The power of disclosure: Why beneficial ownership matters in public procurement

When government agencies in the Philippines use public funds to build roads, schools, and hospitals, they follow strict guidelines to ensure value for money and quality of service delivery. However, there is a critical aspect that is often overlooked: beneficial ownership.

Detecting conflicts of interest

Beneficial ownership refers to persons who influence or control a legal entity. In procurement, identifying beneficial owners helps detect conflicts of interest and collusion. For example, a bidder that has ties to a government official may gain an unfair advantage, and multiple bidders owned by the same person can signal unfair competition. This conduct can result in illicit financial activities. The World Bank’s report on Enhancing Government Effectiveness and Transparency indicates that illicit financial flows result in approximately $416 billion in tax losses in developing countries in Asia, Africa, Latin America, and the Caribbean. Public procurement makes up 10-25% of global public spending. Improving beneficial ownership disclosure could benefit developing nations financially, enhance service delivery, and boost trust in governance.

The Philippines scoring 15/15 in beneficial ownership requirements based on the World Bank Business Ready report  serves as a strong foundation for setting up disclosure in public procurement.

Narrowing the policy gaps

While the Philippines had provisions in the 2003 Government Procurement Reform Act (GPRA) to address conflicts of interest and penalize violations, the old law did not require firms participating in government procurement to disclose beneficial ownership. A survey conducted by the Government Procurement Policy Board-Technical Support Office (GPPB-TSO) in May 2023 revealed that among 180 respondent procuring entities, 66 percent experienced situations where bidders had common owners, and 72 percent faced instances where a bidder was related to a government official in the procuring entity. Moreover, only 60 percent were aware of or performed cross-checks for conflicts of interest or collusion among bidders.

Beneficial ownership registry and data sharing

The GPPB, with technical assistance from the World Bank, is addressing policy gaps by requiring beneficial ownership information during public procurement under the New Government Procurement Act of 2024.  The law also requires setting up a specialized beneficial ownership registry that’s accessible to both procuring entities and the public. This is aligned with the World Bank’s anticorruption initiatives, particularly in public procurement, where the impact on economic growth and public service delivery is significant.

The new procurement law includes a provision on beneficial ownership indicating the government’s commitment to integrity in public procurement. The Philippines uses beneficial ownership information with an institutionalized preemptive approach against corruption, collusion, bid rigging and other anti-competitive practices in public procurement. Implementing a beneficial ownership rule could significantly impact over 50,000 domestic and foreign corporations, more than 420,000 awards, and contracts worth over $21 billion.

The World Bank’s technical assistance came at a crucial time in procurement reform in the Philippines. It reflects the Bank’s broader commitment to working with countries to make public spending more transparent and accountable to citizens. By promoting beneficial ownership disclosure in client countries, among international organizations, and the private sector, especially in Bank-financed high-value contracts, this support helps ensure that public resources truly serve the public good.