Using beneficial ownership data for national security
Preventing interference in governance systems and the rule of law
Strategic corruption has been a key focus of the US commitment to BOT. According to the US National Security Study Memorandum, “authoritarian states ‘weaponize corruption’ to weaken democracy and the rule of law”. Strategic corruption can be defined as “corrupt inducements … wielded against a target country by foreigners as a part of their own country’s national strategy. Sometimes, but not always, these schemes entail violations of the law, including by citizens of the target country”.
The threat of strategic corruption is difficult to quantify and assess, as it implies intent and coordination by one country to directly or indirectly undermine the national security interests of another country. Intentionality can be especially difficult to discern. The “corrupt inducements” can include all the issues discussed in this briefing, for instance, money laundering, corruption of procurement processes, or unlawfully acquiring ownership in foreign strategic sectors. That these are part of a broader strategy or involve state complicity may be impossible to prove beyond doubt. Nevertheless, different countries identify the following key areas as vulnerable to strategic corruption in their national security strategies, that can subsequently form threats to the integrity of governance systems and the rule of law:
- political campaign financing;
- funding the spread of disinformation, alternative media, and social media campaigns;
- buying of political influence.
Whether or not they are coordinated by a hostile state, these activities directly and indirectly interfere with the democratic process and the functioning of the judiciary.
In many cases, there could be an economic incentive which motivates non-state actors to engage in these activities, which could have national security implications. For instance, someone may have a personal or business interest in achieving a particular policy outcome. Whilst corruption of the policymaking process and conflicts of interest undermine the trust in and functioning of government, this may not be part of coordinated actions from a hostile state. Regardless, this presents a security threat. Other measures (e.g. asset disclosures and parliamentary standards) help counter and detect undue political influence – and BOT can also play a role in these – but they are not the focus of this briefing.
The largest concerns for the US and NATO allies are China and Russia. However, using political financing to achieve certain foreign policy outcomes is not limited to authoritarian states, as suggested by the US National Security Study Memorandum. The US, for example, has funded different groups in Afghanistan on numerous occasions.
Box 9: Russian influence in the EU and the US
In 2020, the UK’s Intelligence and Security Committee warned about the risk of political interference by Russia in a report that states that Russia “is using a range of methods to seek to disrupt and exert influence on the UK, including political financing and the spread of disinformation”.
The report concludes the government failed to protect the UK from Russian influence, stating that government policy had “offered ideal mechanisms by which illicit finance could be recycled through what has been referred to as the London ‘laundromat’”. It states that Russian influence has now become “the new normal”, and that “there are a lot of Russians with very close links to Putin who are well integrated into the UK business and social scene, and accepted because of their wealth”. According to OpenDemocracy, most of this is targeted at Conservative party members. For instance, a major political donor was found to have ties to the Russian government, and concerns were raised about the access the donor had to multiple British Prime Ministers.
Advocates for corporate ownership transparency in the US point to the Russian interference in the 2016 US elections, and see the UK as an example of what happens when “strategic corruption goes unchecked,” pointing to the amount of Russian money in the UK financial sector and real estate, which they claim give Russia the confidence to “conduct political assassinations” on UK soil.
A 2018 Senate Foreign Relations Committee minority staff report states that Russia seeks to capture foreign elites through offers of partnership, cash payments, and other financial inducements, and uses state-owned enterprises in strategic sectors, money laundering, and the financing of political campaigns. The report also points to the difficulty to discern intentionality from the Russian state, and that it is unlikely that all activities are directed by the government. This is due to the blurring of lines between private and state activities, and licit and illicit funds.
An investigation by Der Spiegel points to links between Russia and German parliamentarians, documenting how Russian money funds media outlets in Germany and social media campaigns with pro-Russian messages. The investigation points to Russian support for a right-wing party which also takes pro-Russian policy positions.
