From starting a business to AML enforcement, LEIs loom large

If you thought paperwork was hard on people, consider the plight of the startup business run by an aspiring entrepreneur. Tied up in the red tape and paperwork that comes with navigating the standard administrative steps, they may be dissuaded from joining the formal economy, or give up their project altogether.

A World Bank blog post explores this risk while presenting data from its Business Ready project, which it also calls “B-READY.” The project examines the requirements for starting a business in terms of regulatory framework, public services and operational efficiency. These are the three pillars of business readiness, according to the institution.

The data examined in the post covers “Pillar II: Digital Public Services and Transparency of Information for Business Entry.” That includes criteria around the availability of digital services, interoperability of systems and transparency of online information.

High income countries tend to have more robust digital public services, giving them the best performance in the category.

“However,” the post warns, “the digital storage of company information and, particularly, identity verification systems show a much steeper decline in adoption as income level decreases.”

But countries like Tanzania and Rwanda stand out, with online registration systems and national ID allowing businesses to get up and legally running relatively quickly and inexpensively.

The implementation of online identity verification systems is one of three criteria for the “Digital Services for Business Entry” evaluation criteria the World Bank uses.

Assigning a unique identifier is the easy part, the report shows. Making systems interconnect can be a more complex task.

Easier to open, easier to police

Corporate transparency and accountability group Open Ownership has published the results of its research on the use of data in beneficial ownership transparency.

Its report on “Understanding beneficial ownership data use” suggests that specific policy goals around tax evasion and anti money-laundering (AML) measures could benefit from easier access to information. Or perhaps more specifically, getting the right information to people to answer their questions about beneficial ownership (BO) “can enable effective data use while ensuring the infringement on privacy is proportionate and necessary to achieving specific aims.”

Open Ownership recommends reducing BO friction and resource cost with well-designed APIs and updated bulk downloads of business registers, expanding search functionality within them and structuring data in a well-defined way, as well as verifying information at the point at which it is submitted. Finally, it recommends using or assigning reliable identifiers for legal vehicles and individuals to support entity resolution.

The answer lies with LEIs

The World Bank post does not discuss legal entity identifiers (LEIs), but these are the primary mechanism for interoperability on offer for businesses dealing with governments. Open Ownership specifically refers to them, and recommends the adoption of standards from the Global Legal Entity Identifier Foundation (GLEIF).

And data interoperability is even more important for importers and exporters. Businesses can significantly benefit from process digitalization, but only if governments around the world accept data contained by electronic transferable records (ETRs), representatives of the International Chamber of Commerce and GLIEF argue in an editorial for The Paypers.

The ICC’s Digital Standards Initiative analyzed the legal and technical standards behind 36 trade documents to help jurisdictions understand the importance of accepting digital business data.

They found the 36 documents required the identification of up to 42 different parties. A global LEI system is the way to standardize that identification process, they argue.

Fortunately, GLEIF’s verifiable LEI (vLEI) system is designed to support trust by any relying party.

“Usefully, the Financial Stability Board has already advised that standardised global identifiers, such as the LEI, should be required to enhance cross-border payments, and has recommended national authorities to take steps to support their use,” Alexandre Kech and Gerard Hartsink write.

Also fortunate for the international business community, GLEIF has been on a roll of late, setting up new initiatives and issuers in the UK, Hong Kong and Thailand, as well as mainland China.

Article Topics

AML  |  digital company ID  |  GLEIF  |  KYB  |  Legal Entity Identifier (LEI)  |  World Bank