New report by Open Ownership
Corruption, terrorism, and foreign interference thrive when companies can be owned anonymously, reveals Open Ownership’s comprehensive research report into national security.
The paper, entitled “Using beneficial ownership data for national security”, shows how beneficial ownership data – data on who really owns and benefits from companies – can support national security in five ways:
- preventing corruption and organised crime;
- countering the financing of terrorism;
- supporting enforcement of economic and financial sanctions (on people, organisations, and countries);
- protecting strategic sectors of the economy such as defence, energy, and telecoms from malign foreign influence;
- preventing foreign interference in governance systems and the rule of law.
A "beneficial owner" is a term to describe the real, human owners of companies. Often, the ownership structure of companies can be complex and opaque. Companies can be set up by other companies or trusts, so called "shell companies", and if owners aren’t listed, society doesn’t know who controls and benefits from their operations. However, when companies are obliged to disclose every "beneficial owner" with a substantial percentage of ownership, that works towards beneficial ownership transparency. Transparency means there can be fair and open competition about who wins a government contract, fair taxation, and a reduction in corruption.
Beneficial ownership transparency therefore shows us who is really operating in the world’s financial systems. This paper includes recommendations for nation states to support their national security goals by implementing beneficial ownership transparency within their own jurisdiction:
- Countries should implement central beneficial ownership registers with data accessible to the public, as this provides the most effective access for the broadest range of actors to support national security goals.
- Countries should implement beneficial ownership reforms that deliver structured and interoperable data, since this is most effective for enabling analysis alongside other datasets relevant to national security (e.g. procurement data).
- Foreign state ownership of companies should be captured as part of beneficial ownership disclosures in a standardised way.
Such transparency is also a cornerstone of President Biden’s multi-million dollar initiative to strengthen global anti-corruption efforts, announced at the Summit for Democracy in December 2021. In 2020, the US committed to creating a (non-public) register of the beneficial owners of all US companies, citing national security as the main policy driver.
Snapshot of a case
Between 2012-2018, the US Department of Defence was defrauded due to lack of clarity on the true ownership of its suppliers. Foreign companies set up US-incorporated shell companies, and then bid for, and won, contracts designated only for domestic suppliers. One company eventually supplied defective and non-conforming parts that led to the grounding of 47 aircraft, and three other companies shared sensitive military technical drawings and blueprints outside of the US.