Report

Petition

Online Tracker

Infosessions

Conferences

Media

Infographs

Importance of operationalizing Beneficial Ownership Information

 

Beneficial Ownership information in Lebanon is not very well understood in Lebanon due to the lack of interest in the topic by both, public and private sectors. This lack of interest is caused by the lack of knowledge on the positive impact the operationalization of Beneficial Ownership information can have on the economy and society.

A Beneficial Owner is “any natural person(s) who ultimately owns or controls the customer and/or the natural person(s) on whose behalf a transaction or activity is being conducted”. In other words, a Beneficial Owner is the actual person who owns a business or a financial activity, regardless of the legal ownership of the business and the activity.

 

 

The Enforcement of Beneficial Ownership in Lebanon - CIPE


Facts and Figures on why Beneficial Ownership is important
:

 

Foreign Direct Investment in Lebanon



- In 2019, the FDI net inflows to Lebanon was projected to be 2.2 billion USD which amounted to 4.2% of the gross domestic product (GDP).

- In 2009, the FDI net inflows to Lebanon was projected to be 4.8 billion USD which amounted to 13.5% of the gross domestic product (GDP).

These two numbers show how FDI in Lebanon’s peak of stability could amount to a huge portion of its GDP, knowing that this only covers the declared investments.

The Beneficial Owners of these investments are unknown, which may involve money laundering; tax evasion or corruption in the public sector, including, but not limited to, conflict of interest, trading in influence and bribery.

 

Foreign Direct Investment Flows in 2019 in Lebanon

 

- More than 70% of foreign investment flows came in form of real estate acquisitions, based on estimates from the Central Bank of Lebanon, the General Directorate of Real Estate, UNCTAD, the Financial Times and Moody’s.

- This was distributed between the Lebanese diaspora’s acquisition of real estate (49.3% of total acquisitions) and foreigners’ acquisitions (28.8% of total acquisitions).

- Cross-border mergers and acquisitions constituted 14.6% of total FDI with major acquisitions concentrated in the tourism and financial sectors (e.g., Saudi-based company Kingdom Holding sold its stake in the Four Seasons Hotel in Beirut for USD 120 million to a group of Lebanese and Arab investors).

- The remainder of FDI took the form of greenfield FDI projects (5.6%), re-invested earnings (1.7%) and intra-company loans (0.1%)[1].

It is not known who the Beneficial Owners of these businesses/investments are – the actual owners of these investments –, which may involve money laundering; tax evasion or corruption in the public sector, including, but not limited to, conflict of interest, trading in influence and bribery.

 

Beneficial Owners of the private entities involved in the Power Sector in Lebanon

 

- It is estimated that the Lebanese public debt is 148 billion USD

- The power sector’s share of this debt stands at approximately 40 billion USD (27%)

No contractual data is publicly available; neither the Ministry of Energy and Water nor the Electricity of Lebanon public institution publish any contracts, spending reports or budgets on the power sector.

No due diligence on Beneficial Ownership information of the contracting companies involved in the power sector is available also, knowing that we don’t know if the relevant competent authorities have this kind of information in the first place; an alarming red flag of high levels of corruption within the sector since there are no measures being taken or adopted to limit and prevent corruption.

 

Beneficial Owners of the private entities involved in the Oil and Gas Sector in Lebanon

 

The Lebanese Petroleum Administration (the Regulatory Authority) publishes Beneficial Ownership information of the sub-contractors of the Consortium drilling in Block 4 for gas discoveries.

We do not know if the published information was subject to due diligence before publishing; it is possible that the information declared by the sub-contractors is false or inaccurate.

This sheds light on a problem within the public sector, CSOS and other stakeholders. We do not know if the LPA has the financial and human resources to carry out such an audit. It is also possible that CSOs and journalists need to gain more experience in the field of verifying Beneficial Ownership information to be able to verify the published information.

 

The Beneficial Ownership Regime helps in:

 

1.     Limiting and preventing corruption in the public sector.

2.     Well governed public procurement 

3.     Combatting and preventing anti-competitive behavior in the market.

4.     Better monitoring and analysis of elections’ campaign financing.

5.     Combatting, limiting and preventing money laundering and terrorism financing

 

 

The Lebanese Transparency Association’s work on Beneficial Ownership in Lebanon

 

Under its “Enforcement of Beneficial Ownership in Lebanon” project – funded by the Center for International Private Enterprise –, LTA is conducting several activities to advance the understanding of Beneficial Ownership and its role in limiting and preventing corruption in the public sector. 

According to the Bassil Fuleihan Institute of Finance, in 2020, the value of public expenditures at the central level was estimated at 20%, excluding purchase estimates from public institutions, municipalities and unions of municipalities, and 6.5% of the GDP, which is $3.4 billion approximately at the central level as well.

Using Beneficial Ownership information within public procurement will allow limiting and preventing corruption and bid-rigging, in addition to better planning for sustainable and more competitive procurement.

LTA advocates for the inclusion of Beneficial Ownership information within public procurement and is currently working with the Tenders Administration (which will constitute the Public Procurement Authority in August 2022) and the Bassil Fuleihan Institute of Finance.

In addition to advocacy, LTA is also working on Knowledge and Data production related to Beneficial Ownership, and Awareness raising and Stakeholders Dialogue.

You can access LTA’s relevant publications through the below links:

- Assessment of the Lebanese Beneficial Ownership Regime

- Beneficial Ownership and Tax Evasion

 

 

[1] Central Bank of Lebanon, General Directorate of Real Estate, UNCTAD World Investment Report 2019, FDI Markets – The Financial Times, Moody’s, IDAL’s estimates.

 

 

Sectors

Governance

Files & Infographics