, all near to each other: you will clearly see the terrible desertification in both National Parks and nearby Communal Land. In comparison, you will see a vast difference on Dibangombe, the Africa Centre For Holistic Management (our learning centre, which is only 30km from Victoria Falls.) This habitat is being regenerated for all life by simply managing holistically. Every year on this land, despite the worsening droughts, the biodiversity increases and the land and wildlife flourish.
All this footage was taken in the same area, at the same time, with the same climate, the same soils, the same wildlife and the same humans.
But different management.

To this day, this decision making process works just fine for the otter. But imagine that one day, the otter invents a machine that can crack open 1,000 clam shells a day and that all the other otters suddenly stop doing what otters are designed to do and just come to him to get their clams. They still use the decision making process but everything else has changed…that tiny advance in technology would have inadvertently set off a complex chain reaction through the whole ecosystem and there would soon be catastrophic environmental knock-on effects because the balance of the ecosystem has been upset. The ecosystem will keep trying to adjust to this change but eventually it will start to collapse. Imagine the otter started charging for the clams. Now, with every decision the otters make, in order to make sure their ecosystem didn’t collapse, they would need to be simultaneously addressing the social, environmental and economic aspects of their actions. Their management would have to evolve with the change.

This is exactly what happened to humans…As soon as our technology advanced, our management should have evolved to accommodate for it. But it didn’t.

Our natural world is rapidly collapsing all around us and we have ended up constantly chasing our tails and dealing with the symptoms and complications we’ve created. While there have been thousands of books written over the years on different types of management, if you dig a little deeper and ‘peel the onion’ the same genetically embedded framework is still inadvertently being used.

In the last 400 years, our technology has advanced faster than in all of the two hundred thousand or so years of modern human existence. Over those same few centuries, you can now see why the health of our planet has entered a breathtaking decline.  We now have the knowledge to change that…

No matter what we are managing, we cannot ever escape an inevitable web of social, economic and environmental complexity, so, in order to truly address any issue, the people and the finances have to be addressed simultaneously, not just the land itself. Isolating one particular part of the problem, or singling out a species and trying to manage it successfully, is no different from trying to isolate and manage the hydrogen in water.

With this knowledge, the Holistic Management Framework was developed. And, incredibly, it all started here in Zimbabwe, by my father, Allan Savory, an independent Zimbabwean scientist. This new decision making process ensures that no matter what we are managing, we focus on the root cause of any problem. It also makes sure that all our decisions are socially or culturally sound, economically viable and ecologically regenerative by using 7 simple filtering checks. And, it introduces us to a new, biological tool: animal impact and movement, that can be used to help us reverse desertification and regenerate our land and rivers.

This framework has received world-wide acclaim and is now being mirrored in forty three Holistic Management hubs on six continents, including the first university-led hub in the USA.

Now we can begin to understand that most of the problems we are facing in Zimbabwe today are simply symptoms of reductionist management.

Imagine that one day, someone starts to beat you really hard over the head, once a day, every day, with a cricket bat. It really hurts, and instead of trying to take the bat away from them, you just take a dispirin to deal with the headache it’s caused and carry on.

After a week, the pain will be getting much worse and the dispirin will no longer be strong enough, so you’d need a new painkiller. The stopain comes out. After a while, stopain won’t be enough, so you turn to Brufen. And so it goes on. Yet the blows continue.

Eventually, your organs will be struggling from all the medication and you’ll end up in hospital with very serious complications. The best doctors and specialists in the world are called in at great expense and they rush around treating all your worsening, and now life-threatening, symptoms. None of them can understand why you aren’t getting better – they’ve used the best medicines and procedures known. It’s because everyone is so focused on your symptoms, that nobody has looked up and seen the person standing behind you with the cricket bat.

It sounds silly when I put it like that, doesn’t it? But that is exactly what we are doing.

Our planet is in that hospital with life threatening complications, with Governments, Organisations and individuals doing their best, spending millions of dollars, often using expert advice, to find out how to treat the patient, but nobody has realised that they are only treating symptoms. Nobody has noticed the guy standing there with the bat.

The holistic management framework stops the blows to the head. As soon as we do that and the cause is being treated, all the symptoms will automatically begin to heal and fall away.

I am going to show you a screen shot taken from a short video clip we took with a film crew last month, of 4 different areas, all near to each other: you will clearly see the terrible desertification in both National Parks and nearby Communal Land. In comparison, you will see a vast difference on Dibangombe, the Africa Centre For Holistic Management (our learning centre, which is only 30km from Victoria Falls.) This habitat is being regenerated for all life by simply managing holistically. Every year on this land, despite the worsening droughts, the biodiversity increases and the land and wildlife flourish.

All this footage was taken in the same area, at the same time, with the same climate, the same soils, the same wildlife and the same humans.

But different management.

These pictures were taken on the same day on land only 30km apart in February 2018, The 2 photos on the left are Zambezi National Park and the photo on the right is Africa Centre for Holistic Management (Dibangombe)

The great news is that we can turn it all around and we don’t have the thousands of different problems we all think we do. We only have to adjust one thing. Our management.

It’s time for us to evolve from using our outdated, reductionist management framework. We need to adapt to a new way of thinking and  apply this paradigm-shifting decision  making framework so that we can all work together towards regenerating our Zimbabwe.

Culturally. Socially. Economically. Environmentally. For for our people and for our wildlife.

Let’s start by stopping the blows to the head!

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Free to Download Fight the Fire: Green New Deals and Global Climate Jobs

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Fight the Fire

Fight The Fire Book Cover

OUT NOW!

“The most compelling and concise guide to averting climate breakdown.” – Brendan Montague, editor, The Ecologist.

Download Jonathan Neale’s Fight the Fire from The Ecologist for free now.

The Ecologist has published Fight the Fire for free so that it is accessible to all.

We would like to thank our readers for donating £1,000 to cover some of the costs of publishing and promoting this book.

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Mobilized TV on Free Speech TV  takes a deep look at our world, the consequences of human activity on our planet, and how we can reverse and prevent existing and future crises from occurring. Mobilized reveals life on our planet as a system of systems which all work together for the optimal health of the whole. The show delves into deep conversations with change-makers so people can clearly take concerted actions.

Produced by Steven Jay and hosted by Jeff Van Treese.

Mobilized’s TV series Mobilized TV  premieres on Free Speech TV on Friday, October 15, 2021. All episodes appear:

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January 7, 8, 9, 2022

Leading Environmental Justice Attorney, Thomas Linzey of the Center for Democratic and Environmental Rights is a leading force helping communities implement successful rights of nature laws. Find out how your community could take on big business to serve the health of all.

 

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