Ask the Government to Know Who It Does Business with to Protect Us All

By Eryn Schornick

Anonymous Companies

25 Organizations Send Letter to Congress Urging Beneficial Ownership Transparency in Procurement Process

A version of this article was originally published on the Global Witness blog

The U.S. government has long recognized that it does not have enough information on the identities of its contractors—those that help protect our national security, provide medical and educational services, and build infrastructure.

“‘[T]here is no database in the U.S. government’ that provides reliable subcontractor information.”

— Ray DiNunzio, Special Investigator General for Afghanistan Reconstruction chief investigator from August 2009 to 2011 (via the Washington Post)

This lack of information can harm us all.

Take the case of the U.S.-Afghan contractor who funneled at least $3.3 million of U.S. taxpayer dollars to notorious Afghan powerbrokers, who had deliberately hidden their interests in the contractor’s network of companies. These secretive individuals then funded the purchase of weapons for the Taliban and insurgents. Elsewhere, criminals behind the largest U.S. Medicare fraud in history managed to steal over $35 million from the government program by creating at least 118 fake health clinics in around 25 states in the names of companies they secretly owned. For many more examples see Global Witness’ online interactive map where we track the abuse of anonymously-owned companies around the world.

For these reasons, Global Witness has joined 24 civil society organizations in a call for the Obama Administration to require bidders for federal contracts to disclose information about the real people who own and control them. As an additional safeguard, we’ve also called for award, contract and ownership information to be made available on line for everyone for free.

There have been some steps taken to help shine more light on companies before they win federal contracts. The government recently required bidders to disclose information about their parent, subsidiary and successor companies. In high-risk environments federal contractors and their subcontractors are required to disclose more about their backgrounds, yet still do not have to disclose their ultimate owners.

While these are steps in the right direction, they won’t do the job alone. Criminals who are defrauding the government, taxpayers and businesses need to hide what they are up to. Research shows that the U.S. is a favored destination for the corrupt to incorporate secretly and that the U.S. is one of the easiest places in the world to set up an untraceable company. These sham companies are being used to rip us off through public procurement, as I’ve discussed in a previous blog.

No U.S. state collects information about the real people who own and control the companies they incorporate (also called “beneficial owners”), and the U.S. government does not require bidders for federal contracts to disclose information about their beneficial owners either. This means we receive lower quality infrastructure and services, pay higher prices, waste tax dollars, increase national security threats and have less trust in our government.

One important commitment the Obama Administration has made that would address this problem is to create a transparent process to explore alternatives for how contractors are identified in order to better track and assess bidders—a promise officials have reiterated twice (see here and here). Yet, this hasn’t happened.

Federal contracting is an important area where the Administration has the authority to act without Congress.

In our joint letter submitted to the committee tasked with government oversight and reform last week, we are calling upon Congress to urge the Administration to start this assessment without delay, to adopt a contractor identifier that is a non-proprietary, open system and that includes the collection and publication of beneficial ownership information. This would greatly enhance the Digital Accountability and Transparency Act of 2014 (DATA Act), the first legislation of its kind to mandate data transparency that seeks to link up U.S. federal spending information as standardized data available to everyone online.

Global businesses also support company ownership transparency, including small business owners, leading business people, large companies and business associations such as the B20 and The Clearing House Association have backed measures to increase ownership transparency. International investors managing more than $740 billion in assets have also called on Congress to end shell company secrecy because there are real bottom line costs associated when it leads to corruption.

These practical steps toward greater transparency in federal contracting and spending will help make federal data more accessible, and assure Americans that we know who is receiving our tax dollars and that we are getting what we pay for.

Eryn Schornick is a Policy Advisor at Global Witness.

A version of this article was originally published on the Global Witness blog