Anonymous shell companies are impressively flexible tools. They can be used to launder money, evade taxation, covertly channel the payment of bribes, stash away a nation’s stolen wealth, and facilitate trafficking in drugs, weapons, and human beings. It’s a challenge to grasp the scale of the harm they help bring about.
It’s also challenging to find an appropriately scaled response. One place to start is for governments to require all companies within their jurisdiction to disclose their beneficial ownership for inclusion in a central registry—a step already taken by the United Kingdom, Denmark, and Norway. Going further, data from such registries can be aggregated and combined with other public registration materials to produce a gigantic database of company information, such as the one maintained by the UK for-profit OpenCorporates’ project.
The ideal of a comprehensive archive of corporate ownership data finds parallels in other public-interest “big data” projects: the work done by the Open Contracting Partnership to promote transparency in government procurement; the efforts by the International Aid Transparency Initiative, the AidData project, and the Open Aid Partnership to do the same for international aid spending; or the OpenOil project of indexing and sharing massive quantities of government-filing data related to the extractive industries.
We are also seeing greater attention given to how such archives might be used to further the goals of the anticorruption movement—from academic studies searching for clusters of corruption in public procurement networks, to the G20’s endorsement of open-data principles in furtherance of public sector transparency and integrity. Given the technological developments of the past decade, there is good reason to hope that big-data analytical techniques—already having contributed so much to the world of commerce—will similarly bear fruit in the public-interest sector.
Let’s focus for the moment on the issue of international bribery. Undisclosed beneficial ownership can present a huge problem for any company looking to pursue business abroad. With the threat of enormous penalties for violations of the Foreign Corrupt Practices Act and the reputational harm that can follow a bribery scandal, multinational companies have an intense interest in making sure that none of their money is being used to make improper payments to foreign government officials. But that can be difficult if you don’t know who is behind the local companies you’re doing business with. You may think a disbursement is for a legitimately invoiced service, when in fact the invoices are a sham and the recipient company is owned by a procurement official who helped steer the contract in your direction.
That is why reputable companies conduct due diligence on potential business partners; and that is why being unable to identify or verify the beneficial owners of such an entity is such a glaring red flag. So, if I’m a small local company and I want the opportunity to work with or on behalf of a major multinational, when I’m asked to verifiably identify my true beneficial owners, I am not going to hesitate.
Not only do I have a strong economic incentive to be transparent when asked about my ownership; it is in my interest to be up-front from the start. If transparency is going to give me a competitive edge in marketing my services, I would welcome the opportunity to so present myself. The other party will still want to verify the information I volunteer, but at the same time is likely to find reassurance in my anticipatory readiness to disclose.
At TRACE International, we have put into place a mechanism for companies, regardless of country of headquarters, to provide such disclosure. Using the TRACEpublic Ownership Register, any company can voluntarily submit its complete true-beneficial-ownership information, which will then be available for retrieval by the public. There is no charge for a company to submit its information, and there is no charge for anyone to access the information submitted. By providing a free online space for voluntary disclosure, we hope not only to encourage transparency about ownership, but also to highlight participants’ commitment to a culture of transparency and ethics in the marketplace.
As a voluntary initiative, TRACEpublic enables companies to distance themselves from the reputational stigma of secret companies. It also provides a starting point for due diligence and reduces the risk of falsehood as companies can simply opt-out. There is no need to wait for governments to mandate transparency (though we encourage them to do so), and there are no worries about reconciling the various disclosure protocols those governments will establish. Comprehensive transparency—being able to “follow the money” wherever it leads—is a crucial long-term goal for law-enforcement purposes. In establishing TRACEpublic, we hope to provide a valuable complement to that effort: allowing members of the business community to demonstrate their commitment to the highest ideals of compliance; to set themselves apart from the big-data haystack; and to help make transparency a norm and an expectation, not just a mandate.
Robert Clark is the Manager of Legal Research at TRACE, where he oversees a team of lawyers responsible for the production of analytical content.
TRACE International and TRACE Incorporated are two distinct entities with a common mission to advance commercial transparency worldwide by supporting the compliance efforts of multinational companies and their third party intermediaries. TRACE International is a non-profit business association that pools resources to provide members with anti-bribery compliance support while TRACE Incorporated offers both members and non-members customizable risk-based due diligence, anti-bribery training, and advisory services. Working alongside one another, TRACE International and TRACE Incorporated offer an end-to-end, cost-effective and innovative solution for anti-bribery and third party compliance. For more information, visit www.TRACEinternational.org.