On February 13, 2020, the Government of Canada announced a national consultation strategy which seeks to examine methods to strengthen corporate transparency across the country. Announced through the release of the “Strengthening Corporate Beneficial Ownership Transparency in Canada” report, the consultation focuses on how to bolster law enforcement efforts to counter and reduce the misuse of corporate vehicles involved in money laundering, terrorist financing and tax evasion.
In a nutshell, the Government currently seeks the views of Canadians, experts and other stakeholders on the viability of a public registry containing information about beneficial ownership for privately held corporations. The consultation is designed to ensure that pan-Canadian interests are considered, particularly against the backdrop of a shared jurisdictional responsibility between the federal, provincial and territorial governments as it pertains to corporate law.
The purpose underlying the envisioned pan-Canadian registry includes:
- Ensuring that authorities have access to information, particularly in fast-paced investigations and across provincial borders;
- Enabling civil society actors to review data; and
- Encouraging consumer due diligence
The consultation follows controversial international headlines about corporate corruption arising from the Panama Papers, Bahamas leaks and the Paradise Papers of 2017.
According to the Government of Canada “beneficial owners are the natural persons who, through direct or indirect means, have ultimate ownership or exercise control over a corporation”. The consultation report adds that “beneficial ownership can be defined based on ownership interests” or “through positions held within the legal person” or “other means”. Persons who are registered owners of shares or assume management positions on behalf of beneficial owners may also be beneficial owners.
As it stands, the Canada Business Corporations Act already requires corporations to collect information about individuals with significant control (see section 2.1) over the corporation and maintain a register (see section 21.1). Specifically, section 21.1 provides:
1.1 (1) The corporation shall prepare and maintain, at its registered office or at any other place in Canada designated by the directors, a register of individuals with significant control over the corporation that contains
(a) the names, the dates of birth and the latest known address of each individual with significant control;
(b) the jurisdiction of residence for tax purposes of each individual with significant control;
(c) the day on which each individual became or ceased to be an individual with significant control, as the case may be;
(d) a description of how each individual is an individual with significant control over the corporation, including, as applicable, a description of their interests and rights in respect of shares of the corporation;
(e) any other prescribed information; and
(f) a description of each step taken in accordance with subsection (2).
(2) At least once during each financial year of the corporation, the corporation shall take reasonable steps to ensure that it has identified all individuals with significant control over the corporation and that the information in the register is accurate, complete and up-to-date.
At issue is the absence of consistency in terms of the legal requirements to record and store this information across the provinces and territories.
With seventy percent of money laundering and fifty percent of terrorist financing cases involving legal entities according to the Government of Canada, law enforcement officials have expressed concerns about the efficacy and timeliness of evidence about control being available (See the Canadian Association of Chiefs of Police Report of August 2019). This forms one aspect of the rationale for a public, national register.
Canada would not be the first to create a public registry of this nature. Other European countries, such as the United Kingdom, have established public registries. According to the federal report, the 2018 EU Fifth Anti-Money Laundering Directive extended central registry requirements mandating their public accessibility and ensuring that they are interconnected.
The elephant in the room is whether this will in fact ease disclosure and access. Another concern is obviously privacy. This announcement comes at the heels of the federal government’s response to a question on the Order Paper with respect to statistics on the mishandling of personal information. The data revealed explains that federal departments and agencies have mishandled personal information belonging to 144 000 Canadians over the past two years. Worse, those captured by the privacy breaches were not all notified. This revelation dovetails with concerns that investors may have about their personal decisions and investments as beneficial owners.
The breadth of this registry remains to be seen. The extent of personal information to be shared on the registry runs up against legitimate concerns surrounding whether investors have reasonable expectations of privacy in their corporate affairs. For example, to the extent that any biographical information about investors is shared, the content of any expectation of privacy may be higher. Alternatively, some may argue that investors involved in publicly traded companies do not attract a reasonable expectation of privacy with respect to their identities.
Relatedly, it is noteworthy that there has been no mention of how the Security of Canada Information Disclosure Act (“SoCIDA”) could possibly be used as a means to facilitate the flow of information about certain law enforcement investigations between various federal agencies. SoCIDA was originally passed through reforms under Bill C-51, the Anti-Terrorism Act, 2017. It was designed to encourage and facilitate the disclosure of information between Government of Canada institutions to protect the nation from activities that undermine the security of Canada. The Act enables designated federal government institutions and agencies, including but not limited to the Canada Border Service Agency, Canada Revenue Agency, Royal Mounted Canadian Police and Financial Transactions Reports Analysis Centre of Canada (FINTRAC) to share information laterally absent a warrant. The SoCIDA certainly limits the scope of what can be shared on the basis that the information must have some nexus with activities that undermine the security of Canada. Put simply, not all organized crime rises to the level of activities that undermine the security of Canada, which renders the challenge cited by law enforcement a live issue. Notwithstanding, the SoCIDA is one tool available to law enforcement and federal agencies with a lower threshold for the exchange of information.
We expect that the foregoing issues will figure prominently during this consultation process. It will be worth assessing how investors respond to this call for public registries, and whose interests will be front and centre.
By Reem Zaia, Gowling WLG