In July 2021, a UK standards body, the Committee on Standards in Public Life, published a report referencing the Intelligence and Security Committee report, warning about loopholes in the campaign financing laws, which could act as “a route for foreign money to influence UK elections”. The committee’s chair said digital campaigning has made it “harder to track how much is being spent, on what, where and by whom”. The report warns about “unincorporated associations”, which are not listed on the UK’s company and BO registry, meaning their financial backers can remain anonymous. Conversely, a recent Federal Election Commission (FEC) ruling in the US appears to open the door to foreign financing of US referendum campaigns.[n]
Requiring political donors to be registered and to identify the original source of funds will make it harder for overseas donors to anonymously give through shell companies to political campaigns. The UK has had a central and public BO register since 2016, which shows that BOT and the presence of BO data alone will not achieve policy outcomes. The data must be used, and potentially combined with other data, to achieve impact. This may also require complementary legislation, which the data can help monitor and enforce.
The role of beneficial ownership transparency
BOT on its own cannot necessarily mitigate the threats discussed, but BO data can be combined with other data sources to help with the enforcement of legislation designed to address these issues. It will be critical for these data to be structured and interoperable for this to be effective. For example, legislation to counter the buying of political influence may require a register of people and companies who lobby governments, as is the case under the US Foreign Agents Registration Act (FARA), which requires foreign lobbyists to register, or Australia’s Foreign Influence Transparency Act. These datasets would be most effective if linked to other publicly available datasets, such as politicians’ asset declarations and BO information.
Similarly, legislation requiring the disclosure of information about political parties and campaign financing can be combined with BOT to protect the integrity of political processes and improve citizens’ trust in them. As the UK example above shows, it is critical for all relevant entities to be covered within the scope of disclosure. This may also require complementary measures, such as extending due diligence requirements to a range of other businesses, including “law and public relations firms, investment and real estate advisors, and art dealers.”
The topics of legislating against the spread of disinformation and regulating social media campaign financing are being discussed by a number of countries in the context of disinformation around the COVID-19 pandemic.[o] Following criticism that the network’s ads were used to influence the 2016 US elections, Facebook launched the Ad Library in 2019, which now includes “information from the advertiser” and “paid for by” information, including individuals’ or companies’ names. However, there are no other identifiers besides a name for both individuals and companies, meaning it would be difficult to disambiguate similar names. The EU, in December 2020, proposed the Digital Services Act which would implement transparency obligations for online advertisements, including information on whose behalf ads are displayed. Information to be provided will include “the identity and place of establishment of the sponsor on behalf of whom the advertisement is disseminated including their name, address, telephone number and electronic mail address, and whether they are a natural or legal entity”. In combination with public BO registers mandated under the AMLD5, this effectively provides BO information for political advertising. If social media networks published information about who pays for advertising campaigns as structured data with identifiers, this could be more easily connected to BO datasets from central public registers with structured and interoperable data.
[n] Foreign nationals are barred from donating to US political candidates or committees. See: Lachlan Markay, “FEC lets foreigners finance U.S. ballot fights”, Axios, 2 November 2021, https://www.axios.com/fec-foreign-money-referendum-dcc92322-05ad-4093-8bb8-35446ef6c964.html
[o] For example, only 12 social media accounts were found to be responsible for the vast majority of COVID-19 disinformation, which was named as a driving force behind the virus spreading. See: Erum Salam, “Majority of Covid misinformation came from 12 people, report finds”, The Guardian, 17 July 2021, https://www.theguardian.com/world/2021/jul/17/covid-misinformation-conspiracy-theories-ccdh-report; Davey Alba and Sheryl Gay Stolberg, “Surgeon General Assails Tech Companies Over Misinformation on Covid-19”, The New York Times, 12 September 2021, https://www.nytimes.com/2021/07/15/us/politics/surgeon-general-vaccine-misinformation.html.
 Dominic Cruz Bustillos, Matthew H. Murray, and Alexander Vindman, “Assessing the Threat of Weaponized Corruption”, Lawfare, 7 July 2021, https://www.lawfareblog.com/assessing-threat-weaponized-corruption.
 Edelman, Harrison, Ward Gventer, and Zelikow, “The Rise of Strategic Corruption: How States Weaponize Graft”.
 For instance, in the UK. See: “Global Britain in a competitive age: The Integrated Review of Security, Defence, Development and Foreign Policy”, HM Government, March 2021, 4, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/975077/Global_Britain_in_a_Competitive_Age-_the_Integrated_Review_of_Security__Defence__Development_and_Foreign_Policy.pdf.
