Prototyping how beneficial ownership data can identify corruption risk in public procurement
UK Government,
12 minute read
Complex ownership structures can be used to hide who benefits when governments spend public money. The UK’s Government Digital Service prototyped a way for procurement to benefit from adoption of the Beneficial Ownership Data Standard.
Summary
- Beneficial Ownership Transparency can shed light on complex company ownership structures used to avoid tax, and commit acts of corruption
- Building a prototype to illustrate how data can alert government officials to possible corruption helps raise awareness of the importance of beneficial ownership data
- Although the political appetite for collection and management for Beneficial Data is strong, most governments have yet to make progress in building this into their systems and processes. Many governments have instead been focusing on developing more effective beneficial ownership regulations.
- Beneficial Ownership Transparency can shed light on complex company ownership structures used to avoid tax, and commit acts of corruption
- Building a prototype to illustrate how data can alert government officials to possible corruption helps raise awareness of the importance of beneficial ownership data
- Although the political appetite for collection and management for Beneficial Data is strong, most governments have yet to make progress in building this into their systems and processes. Many governments have instead been focusing on developing more effective beneficial ownership regulations.
The Problem
It’s not always clear who benefits from a company’s profits. This is particularly true when the ownership structure of the company is complex and companies are owned by other companies. These so-called “shell companies” can be used to avoid tax or hide connections that allow corruption. Not knowing who is the beneficial owner of the companies bidding for public contracts means tax-payers’ money can be siphoned into companies owned by public officials and their families or be used to fund criminal activities.
Creating national, regional, or even international, registers that list the beneficial owners of companies is part of solving this problem and there are many initiatives to promote this, such as the Extractive Industries Transparency Initiative and Open Ownership’s Principles for Effective Beneficial Ownership Disclosure.
A growing number of Governments have committed to collecting Beneficial Ownership data, including the UK Government, who committed that it would:
Establish a public register of company beneficial ownership information for foreign companies who already own or buy property in the UK, or who bid on UK central government contracts. (Open Government Partnership 2020)However, beneficial ownership data transparency is in its infancy and few countries have created such registries.
The open Beneficial Ownership Data Standard (BODS) provides a mechanism for recording the required data on company ownership. Creating registries requires political will and some investment.
Image: Open Ownership
It’s not always clear who benefits from a company’s profits. This is particularly true when the ownership structure of the company is complex and companies are owned by other companies. These so-called “shell companies” can be used to avoid tax or hide connections that allow corruption. Not knowing who is the beneficial owner of the companies bidding for public contracts means tax-payers’ money can be siphoned into companies owned by public officials and their families or be used to fund criminal activities.
Creating national, regional, or even international, registers that list the beneficial owners of companies is part of solving this problem and there are many initiatives to promote this, such as the Extractive Industries Transparency Initiative and Open Ownership’s Principles for Effective Beneficial Ownership Disclosure.
A growing number of Governments have committed to collecting Beneficial Ownership data, including the UK Government, who committed that it would:
However, beneficial ownership data transparency is in its infancy and few countries have created such registries.
The open Beneficial Ownership Data Standard (BODS) provides a mechanism for recording the required data on company ownership. Creating registries requires political will and some investment.
Image: Open Ownership
The Approach
The GDS Global Digital Marketplace Programme, whose remit is to work with governments to open up public procurement and make it more effective, took two approaches to this problem:
- Building a prototype that mocks-up the user interface of a procurement system to show how beneficial ownership data can be combined with contracting data to increase transparency within the process.
- Working closely with Open Ownership and the Data Standards Authority to further establish BODS as the international standard.
GDS commissioned the design and build of a prototype named Bluetail, a prototype that uses BODS, procurement, and politically exposed person (PEP) data to show how the user interface of a procurement system might automatically flag corruption risks in tenders and alert the buyer that something may not be right.
For example, Bluetail would tell a buyer that all of the companies bidding for a tender have the same beneficial owner to alert that price rigging might be taking place.
It is important that beneficial ownership technologies are interoperable; many uses of beneficial ownership data rely on sharing data between departments or internationally. GDS are therefore exploring how the UK Government could adopt a data standard for beneficial ownership. After publishing a blogpost and running a public consultation, GDS identified Open Ownership’s Beneficial Ownership Data Standard as the leading contender.
The GDS Global Digital Marketplace Programme, whose remit is to work with governments to open up public procurement and make it more effective, took two approaches to this problem:
- Building a prototype that mocks-up the user interface of a procurement system to show how beneficial ownership data can be combined with contracting data to increase transparency within the process.
- Working closely with Open Ownership and the Data Standards Authority to further establish BODS as the international standard.
GDS commissioned the design and build of a prototype named Bluetail, a prototype that uses BODS, procurement, and politically exposed person (PEP) data to show how the user interface of a procurement system might automatically flag corruption risks in tenders and alert the buyer that something may not be right.
For example, Bluetail would tell a buyer that all of the companies bidding for a tender have the same beneficial owner to alert that price rigging might be taking place.
