Identifying and defining PEPs: Why is it important

1. Beneficial ownership and Politically Exposed Persons (PEPs): Definitions and asset disclosure requirements

2. Identifying and defining PEPs: Why is it important • Due to their position and influence, it is recognised that many PEPs are in positions that potentially can be abused for the purpose of offences and related to corruption and bribery. • Lack of transparency with regards to politically exposed persons and their assets held in the extractive sector poses corruption risks with regard to the award of natural resource concessions. • Does not mean that PEPs should be refused to conduct business within the extractive industry, but that such business relationships should be made transparent to prevent misuse.

3. What the EITI Standard says • “The multi-stakeholder group should agree an • appropriate definition of the term beneficial owner. (…) The definition should also specify reporting obligations for politically exposed persons”(#2.5.f.ii). BO definition to refer to PEP obligations “Information about the identity of the beneficial owner should include the name of the beneficial owner, the nationality, and the country of residence, as well as identifying any politically exposed persons. It is also recommended that the national identity number, date of birth, residential or service address, and means of contact are disclosed.” (2.5.d) BO disclosures to identifyPEPs

4. Who are PEPs? • A politically exposed person (PEP) is an individual who is or has been entrusted with a prominent public function. Could include close family members and associates. • Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned enterprises, or important political party officials. • Also former officials, if they still have influential roles. • Family members by blood, marriage or other civil partnership, can stretch beyond immediate family. • Associates can be both personal social and professional.

5. PEP definitions: International examples • United Nations Convention against Corruption • Individuals who are, or have been, entrusted with prominent public functions, and their family members and close associates.” • https://www.unodc.org/documents/brussels/UN_Convention_Against_Corruption.pdf

6. PEP definitions: International examples • Financial Action Task Force (FATF): • An individual who is or has been entrusted with a prominent public function. • Distinguishes between foreign and domestic PEPs • Also persons with prominent functions entrusted by international organisations • Not intended to cover middle ranking or more junior individuals • http://www.fatf-gafi.org/media/fatf/documents/recommendations/Guidance-PEP-Rec12-22.pdf

7. PEP definitions: International examples • EU Anti-Money Laundering Directive: • (a) heads of State, heads of government, ministers and deputy or assistant ministers; • (b) members of parliament or of similar legislative bodies; • (c) members of the governing bodies of political parties; • (d) members of supreme courts, of constitutional courts or of other high-level judicial bodies, the decisions of which are not subject to further appeal, except in exceptional circumstances; • (e) members of courts of auditors or of the boards of central banks; • (f) ambassadors, chargés d'affaires and high-ranking officers in the armed forces; • (g) members of the administrative, management or supervisory bodies of State-owned enterprises; • (h) directors, deputy directors and members of the board or equivalent function of an international organisation. • http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015L0849&from=EN

8. PEP reporting obligations

9. PEP reporting obligations: Examples from countries • Honduras: • The Mining Law prevents public office holders from obtaining extractive licenses due to potential conflicts of interest. • However, the concept of beneficial ownership is not recognised and there is thus no law that explicitly prevents PEPs from holding ownership interests in extractive companies. • There are no declaration systems in place that would reveal such practice.

10. PEP reporting obligations: Examples from countries • Ghana: • Public Office Holders Act requires PEPs to declare all assets owned and liabilities owed either directly or indirectly to the Auditor General. • However, the reporting is not always enforced and the information not publicly available.

11. Beneficial ownership and PEPs: Thresholds for reporting • Some countries set thresholds for BO disclosures determining the number of owners companies will be requested to report (e.g. beneficial owners with >25% of shares or control of a company) • The MSG may consider requiring disclosure of all PEPs who are beneficial owners, regardless of any threshold, or setting specific thresholds for PEPs. • Example 1: Kyrgyz Republic • “A beneficial owners is a natural person who has the title to property, influences transactions, obtains a certain benefit from transactions, and who has an ownership stake of at least 5%. If the beneficial owner is a politically exposed person their stake must be disclosed irrespective of the size of the stake.”

12. Beneficial ownership and PEPs: Level of detail • In addition to PEP’s name, MSG can consider disclosing: • Position, role and dates in office • Time at which the PEP acquiredits beneficial interest in the extractive asset

13. Identifying PEPs in BO disclosures • EITI modelbeneficialownershipdeclaration form

14. Identifying PEPs in BO disclosures • Example: DRC 2012 EITI Report • The report shows that the mining company Bolfast is 100% owned by BokondaBalelaFaustin and notes that MrFaustin has been a Member of Parliament since 2011. • The 2012 report does not provide any information on when MrFaustin acquired ownership of Bolfast.

15. Identifying PEPs in BO disclosures • The MSG might consider using existing asset declaration practices to help identify cases where PEPs are beneficial owners of extractive assets • Example: Burkina Faso • In Burkina Faso, the authority receiving declaration of assets held by politicians might be able provide the declaration of any form of property that politicians hold in the extractive companies

16. Case study: Ukraine

17. Case study: Ukraine • The register includes the following information on domestic PEPs: • Full name • Type of  PEP (PEP, close associate, family member, etc.) • Date and place of birth • All officially confirmed places of residence including abroad • Citizenship • All officially confirmed places of work (full name of the agency, official website, position, year of appointment and dismissal) • Financial statement • List of related individuals (close associates, family members) • List of related legal entities (full name, type of connection) • Where relevant, the register also includes extended information including about the business reputation of the PEP, such as international sanctions, criminal proceedings, criminal records, involvement in corrupt practices, business connections with other PEPs.

18. Case study: UK • Definition: UK EITI has adopted the EU's definition of PEP as described in the new EU Fourth Money Laundering Directive. • Ownership Threshold: Reporting entities should disclose information in relation to any PEP owners, where these hold a share in the reporting entity of more than 5%. • Due Diligence: The disclosures in relation to PEPs should reflect the information available to the reporting entity in the ordinary course of business. It is not required to perform incremental due diligence. • Data timeliness: The disclosures should be based on knowledge held when the report information is supplied to the independent administrator. 

19. Case study: UK • Companies with owners defined as PEPs that are above the ownership threshold are requested to report: • Name • Month and year of birth • Nationality • Country of residence • Date when beneficial interest was acquired • Service address • Name of public office holder • Public office position and role • Date when office was assumed • Date when office was left, if applicable • If the PEP beneficial owner is not the public office holder, the PEP • beneficial owner’s connection with the public office holder

20. PEP definitions and asset disclosure requirements: Discussion • Is there a national PEP definition in your country? Consult company law, anti-money laundering act, Code of Conduct, etc. • Assess the definition: • Does the definition cover most persons in your country with “prominent public functions”? • Is it clear from the definition who is a PEP? This should be considered from the perspective of those who will be required to report information on beneficial ownership to the authorities • Is the definition legally enforceable? • 2. Are there existing national reporting obligations for PEPs? If yes, • Who collects the information? • What details are requested? • Is the information publically available? • Study the international examples in the handout. Underline the elements that you like about these definitions, and would like to see included in your country’s definition. • Based on the assessment of any existing PEP definitions and your discussion of international examples, what would be the key components related to PEPs in your country’s BO definition? Note that in accordance with the EITI Standard, this should be referred to.

21. Author: Dyveke Rogan • Date: January 2017 Email: drogan@eiti.org- Telephone: +47 22 20 08 00 Address: EITI International Secretariat, Ruseløkkveien 26, 0251 Oslo, Norway