IDENTIFYING ULTIMATE BENEFICIAL OWNERS: A RISK-BASED APPROACH TO IMPROVING THE TRANSPARENCY OF INTERNATIONAL FINANCIAL FLOWS
Ultimate Beneficial Owners (UBOs) are defined by complex legal rules that differ across countries. Identifying UBOs is increasingly costly and time consuming. Gathering more data and refining already complex domestic legal arsenals is not the solution.
We therefore propose a risk-based approach to identifying possible UBOs, which is enabled by recent theoretical advances in economics and corporate finance. The proposed methodology is robust, rigorous and cheap to implement. In the same way that a risk-based approach has facilitated the adoption of transparency standards for banks (Basel), this methodology could constitute the basis for the gradual adoption of an international standard.
An Update on our recent Work on Critical Minerals
In a recent Peterson Institute working paper, ZENO-Indices were used to analyze who controls the mining industry of critical minerals. The paper concluded that…
Chile’s Nationalization of its Lithium Mines: The way to go?
In a recent Peterson Institute working paper, ZENO-Indices were used to analyze the control of the mining industry of critical minerals. Last April, Chile announced the nationalization of its lithium mines. The announcement has raised worries about the supply of lithium, a critical element for the production of batteries for electric vehicles, perhaps making the transition to non-carbon energy more difficult. There are geopolitical concerns too, that government control over the Chilean lithium production could add to the vulnerability of supply chains. There are also economic concerns: nationalization could introduce production and distribution inefficiencies. We look at this using the ZENO methodology and draw some surprising conclusions.
GREEN ENERGY DEPENDS ON CRITICAL MINERALS. WHO CONTROLS THE SUPPLY CHAINS?
In light of the transition away from fossil fuel–based energy, this paper highlights the importance of understanding who controls vital parts of the global supply chains of critical minerals and rare earth elements (REEs). Analysis of direct ownership does not reveal the real sources of control over the decisions of the company. To identify those sources, the authors use an index that measures the degree to which important shareholders can affect voting decisions. This analysis is not straightforward, because companies along the supply chain are not necessarily incorporated in the countries in which mining and production activities take place, and shareholders can exert influence through multiple layers of subsidiaries. The analysis reveals that China’s control over the global value chains involving critical minerals and REEs extends beyond what is commonly assumed. It also sheds light on environmental, social, and governance issues in the countries in which mining and/or production take place. The paper advocates increasing transparency regarding the sources of control to better assess and manage economic and geopolitical risks; enhancing recycling, to reduce dependency on foreign supply; avoiding protectionist and trade-reducing reactions; and encouraging research and development in order to speed up the adoption of technologies of substitution.