Comments to GSA Urging Non-Proprietary, Open Identifier System in Procurement

The Financial Accountability and Corporate Transparency Coalition (FACT Coalition) submitted the below comments to the General Services Administration (GSA), in response to RFI #ID15170001, urging the agency to adopt a non-proprietary, open identifier system for use in federal procurement that includes the collection of information on the real people who own and control bidders of federal contracts and grants (also known as ‘beneficial owners’). The full letter can be read below or downloaded here.

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March 10, 2017

The Honorable Timothy O. Horne
Acting Administrator
General Services Administration
1800 F Street NW
Washington, DC 20006
Filed electronically via: entityvalidation@gsa.gov

RE: Request for Information (#ID15170001) for Entity Identification and Validation Services

Dear Administrator Horne,

On behalf of the Financial Accountability and Corporate Transparency Coalition (FACT Coalition), we are writing to recommend that the General Services Administration (GSA)^[1] adopt a non-proprietary, open identifier system that includes the collection of information on the real people who own and control bidders of federal contracts and grants (also known as ‘beneficial owners’).

The FACT Coalition is a non-partisan coalition of more than 100 state, national, and international organizations working toward a fair and honest tax system that addresses the challenges of a global economy and promoting policies to combat the harmful impacts of corrupt financial practices.^[2]

Many U.S. states rank among the easiest places in the world to form companies without revealing the identity of their beneficial owners.^[3] Research shows that anonymously-owned companies are easily formed in the U.S. and are being used to defraud businesses, taxpayers and the government in public procurement.^[4] The result of such fraud harms all of us in the form of increased national security threats, lower quality infrastructure and services, higher prices, wasted tax dollars, and decreased trust in government.

In one instance, a U.S.-Afghan contractor funneled at least $3.3 millions of U.S. taxpayer funds to notorious Afghan powerbrokers, who deliberately hid their ownership interests in companies within the contractor’s network to avoid association with the insurgency. These individuals in turn funded the purchase of weapons for the Taliban and insurgents. In another scheme, criminals behind the largest U.S. Medicare fraud managed to steal over $35 million from the program by creating at least 118 fake health clinics in around 25 states in the name of anonymous companies incorporated in eight states.

Federal procurement is an important area where the Administration has the authority to act without Congress and to significantly impact the devastating consequences of waste, fraud, and abuse. To address this issue and to realize the intent behind this Request for Information — to advance a system that ensures integrity over awards of taxpayer dollars — the GSA should:

Adopt a non-proprietary identifier, such as the Legal Entity Identifier (LEI) or a similar, open system that makes the hierarchy of entity ownership transparent by requiring bidders for federal contracts and grants to disclose information on their beneficial owners.

The U.S. government has conveyed that the purpose of a unique entity identifier, as it relates to federal spending transparency, among other things, is to verify entity information and incorporation information as well as to create transparency.^[5] It also recognized that an identifier for entities receiving taxpayer funds is critical to ensure that federal dollars are awarded to responsible parties, that awardees are paid in a timely manner, and are appropriately recorded and reported.^[6]

In order to achieve these objectives, an alternative identifier must take into account information about the beneficial owners of entities receiving federal awards. This was made clear in a January 2017 report by the Government Accountability Office (GAO) where GSA officials stated that they do not have the ability or authority to check entity ownership information beyond certain sources currently available to them when vetting and verifying bidders and contractors.^[7]

In its report, the GAO recommended that the GSA determine whether the beneficial owner of high security leased space is a foreign entity so that leasing agencies may take the necessary security measure. It also found the GSA to be in the best place to do this important due diligence. The GSA has agreed with its recommendation, meaning that it will be collecting and assessing beneficial ownership information for at least one type of federal contract. This process is an opportunity to advance this recommendation more systematically as risks related to the lack of beneficial ownership information on bidders and contractors reaches far beyond leasing and foreign owners — and into all types of federal spending.^[8]

Moreover, until the unique entity identifier captures beneficial ownership information sufficiently, the identifier and related data elements being implemented by the Digital Accountability and Transparency Act of 2014 will fall short of its added value in the government’s pursuit for transparency, integrity, optimal contract performance, and the safeguarding of tax dollars. This approach will also significantly strengthen the federal requirement that companies disclose certain entity ownership and predecessor information into the System for Award Management and published in the Federal Awardee Integrity and Information System.^[9]

These practical steps toward greater transparency in federal contracting and spending fit well within existing due diligence obligations across agencies established to ensure that federal data is more accessible and that program delivery is more effective.