It is important that beneficial ownership technologies are interoperable; many uses of beneficial ownership data rely on sharing data between departments or internationally. GDS are therefore exploring how the UK Government could adopt a data standard for beneficial ownership. After publishing a blogpost and running a public consultation, GDS identified Open Ownership’s Beneficial Ownership Data Standard as the leading contender.
The Results
Bluetail is available as an open source application on Github and has been adapted and translated into Bahasa Indonesia and Spanish. There are working versions of these prototypes hosted by Open Ownership. Bluetail demonstrates how beneficial ownership data can be used to identify corruption risk in procurement. We hope this will help countries move to implementation quicker.
These have been shared with teams in Indonesia, Mexico and South Africa with a view to engaging government departments in conversations that further promote a path towards the creation of national registers.
In Mexico, proposals for integration of data collection as part of the procurement process have been put together for presentation at the Open Government Partnership working group on beneficial ownership with recommendations related to how this data can be captured at different points in the supplier registration process: When they first register, when they bid for work and when they are awarded contracts.
At the time of writing GDS is seeking feedback from departments on BODS. Once there is collective agreement, GDS will approach the Open Standards Board to recommend the adoption of the BODS across government. You can contribute to the discussion here.
Bluetail is available as an open source application on Github and has been adapted and translated into Bahasa Indonesia and Spanish. There are working versions of these prototypes hosted by Open Ownership. Bluetail demonstrates how beneficial ownership data can be used to identify corruption risk in procurement. We hope this will help countries move to implementation quicker.
These have been shared with teams in Indonesia, Mexico and South Africa with a view to engaging government departments in conversations that further promote a path towards the creation of national registers.
In Mexico, proposals for integration of data collection as part of the procurement process have been put together for presentation at the Open Government Partnership working group on beneficial ownership with recommendations related to how this data can be captured at different points in the supplier registration process: When they first register, when they bid for work and when they are awarded contracts.
At the time of writing GDS is seeking feedback from departments on BODS. Once there is collective agreement, GDS will approach the Open Standards Board to recommend the adoption of the BODS across government. You can contribute to the discussion here.
Challenges
There are few beneficial ownership data registries in existence around the world. However there have been notable successes in some extractive industries, supported by the Extractive Industries Transparency Initiative. Replicating this success in other sectors will require the ability to capture data on a much larger scale. For example, many thousands of companies provide goods and services to government agencies through public procurement.
While there is considerable and widespread political will to use beneficial ownership data in the battle to counter corruption and money laundering, progress has been slow in implementation. This is because collecting verifiable data relies on building secure government systems, which capture the required information, without exposing individuals to risks regarding their security and privacy (Open Ownership has published research on these issues).
The benefits of building beneficial ownership into public procurement systems and processes are becoming clearer, but the organisations and the teams that build and maintain the machinery of public procurement are often overwhelmed by their existing backlogs. A key challenge is to ensure that governments prioritise the work required to collect and manage beneficial ownership data as they push forward with their digital transformation.
There are few beneficial ownership data registries in existence around the world. However there have been notable successes in some extractive industries, supported by the Extractive Industries Transparency Initiative. Replicating this success in other sectors will require the ability to capture data on a much larger scale. For example, many thousands of companies provide goods and services to government agencies through public procurement.
While there is considerable and widespread political will to use beneficial ownership data in the battle to counter corruption and money laundering, progress has been slow in implementation. This is because collecting verifiable data relies on building secure government systems, which capture the required information, without exposing individuals to risks regarding their security and privacy (Open Ownership has published research on these issues).
The benefits of building beneficial ownership into public procurement systems and processes are becoming clearer, but the organisations and the teams that build and maintain the machinery of public procurement are often overwhelmed by their existing backlogs. A key challenge is to ensure that governments prioritise the work required to collect and manage beneficial ownership data as they push forward with their digital transformation.
Next steps
In Mexico, while continuing to work with the extractives industry, the next steps proposed by the GDS Global Digital Marketplace Programme report will suggest the inclusion of BODS data collection being built into the registration process for new suppliers in the national public procurement platform.
GDS will be recommending the adoption of BODS to the Open Standards Board in the coming months, subject to support from government departments.
While beneficial ownership transparency in general, and the open data standard that supports it are relatively young in terms of implementation and development, interest is growing in this area and it is considered an important tool for tackling corruption, money laundering and tax avoidance for the future.
In Mexico, while continuing to work with the extractives industry, the next steps proposed by the GDS Global Digital Marketplace Programme report will suggest the inclusion of BODS data collection being built into the registration process for new suppliers in the national public procurement platform.
GDS will be recommending the adoption of BODS to the Open Standards Board in the coming months, subject to support from government departments.
While beneficial ownership transparency in general, and the open data standard that supports it are relatively young in terms of implementation and development, interest is growing in this area and it is considered an important tool for tackling corruption, money laundering and tax avoidance for the future.