Transparency International Georgia previously wrote about the reasons why a register of beneficial owners (BO) needs to be set up in Georgia. We spoke about the need for citizens to know who ultimately owns companies that are strategically important for the country as well as the fact that the creation of such a register would help Georgia’s EU integration and the fulfillment of other international obligations.

Since then, another important reason for creating the registry appeared. After Russia’s full scale invasion of Ukraine and the subsequent decision by Western countries to fully engage their sanctions regimes, beneficial ownership registries have become one of the main tools for tracing sanctioned persons and their assets.

In Georgia, where traces of ownership of many strategically important companies lead to Russia, and where economic dependence on Russia is growing at a rapid pace, setting up a register of beneficial owners is a necessity. Such a register will enable the identification of entities under Western sanctions and help mitigate risks associated with Russian capital in general.

But what should this register look like in the Georgian reality? We will try to answer this question below.

A beneficial owner is a concrete individual – a person, who ultimately owns company shares or assets, or controls and makes decisions concerning its activities. It is precisely the “control” component that distinguishes a beneficial owner from a company owner in the standard meaning of the word.

Georgia has all the necessary components needed to establish a register of beneficial owners. The following steps need to be taken to set it up correctly:

1. Introduction of a uniform standard of what a beneficial owner means

As of today, the concept of beneficial owner can be found in several laws, each of which defines this concept differently:

• Law on Facilitating the Suppression of Money Laundering and Terrorism Financing defines a beneficial owner as the owner of at least 25% of a company's shares.
• Law on Commercial Banking requires banks to disclose their beneficial owners. It defines a beneficial owner as the owner of at least 10% of a bank’s shares.
• Law on Broadcasting obligates broadcasters to disclose their beneficial owners. No lower limit is specified.

The concept of a beneficial owner under all three laws includes both direct and indirect ownership (control), which is important, however, the latter is defined differently depending on the law.

Setting a uniform standard of what a beneficial owner means is needed to prepare the legal grounds for creating a BO register. Ideally, there should be no lower limit on the part of shares held by a person to be considered a beneficial owner.

2. Bringing together available information

Georgia already has a certain practice of collecting and disclosing information about beneficial owners. Broadcasters, banks and large companies are required to disclose their beneficial owners. Information on ultimate owners is collected without publication for the purposes of preventing money laundering and terrorist financing as well.

However, in each of these cases, information about beneficial owners is available in different forms outside of a single register:

• Broadcasters - BO information available on the website of the National Communications Commission
• Banks - BO information available on the website of the National Bank
• Large companies - BO information available on the audit reporting portal

In order to create a unified BO register, it is necessary to bring the above information together.

3. Building on the existing business register

Taking into account that Georgia already has a business register administered by the National Agency of Public Registry, where information of significant volume and detail regarding the ownership of companies is available, it would be appropriate to add information about beneficial owners to the existing register and not spend resources to create a new system. Accordingly, the function of establishing a unified BO register should be taken up by the National Agency of Public Registry.

4. Open data format and open access through API

International best practices for beneficial ownership registries require that data be made available in open format.

In the Georgian business register, information about owners and managers of companies is provided in closed and static PDF format extracts. Because of this, the business register does not have such important functions as: searching for previous owners of a company and companies owned previously by specific individuals; it is also not possible to link together companies and individuals through hyperlinks.

Therefore, in the process of establishing a BO register, which would mean even more data being added to company extracts, all information included in the PDF extracts, including ultimate owners, should be made available in open (for example: HTML) format as well. This information should then be made searchable and easily downloadable, including through an API (application programming interface).

5. Disclosure of beneficial owners of foreign (non-resident) companies

The biggest problem in relation to opacity of company ownership in Georgia is related to ownership of Georgian companies by foreign (non-resident) entities. It is through foreign companies that unknown persons own many strategically important companies and assets in Georgia. Therefore, in the process of creating the BO register, the obligation to disclose the ultimate owners should be extended to all non-resident companies as well.

More specifically: any foreign company that registers a company in the Georgian business register, or buys a share in an existing company, must be required to disclose its ultimate beneficial owner by submitting relevant supporting documents to the public registry as a prerequisite for the registration application to be accepted. The submitted information should then be reflected both in the company shareholder extract as well as in open format.

Upon setting up the BO register, initially, all companies with a foreign owner or shareholder should be required to go through a one-time procedure to disclose their ultimate owner/s. However, after that, it is possible that this procedure will only be required when a company makes a request to register a change in the business registry. Those companies that rarely make changes to their information in the business register, should be required to update information about their beneficial owners once a year.

6. Disclosure of shareholders of joint stock companies

Information about the latest shareholders of joint stock companies in Georgia is not publicly available. Only the distribution of shares and the identities of shareholders at the moment of registration in the business registry is public. Information about changes in shareholders after registration is recorded by private registrars, with no public access obligation.

Therefore, information about shareholders of joint-stock companies should be recorded and made public within the framework of a unified BO register. In case of joint-stock companies, it is also necessary to indicate information about voting rights of shareholders.

7. Taking international standards into account

In the process of creating the BO register, existing international standards in this field (Beneficial Ownership Data Standard) should be taken into account as much as possible, so that information can later be shared and linked to foreign BO registries that use the same standard.