Thank you for your consideration. For more information, please contact Clark Gascoigne at cgascoigne@thefactcoalition.org.

Sincerely,

Gary Kalman
Executive Director
The FACT Coalition

Clark Gascoigne
Deputy Director
The FACT Coalition

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Footnotes:

GSA Interact, Integrated award environment (IAE) industry community, GSA issues request for information for entity identification and validation services, February 13, 2017, available at https://interact.gsa.gov/blog/gsa-issues-request-information-entity-identification-and-validation-services.
A full list of FACT Coalition members is available at https://thefactcoalition.org/about/coalition-members-and-supporters/.
Mike Findley, Daniel Nielson and Jason Sharman, Global Shell Games, 2014, available at http://www.globalshellgames.com/.
See Global Witness, Hidden Menace: How secret company owners are putting troops at risk and harming American taxpayers, July 12, 2016, available at https://www.globalwitness.org/en/reports/hidden-menace/; Global Witness, The Great Rip Off, Anonymous company owners and the threat to American interests, September 25, 2014, available at https://www.globalwitness.org/en/campaigns/corruption-and-money-laundering/great-rip-off/ (including the ways in which owners of anonymous companies are harming America’s national security, U.S. taxpayers, the vulnerable, businesses and investors, poor countries and democracy).
Federal Spending Transparency Data Act Collaboration Space, Elements: Awardee/recipient unique identifier, awardee/recipient legal entity name, ultimate parent unique identifier number, ultimate parent legal entity name, July 13, 2015, available at https://fedspendingtransparency.github.io/whitepapers/unique-id-business-name/.
Department of Defense, General Services Administration and National Aeronautics and Space Administration, Proposed Rules, Federal Acquisition Regulation; Unique Identification of Entities Receiving Federal Awards, November 18, 2015, available at https://www.gpo.gov/fdsys/pkg/FR-2015-11-18/pdf/2015-29414.pdf.
Government Accountability Office, Federal real property, GSA should inform tenant agencies when leasing high-security space from foreign owners, January 2017, available at http://www.gao.gov/assets/690/681883.pdf; Natalie Duffy, Office Space: Who really owns real estate leased by the U.S. government, Hudson Institute’s Kelptocracy Initiative, January 30, 2017, available at http://kleptocracyinitiative.org/2017/01/office-space/.
See Global Witness, Hidden Menace: How secret company owners are putting troops at risk and harming American taxpayers, July 12, 2016, available at https://www.globalwitness.org/en/reports/hidden-menace/; Global Witness, The Great Rip Off, Anonymous company owners and the threat to American interests, September 25, 2014, available at https://www.globalwitness.org/en/campaigns/corruption-and-money-laundering/great-rip-off/ (including the ways in which owners of anonymous companies are endangering American national security interests and democracy, as well as ripping off U.S. taxpayers, the vulnerable, businesses and investors, and poor countries).
Department of Defense, General Services Administration and National Aeronautics and Space Administration, Federal Acquisition Regulation; Information on Corporate Contractor Performance and Integrity, March 7, 2016, available at https://www.gpo.gov/fdsys/pkg/FR-2016-03-07/pdf/2016-04773.pdf; Department of Defense, General Services Administration and National Aeronautics and Space Administration, Federal Acquisition Regulation; Commercial and Government Entity Code, May 30, 2014, available at https://www.gpo.gov/fdsys/pkg/FR-2014-05-30/pdf/2014-12387.pdf. Information disclosures are required by Federal Acquisition Rule (FAR) Subparts 52.204-17 and 52.204-20, requiring the highest-level and immediate ownership information, predecessor information, and subsidiaries. FAR Subpart 4.1801 defines “highest-level owner” to mean “the entity that owns or controls and immediate owner of the offeror, or that owns or controls one or more entities that control an immediate owner of the offeror. No entity owns or exercises control of the highest-level owner.”

About the FACT Coalition

The Financial Accountability and Corporate Transparency (FACT) Coalition is a non-partisan alliance of more than 100 state, national, and international organizations working toward a fair tax system that addresses the challenges of a global economy and promoting policies to combat the harmful impacts of corrupt financial practices.

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