Transparency
The right to know, including to access information in the public interest in a useful format, is a harbinger of accountability processes writ large. The corporate capture of the State is no exception. If we are to solve the black box problem — How do we know if capture happens if there’s no proof? Without documents, witnesses, or transactional evidence, how can we identify capture? — we must obtain data, transactional evidence, and methodologies to identify, track, and measure capture.
As Andreas Fiebelkorn of the World Bank reminds us, “empirical evidence of state capture requires cross-validating three data components (…)Political connections:Who is connected with whom and to what degree? (…)Capture mechanism:What are the mechanisms through which politically connected actors receive policy favors? (…) [and] Firm-level indicators:What is the impact of capture?”
Beneficial ownership registries
The challenge of not knowing who ultimately benefits from a business or transaction effectively means that we cannot know which human beings act as the subjects supplying the “favors” to the public officials who are the object of capture. To this effect, a couple of organizations — most prominently Open Ownership and the Extractive Industries Transparency Initiative (EITI) — are engaging with governments worldwide to implement beneficial ownership reforms, including news laws and registries to disclose the true owners of corporations.
Leading the way on this is Open Ownership (OO). “Since 2017, OO has worked with almost 40 countries to advance implementation of beneficial ownership reforms, as well as supporting the creation of over 15 new central and sectoral registers. OO has developed the world’s leading data standard for beneficial ownership information, co-founded the international Beneficial Ownership Leadership Group, and built the world’s first transnational public beneficial ownership register.”
Open Ownership defines beneficial ownership and works with governments and other stakeholders to figure out how to “transparentize” and make accessible this information: “A beneficial owner is defined as the natural person who can be found at the end of an ownership chain. Often there is just a single link between a beneficial owner and a company, but sometimes it can include long and complex ownership chains of multiple legal entities. A beneficial owner is a person who ultimately has the right to some share of a legal entity’s income or assets, or the ability to control its activities. Beneficial ownership transparency reveals how companies and other legal entities or arrangements, such as trusts, are owned and controlled by their beneficial owners.”
Together with OO, EITI promotes beneficial ownership transparency as part of the EITI Standard and, within the multi-stakeholder initiative, works with governments to implement public ownership registries. “The EITI and Open Ownership (OO) have partnered to deliver Opening Extractives, an ambitious global programme to catalyse the availability and use of beneficial ownership data. The programme combines political and technical engagement with participating countries to implement reforms on beneficial ownership disclosure in the extractive sector. Opening Extractives aims to deliver clear improvements to domestic resource mobilisation from the extractive sector in participating countries (…). It builds on the collaboration of OO and the EITI over the last three years in delivering workshops, training and technical assistance in a broad range of countries.”
An example of beneficial ownership adoption is the process that South Africa took following recommendations by the Zondo Commission. According to Devi Pillay from the Public Affairs Research Institute (South Africa), “Beneficial ownership transparency is something that South Africa is adopting, at least in theory, through the Financial Action Task Force. The problem with the Gupta family was that they had a lot of shell companies in and outside the country. One of the reforms in South Africa is the creation of a registry of beneficial ownership (Companies and Intellectual Property Commission controlled by the Trade and Industry Minister). The legislation is unclear about who gets access to the database and how transparent it will be. Beneficial ownership transparency is useful, but it is more useful if you can access registries in other jurisdictions. For example, you could trace the Guptas’. The money laundering regulations leave much to be desired. But beneficial ownership transparency is not on the agenda of civil society.”
Corporate disclosure
The challenge posed by corporate disclosure is that, to a certain extent, it is getting worse, not better. In Runaway Train, Empower wrote that “Whereas securities laws in the U.S. — the world’s financial capital — were meant to incentivize firms to ‘go public’ by allowing them to raise capital from retail investors in exchange for publicly disclosing their financial performance and risks, over time this ‘disclosure quid pro quo has been subverted.’ Today, publicly-traded companies must still disclose while capital increasingly flows into opaque private markets that aren’t subject to the same rules. Regulators not only turn their cheeks — they actively encourage this shift away from public scrutiny.”
