Secret Company Owners Defrauding U.S. Taxpayers, Putting Troops At Risk & Providing Support To Terrorists, Report Reveals

Call for transparency over company owners follows brief showing range of threats to American interests and civilians

Washington, DC — Taxpayer money is funding national security threats hidden behind anonymously-owned companies, says a new report by Global Witness. These shell companies are also being used by the criminal and corrupt to defraud businesses across America and to steal from taxpayers.

Drawing on ten cases involving anonymous companies from 21 U.S. states and abroad, “Hidden Menace: How secret company owners are putting troops at risk and harming American taxpayers” shows how fraudsters are able to use anonymously-owned companies to cover their tracks and evade authorities.

“We looked into waste, fraud and abuse on things ranging from transporting supplies in a war zone to basic public services in the U.S. Across the board we found that Americans are being ripped off and put in danger by U.S. government contractors hiding behind anonymously-owned companies,” says Eryn Schornick of Global Witness. “This is a threat to our security, and it can be fixed. Global Witness believes that the public has a right to know how taxpayer money is spent and who is benefiting from those funds.”

Criminals who are ripping off public budgets need to hide what they are up to. Anonymously-owned companies, or those whose owners are hidden, have proven to be a common facilitator of fraud and corruption in government spending. The brief shows how weak U.S. government oversight of taxpayer funds and laws enable fraudsters to set up companies, including in America, with anonymous owners to cheat and endanger myriad victims. For example:

  • A U.S.-Afghan contractor funneled at least $3.3 million of U.S. taxpayer dollars to notorious Afghan powerbrokers, who deliberately hid their ownership interests in companies within the contractor’s network to avoid association with the insurgency. These individuals in turn funded the purchase of weapons for the Taliban and insurgents.
  • A former America’s Most Wanted fugitive made millions by defrauding the U.S. government of $11.2 million during a time of armed conflict. He supplied shoddy, dangerous parts essential to well-functioning weapons and to the safety of troops under the disguise of nominee companies from New York, Florida, Nevada, Oregon, Washington, Texas, California, New Jersey and Canada.
  • A former construction company executive in Pennsylvania anonymously hid behind a Connecticut-based company owned by a person of Filipino descent receiving preferential treatment in U.S. government contracting. This allowed the construction executive to bid for and win contracts he wouldn’t otherwise been eligible to receive. Over 15 years, the executive won over 300 federally-funded contracts worth $136 million in Pennsylvania alone. This was the largest fraud against socially and economically disadvantaged business owners in U.S. history.

The Panama Papers exposé once again showed the insidious role that corporate secrecy and shell companies play in aiding widespread crime, corruption and violence. These threaten the safety, security and well-being of people around the world, including in America. Yet, the U.S. is the easiest place in the world to set up an anonymously-owned company. It is also one of the most popular places for corrupt government officials to create anonymously-owned companies to move ill-gotten gains through our financial system.

To fix this problem, Global Witness is calling for the Obama Administration to increase transparency in federal contracting through an open contracting system that includes a requirement for contract bidders to disclose who really owns or controls their companies. This information, along with awards and contracts, should be made public so that the government and businesses know who they are dealing with. Law enforcement also needs this information to stop crimes at the source.

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Global Witness wants a better world — where corruption is challenged and accountability prevails, all can thrive within the planet’s boundaries, and governments act in the public interest. Many of the world’s worst environmental and human rights abuses are driven by the exploitation of natural resources and corruption in the global political and economic system. Global Witness is campaigning to end this. We carry out hard-hitting investigations, expose the facts, and push for change. We are independent, not-for-profit, and work with partners around the world in our fight for justice.

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For more information:

Hidden Menace – How Anonymous Companies Are Putting Troops At Risk And Harming American Taxpayers

Introduction

Since the financial crisis and release of the Panama Papers, we have heard a lot about the revenue governments lose to tax avoidance and evasion, but what about the losses resulting from corruption and fraud when governments spend money on goods, services and infrastructure?

Around the world governments spend $9.5 trillion each year on public procurement.2 It should be no surprise that fraudsters, and corrupt officials, take advantage of this. According to research by the United Nations (UN), corruption may amount to as much as 25% of the value of government procurement contracts worldwide.3 In the U.S. during 2012, “[t]he federal government lost $261 billion, or 7[%] of total spending, to fraud and waste,” according to U.S. House Representative Darrell Issa (R-CA).4 The results of such fraud are harm to all of us in the form of lower quality infrastructure and services, higher prices, wasted tax dollars and decreased trust in government.

Criminals who are ripping off public budgets need to hide what they are up to. Anonymously-owned companies, or those whose owners are hidden, have proven to be a common facilitator of waste, fraud and abuse in government spending.

This brief reveals the seriousness of the problem of anonymously-owned companies in federal purchasing and recommends what must be done to fix it. It focuses on the issue of anonymous shell companies in military contract spending, both because of the serious national security risks posed by their use for illicit purposes, and because of the significant proportion of the U.S. budget-approximately 8.5% of total U.S. federal government spending annually.

According to the UN and other experts, at least 25% of government money spent in fragile states is illicitly diverted into the hands of U.S. enemies.6 For a country such as Afghanistan, where the U.S. has been engaged in military operations for over a decade, these diversions could amount to as much as $28 billion of the amount the U.S. government has spent in the country since 2002.7 This briefing will demonstrate that this massive theft of funds has been possible in part because of a lack of beneficial ownership transparency and include specific examples of this.

Beginning in early 2010 a military-led group of contracting investigators called Task Force 2010 revealed this reality in a nearly 2-year long forensic investigation in to fraud and corruption associated with $31 billion worth of U.S. spending in Afghanistan. Their findings showed that U.S. funds were flowing from primary contractors and their subcontractors on to local and international criminal and insurgent networks, including the Taliban, Haqqani network, Hezb-e Islami, Lashkar-e-Taiba and Tehrik-i-Taliban Pakistan.

In response to the web of contractors and blurred lines between contractors and the private sector in places such as Afghanistan, the U.S. government requires some key disclosures of contractor and subcontractor information. However, the companies the U.S. government does business with are not required to provide information about their beneficial owners, which leads to waste, fraud and abuse.

While it may be true that most contractors are honest businesses, the criminal and corrupt seek to outsmart the system with impunity and it is very difficult to know into whose hands money is flowing. This is why it is crucial that the contractor vetting process includes the collection and publication of beneficial ownership information at all tiers of federal spending. A ‘flow down clause’ would ensure that requirements in the primary contract also apply to subcontractors.

Anonymous Companies