Investors managing over $740 billion call for transparency over American company owners

Call follows alarm over range of threats to investments from anonymous company owners 

** Read the full letter to the Senate HERE and House HERE.

Washington, DC — Today global investors managing over $740 billion in assets are calling for the U.S. government to require all American companies to report their real owners and to keep that information updated. This call comes as Global Financial Integrity and Global Witness highlighted a range of financial and non-financial risks posed to companies and investors from anonymous company owners.

Drawing on ten cases involving anonymous companies, Chancing It: How secret company ownership is a risk to investors is released in Singapore as hundreds of investors gather at the PRI in Person conference and shows how corporate secrecy can damage the global economy, and hurt unwitting investors and pension fund holders.

The oldest banking association in the U.S., The Clearing House Association, which advocates on behalf of the largest U.S. commercial banks, also supports transparency about the real owners of U.S. companies. According to The Clearing House, allowing financial institutions access to this information would better enable banks to comply with U.S. regulations requiring them to determine the beneficial owners of their corporate clients.  

Key examples include:

• Following direct engagement with a civil society organization, the Coca Cola Company took steps to carry out further checks on its local partner in Myanmar after learning that a director and shareholder held a majority stake in a jade company which has been a business partner of a U.S. sanctioned army company. Myanmar’s jade trade is under U.S. sanctions for its links to widespread human rights, environmental and other abuses. Publicly available beneficial ownership information would have empowered Coke to more easily identify the director’s other interests and to avoid a risky partnership.
  
• Eni S.p.A. and Royal Dutch Shell are under investigation in multiple jurisdictions for allegedly paying $1.1 billion for the Nigerian oil block, OPL 245, to a company that a former oil minister secretly owned. Both companies could lose the block if they are found to have participated in a corrupt deal, which could involve significant losses for investors
  
• TeliaSonera AB allegedly paid an anonymously-owned company registered in Gibraltar $250 million to bribe the daughter of the President of Uzbekistan for a license to do business in the country. The scandal led to multiple, ongoing legal investigations and the resignation of several company executives.
  

“We support U.S. legislation that requires disclosures about the real people who own and control American companies because access to reliable and accurate information is a hallmark of well-functioning financial markets. This would be a valuable law enforcement tool, and can help investors better examine and manage risks associated with corruption in corporate supply chains,” said Susan Baker, Vice President, Shareholder Advocacy at Trillium Asset Management. “Allowing opaque corporate structures to exist denies much needed transparency and accountability.”   

Global Financial Integrity and Global Witness have repeatedly shown how secret companies have been used as vehicles to cover up illicit activities such as corruption, terrorism and money-laundering. They have led international efforts to lift the lid on bringing this kind of company ownership into the open.

Recent examples in the Panama Papers have shown how political and economic figures have used anonymous companies and other instruments of financial secrecy to engage in practices associated with corruption and criminal activity. Questions over the financial dealings and client relationships of Trump’s former campaign manager Paul Manafort have once again highlighted the problems associated with anonymous company ownership.

Yet, even after the Panama Papers exposé, a little known fact is that the U.S. is the easiest place in the world to create a company and to hide the fact that you own it. It has also been shown as the preferred destination for corrupt politicians to move their loot to buy fast cars, boats, and big houses while hiding behind their anonymously-owned American companies. This means that the U.S. is where a change could make the most impact. However, the U.S. government is lagging behind a growing global movement to address this problem.

“The damage caused by anonymous companies to the business community and investors is well documented at this point. American disclosure requirements are almost embarrassingly lax, and many global scandals can be traced back to shell companies created in the U.S.,” said Porter McConnell, Director of the Financial Transparency Coalition. “Until U.S. lawmakers strengthen transparency rules, states like Delaware, Wyoming and Nevada will continue to be favorites of criminals, corrupt politicians and anyone else looking to move their money undetected.”

"The risks posed by the use of anonymous companies are real, and investors are beginning to realize just how real. They are seeing case after case of fraud, corruption and other dirty dealings involving anonymous companies hitting companies they have invested in, chipping away at company profits and distracting corporate executives from the company's main business,” said Heather Lowe, Legal Counsel & Director of Government Affairs at Global Financial Integrity. “Investors are joining The Clearing House banks to call for an end to the creation of anonymous companies in the United States because they are bad for business, and Congress needs to be responsive to that call.”

“To address the urgent problem of anonymous companies, we need robust policy solutions that effectively ensure we know who owns and controls American companies,” said Eryn Schornick from Global Witness. “As Congress and the Administration take action to do this, the test for any proposal will be whether it allows broad access to company ownership information, and that the right information is being collected at the time of incorporation and kept up to date. Otherwise, the U.S. risks muddying the waters by offering half-measures, which could undermine more comprehensive solutions and put the country out of step with the rest of the world.”