Rooting Out Waste and Fraud in the U.S. to Advance Responsible Business Conduct

Anonymous Companies

More than 30 Organizations call on U.S. Government to Commit to Collecting and Publishing Information about the Real Owners of Companies Involved in Federal Procurement

This article is cross-posted from the Global Witness blog.

Today, Global Witness joined the FACT Coalition and 30 other organizations in calling for the U.S. Administration to make a commitment to collect and publish information about the real owners of companies (also called “beneficial owners”) that participate in federal procurement, under its first National Action Plan on Responsible Business Conduct.

The U.S. government expects to use this plan to demonstrate how it encourages companies to achieve high standards of behavior and to champion those that reach such best practices. The plan is also a way for the government to highlight what it is doing to encourage an enabling environment for responsible business conduct.

To achieve these objectives, the Administration must work to curb fraud and corruption, and to protect against related human rights abuses. Federal procurement is an important area where the Administration has the authority to act without Congress, and to significantly impact fraud and abuse that has devastating consequences to human rights. By leveraging the vast purchasing power of the U.S. government ($445 billion in 2014), the procurement sector has the potential to be a force for good.

This is a significant opportunity for the Administration to demonstrate leadership by taking steps to stop criminals and other fraudsters from incorporating anonymously in the U.S. This is critical because, as I’ve explained in previous blogs, an easy way for a criminal to commit fraud and corruption in government contracting is to set up a company and hide the fact that he/she owns it. Some examples include:

  • A Pentagon supplier formed two shell companies in Wyoming and pretended they were largely owned by ethnic minorities to win preferential treatment for government contracts so that he could profit from supplying substandard parts to the military putting American troops and citizens at risk.
  • An Ohio school district employee used a web of fake companies to abuse his position and bill for millions of dollars’ worth of services that school kids never received.

It should be a privilege to do business with the U.S. government, to provide U.S. citizens with roads, schools and medicine, and our troops across the globe with the supplies and services they need while serving the nation. Companies should be required to demonstrate, as a matter of best practice, a commitment to business integrity and transparency. In fact, the UK and World Bank have promised to examine ways to collect and publish information about the real owners of companies participating in their procurement systems.

In the U.S., it is essential for the government, the largest single purchaser in the global economy, to have access to beneficial ownership information for all bidders in order to conduct its own due diligence. Similarly, providing commercial actors with access to this information would open new channels of fruitful due diligence along supply chains and among business partners. Small and medium size firms struggling to compete against dishonest competitors would have greater opportunities to shine as legitimate, responsible actors. Furthermore, with this information investors can better conduct the necessary due diligence to protect the long-term value of their investments and to ensure their own responsible business conduct.

As we gear up for the fourth annual UN Forum on Business and Human Rights in Geneva, national action plans are sure to be a priority topic. During the Forum, Global Witness will raise these issues by participating in the panel discussions entitled ‘Corporate Capture’ and Company Ownership Transparency” on Nov. 18, at 8:20am and in the Closing High-Level Plenary.

Rarely is there such an opportunity for the private and public sectors to implement practical strategies to combat the linkages between the corrupt and anonymously held companies, and the resultant impacts on human rights as there is in procurement. Simple steps to collect and publish beneficial ownership information in the U.S. procurement system stand to significantly raise the bar for American business.

Eryn Schornick is a Policy Advisor at Global Witness.

This article is cross-posted from the Global Witness blog.