Secrecy is often used as a legal shield to cover up illegal actions by businesses. Anti-corruption activist and TED Prize winner Charmian Gooch explains why we should care — and what we should do.
Privacy and secrecy are hot topics right now. The promise of open data, the perils of mass surveillance, and a world where our social lives are posted online 24/7 have left many of us wondering, “What’s private? What’s public?” What information should or shouldn’t be shared in the modern age? What should be withheld, what should be revealed, and why?
Drawing such lines can be difficult to do, even though we’re faced with such choices every day. Think about these:
• Your local restaurant around the corner claims it cleaned up its “pest” problem long ago, but how do you really know? You — and your stomach — have a vested interest as a consumer in having access to the inspection records of your favorite dining spots.
• You want to make sure your bank statements and account information aren’t shared indiscriminately with your friends, neighbors or an identity thief. But, as an investor, you want the companies you invest in to publicly disclose their financial performance, to make sure your pension hasn’t gone south.
• The terms of your mortgage may be no one’s business but yours and the bank’s. But, what if you wake up tomorrow to find a developer next door has accidentally destroyed your garden and half the side of your garage? You and your insurance claim depend on being able to find out through the public record who owns the home next door.
People would disagree over where the line is in all these examples. But one way to think about it may be when private facts or acts have big public implications. All around the world secret, illegal actions are taking place — using corporate secrecy as a legal shield — that affect us all. In these cases, the balance between an individual’s right to privacy and others’ right not to be harmed is currently way out of kilter.
For the past 20 years, as a co-founder of Global Witness, I’ve worked to expose the money flows behind conflict, corruption and environmental destruction. A clear pattern has emerged: if you want to enrich yourself, harm people, evade the law and launder ill-gotten gains, the best way to do it in secret is by setting up an anonymous shell company.
Anonymous companies lie at the heart of some of the worst problems of our time. Corrupt politicians, tax evaders, terrorists, drug gangs, people traffickers and warlords all use them to cover their tracks. Put simply, they are otherwise normal companies whose real ownership is hidden, either intentionally or by default. Approximately two million corporations are formed each year in the U.S. alone, and in most states it is perfectly legal to incorporate such companies without disclosing who benefits from their existence or ultimately controls their activities. Typically, it requires less information to incorporate a new company than is required to obtain a driver’s license or open a bank account.
This gives people with something to hide a place to do it. This is not privacy; it is secrecy, and it does real damage. The OECD club of rich countries states that almost every economic crime involves the misuse of companies, and a World Bank review of 213 cases of large-scale corruption involving $56 billion showed that more than 70% of these crimes relied on anonymous companies. American companies were the most popular choice.
Anonymous companies are used as “getaway cars” by all manner of criminals to cover their tracks.
This exact sort of thing has happened in Ukraine. The corruption that underwrote the regime of former President Viktor Yanukovych was engineered by the use of such anonymous companies. Global Witness worked with Ukrainian activists to show how British and Austrian companies were used to disguise who really owned Yanukovych’s palace compound. Similar activity was going on in Russia: according to Reuters, the Russian elite have been using secretive British companies to hide taxpayer financing of lavish palaces on the Black Sea.
It sounds like something from Hollywood, but the reality is that anonymous companies are used as “getaway cars” by all manner of criminals to cover their tracks.
This affects ordinary people in America too. One of Mexico’s biggest drug cartels, Los Zetas, used an anonymous Oklahoma company as part of a scheme to launder millions of dollars of drug money in the United States; that’s money that’s linked to thousands of violent deaths in Mexico as a result of the drug trade, as well as drug-related crime, violence and addiction in the U.S.
At this point you might say, “Sure, this is a real problem, but how I spend my money is not anyone else’s business. If I choose to use an anonymous company legally to buy a home or protect my assets, that’s my choice. It’s not my fault if a few unsavory characters exploit a way of doing business that millions use every day for perfectly legitimate reasons. That’s like saying you want to get rid of cars because bank robbers happen to use cars to flee the scene of their crimes.”
Let’s go with that analogy for a second. It’s true; millions of people use cars lawfully every day for all sorts of purposes. And we haven’t abolished automobile ownership because a small minority of people use cars to commit crimes. But we do regulate people’s use of cars, and their ownership of them. We require people to register their cars with the state. That registration is tied to personal information about the owner that is accessible to government officials and law enforcement. We require vehicle owners to have their cars insured to protect them and other vehicle operators from financial and personal risk.
The secrecy surrounding companies – who owns them, and what’s done with them – provides some protection and security for a few, but at a massive social cost.
Doing all this hasn’t prevented people from committing crimes, including crimes using vehicles. But it’s made it a lot more difficult to do so, and made it easier to catch and hold accountable the people who do. In this case, there is a balance between an individual’s freedom to own and operate a piece of property and the need to protect people and communities from harmful actions committed by some vehicle owners and operators.
Like cars, companies exist for a practical reason: to encourage entrepreneurs and allow them to set up business operations without risking everything they own. It’s a privilege, conferred by the state.
The misuse of anonymous companies represents an abuse of that privilege by a minority who want to hide their illicit activities. Saying that we should simply provide harsher punishments for those who abuse that privilege overlooks the fact that companies are being abused in a way which makes it almost impossible to catch people in the act.
The secrecy surrounding companies — who owns them, and what’s done with them — provides some protection and security for a few, but at a massive social cost. Until every country in the world brings in laws making it an offense not to list the identity of the true owners and controllers of companies, criminals are having an easy time of it — using companies to transfer vast sums of money and carry out other dodgy business activities — and we’re all paying the price.
I believe that the solution is to require all companies to disclose their real owners. This view is shared by law enforcement, the British Prime Minister David Cameron and a number of European business groups. This is why my TED Prize wish earlier this year was to end anonymous companies.
To me the huge cost of anonymous companies means that we have to make a new choice about how much should be revealed. We need to rebalance the scales. If we fail to do what we can to bring these dirty deals into the light of day and prevent them from happening, how complicit am I — or you — in the crimes themselves?
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Featured artwork by Dawn Kim.