The capture of securities and exchange commissions and other banking and financial regulators worldwide contributes largely to the capital shift from public to private markets, as well as declining regulations for disclosure in public markets. That said,there is still hope,primarily in large financial markets whose regulations proportionally apply to a large swath of businesses worldwide given their need to seek equity or debt financing in cities such as New York, London, and Tokyo.
Globally, opportunities for improved corporate disclosure include expanding the modern slavery acts and due diligence laws to cover more home and host States; passing meaningful Environmental, Social, and Corporate Governance (ESG) legislation with clear and standard indicators so that companies report on a large swath of their environmental, social, and governance activities and impacts; compelling companies to disclose their climate impacts and measures to address them; and following the lead of theOrganisation for Economic Co-operation and Development’s common reporting system (CRS)rules to track wealthy individuals’ money.
Fiscal transparency
The International Budget Partnership, Transparency and Accountability Initiative, and the Carnegie Endowment for International Peace launched the Fiscal Futures Project. The goal was to bring together advocates and practitioners of fiscal transparency and accountability to imagine how fiscal transparency and accountability might look 20 years from now. What follows are the recommendations from this process:
"The fiscal [transparency and accountability] T/A field is showing a growing interest in country-based work on taxation. Both the Third Financing for Development Conference (...) and the World Bank have recently called on countries in the South to take a lead in mobilizing the financing for their development. Some see this new international emphasis on domestic resource mobilization (DRM) as a promising entry point for more integrated tax and spending initiatives. While there are concerns that increased DRM could result in a greater tax burden on people living in poverty, research suggests that progressive taxation combined with other fiscal measures could open up fiscal space for social protection and the realization of SDGs even in the poorest countries.
Globally, much collective action is targeting the rising inequality and concentration of wealth and power in the hands of a few — concerns that are clearly related to demands for fiscal accountability. At the national and local levels, people are also mobilizing against the misuse of public resources through corruption. They have successfully pushed political changes in countries such as South Africa, where civil society groups now see an opening.
Since some T/A efforts may have simply assumed that information is power, the use of power analysis remains underdeveloped in the T/A field writ large, and with regard to public finance issues in particular. Some argue that the choice of key concepts, in particular 'openness', prevents the development of a political language that can recognize power dynamics. Once something is labeled 'open', it may render the operations of power, and the inevitable closures these entail, invisible. There is, however, broad agreement that fiscal T/A initiatives must pay closer attention to the political economy of particular systems and contexts.
Many seek to challenge the paradigm of macroeconomic stability, growth, and fiscal discipline that neglects the distributional and developmental impacts of public finance decisions and contributes to rising income and wealth inequity. They re-envision fiscal T/A as part of a broader political project of advancing equity, which would require both fiscal governance systems and fiscal policies to function in ways that redistribute power and resources."
Freedom of information
One of the essential pillars for the protection and guarantee of human rights is the effective exercise of the right to access information, a fundamental component for activating and promoting citizen participation in public affairs. This right lies at the heart of campaigns for justice and accountability across the world, whether the Indian farmers’ protests or the Río Sonora Watershed Committees’ campaign to learn how their public health was affected by Mexico’s worst-ever environmental disaster.These movements demand information from governments because it is both their right and because it serves the public interest. Again, the corporate capture of the State is no exception.
According to a report by PODER commissioned by Oxfam México, “With better information, companies, lenders, and investors can assess the impact of their business relationships and investments and reduce corruption risks throughout their supply chain. At the same time, buyers and consumers can know the origin of the products they are purchasing and be more responsible in their decision. By knowing the beneficial owners of the companies, government entities can improve surveillance and monitoring processes to reduce market distortions and identify and sanction conflicts of interest and acts of corruption more effectively and promptly. (…) In this process, knowing the beneficial owners is crucial because, on the one hand, it allows civil society to unmask the actors benefiting from natural resource exploitation, and on the other hand, it enables dismantling state capture and advancing environmental justice.”
Generally, in terms of the right to access information, many countries already have a robust legislative framework. With exceptions, the problem is not often the legality or regulation of transparency, but rather the lack of enforcement or exceptionality with which governments treat the public information in their care.