 See, for example: Special Counsel Robert S. Mueller, III, “Report On The Investigation Into Russian Interference In The 2016 Presidential Election”, the United States Department of Justice, March 2019, https://www.justice.gov/archives/sco/file/1373816/download. These concerns have been mostly voiced by democratic countries which claim these activities are coordinated by hostile states.
 Robert Gates, From the Shadows: The Ultimate Insider’s Story of Five Presidents and How They Won the Cold War (New York: Simon & Schuster, 2007), quoted in Matthew Rosenberg, “With Bags of Cash, C.I.A. Seeks Influence in Afghanistan”, The New York Times, 28 April 2013, https://www.nytimes.com/2013/04/29/world/asia/cia-delivers-cash-to-afghan-leaders-office.html.
 Quoted from: Lord Evans of Weardale, “Regulating Election Finance”, Committee on Standards in Public Life, July 2021, 48, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/999636/CSPL_Regulating_Election_Finance_Review_Final_Web.pdf; referencing: “Russia”, Intelligence and Security Committee of Parliament, 21 July 2020, https://isc.independent.gov.uk/wp-content/uploads/2021/01/20200721_HC632_CCS001_CCS1019402408-001_ISC_Russia_Report_Web_Accessible.pdf.
 Adam Bychawski and Seth Thévoz, “Urgent changes needed to tackle dirty money in British politics, says new report”, openDemocracy, 7 July 2021, https://www.opendemocracy.net/en/dark-money-investigations/urgent-changes-needed-tackle-dirty-money-british-politics-says-new-report/.
 “FinCEN Files: Tory donor Lubov Chernukhin linked to $8m Putin ally funding”, BBC, 21 September 2020, https://www.bbc.co.uk/news/uk-54228079.
 “Report of the Select Committee on Intelligence – United States Senate On Russian Active Measures, Campaigns and Interference in the 2016 U.S. Election, Volume 2: Russia’s Use of Social Media with Additional Views”, 116th Congress 1st Session Senate, Report 116-XX, United States Congress, October 2019, https://www.intelligence.senate.gov/sites/default/files/documents/Report_Volume2.pdf.
 Sir Robert Owen, “The Litvinenko Inquiry: Report into the death of Alexander Litvinenko”, January 2016, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/493860/The-Litvinenko-Inquiry-H-C-695-web.pdf.
 Cruz Bustillos, Murray, and Vindman, “Assessing the Threat of Weaponized Corruption”.
 See, for instance: “Illicit Influence – Part One – A Case Study of the First Czech Russian Bank”, Alliance for Securing Democracy and C4ADS, 28 December 2018, https://securingdemocracy.gmfus.org/first-czech-russian-bank-case-study/.
 Hilmar Schmundt, “Was die neuen Corona-Medikamente können – und was nicht”, Der Spiegel, 15 December 2021, https://www.spiegel.de/international/germany/documents-link-afd-parliamentarian-to-moscow-a-1261509.
 Lord Evans of Weardale, “Regulating Election Finance”, 6.
 Bychawski and Thévoz, “Urgent changes needed to tackle dirty money in British politics, says new report”.
 Carl Dolan and Iskra Kirova, “Framing Paper: How the EU and US can disrupt Russia’s corrupt economic statecraft”, Center for a New American Security (CNAS) Transatlantic Forum on Russia, Anti-Corruption Working Group, 28 October 2021,10.
 “The Open Ownership Principles – Comprehensive coverage”, OO, July 2021, https://www.openownership.org/principles/comprehensive-coverage/.
 “Representatives Malinowski, Salazar, Cohen and Wilson Introduce Bipartisan Legislation to Stop Enablers of International Corruption”, United States House of Representatives: Congressman Tom Malinowski, press release, 6 October 2021, https://malinowski.house.gov/media/press-releases/representatives-malinowski-salazar-cohen-and-wilson-introduce-bipartisan.
 Josh Constine, “Facebook launches searchable transparency library of all active ads”, TechCrunch, 28 March 2019, https://techcrunch.com/2019/03/28/facebook-ads-library/.
 “The Digital Services Act package”, European Commission, 21 October 2021, https://digital-strategy.ec.europa.eu/en/policies/digital-services-act-package.
 “Proposal for a Regulation of the European Parliament and of the Council on the Transparency and Targeting of Political Advertising”, European Commission, 25 November 2021, https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52021PC0731 .