POGO Joins 24 Groups in Urging House to Promote New System to Identify Contractors and Publish Beneficial Ownership Information

October 28, 2016

The Honorable Jason Chaffetz

United States House of Representatives

Chairman, U.S. House Committee on Oversight and Government Reform

2236 Rayburn House Office Building

Washington, DC 20515

The Honorable Elijah Cummings

United States House of Representatives

Ranking Member, U.S. House Committee on Oversight and Government Reform

2230 Rayburn House Office Building

Washington, DC 20515

Dear Representatives Chaffetz and Cummings:

We, the 25 undersigned organizations respectfully request that the U.S. House Committee on Oversight and Government Reform call upon the Administration to explore potential alternatives to existing entity identifiers for entities working with the federal government without delay,[1] where any alternative is an open system and includes the collection and publication of beneficial ownership information. Civil society should be meaningfully engaged in a transparent process when such alternatives are assessed.

Many U.S. states rank among the easiest places in the world to form companies without revealing the identity of the people who ultimately own and control them (often called “beneficial owners”).[2] Research shows that anonymously-owned companies are easily formed in the U.S. and are being used to defraud businesses, taxpayers and the government in public procurement.[3] The result of such fraud harms all of us in the form of increased national security threats, lower quality infrastructure and services, higher prices, wasted tax dollars and decreased trust in government.

In one instance, 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. In another scheme, a Pentagon supplier formed two shell companies in Wyoming and pretended they were largely owned by ethnic minorities to win preferential treatment for government contracts so that he could profit from supplying substandard parts to the military.

Federal procurement is an important area where the Administration has the authority to act without Congress and to significantly impact the devastating consequences of waste, fraud and abuse. To address this issue, the Administration should:

Adopt a non-proprietary identifier, such as the Legal Entity Identifier (LEI) or a similar, open system that makes the hierarchy of entity ownership transparent by requiring bidders for federal contracts and grants to disclose information on the real people who own and control them (often called “beneficial owners”).

The U.S. government has characterized the purpose of a unique entity identifier as it relates to federal spending transparency, among other things, is to verify entity information and incorporation information, as well as to create transparency.[4] It also recognized that an identifier for entities receiving government funds is critical to ensure that federal dollars are awarded to responsible parties, that awardees are paid in a timely manner, and are appropriately recorded and reported.[5]

To achieve these objectives, information about the beneficial owners of entities receiving federal awards must be collected and made publicly available. Moreover, until the unique entity identifier captures beneficial ownership information sufficiently, the identifier and related data elements being implemented by the Digital Accountability and Transparency Act of 2014 will fall short of its added value in the government’s pursuit for transparency, integrity, optimal contract performance and the safeguarding of tax dollars. This approach will also significantly strengthen the federal requirement that companies disclose certain entity ownership and predecessor information into the System for Award Management and published in the Federal Awardee Integrity and Information System.[6]

These practical steps toward greater transparency in federal contracting and spending fit well within existing due diligence obligations across agencies established to ensure that federal data is more accessible and that program delivery is more effective.

Please contact Eryn Schornick at [email protected] or (202) 580 - 9711 for additional information or to schedule a meeting.

Sincerely,

American Sustainable Business Council

Citizens for Tax Justice

Data Coalition

Demand Progress

EG Justice

Enough Project

Fair Share

Financial Accountability & Corporate Transparency (FACT) Coalition

Global Financial Integrity

Global Integrity

Global Witness

Government Accountability Project

Greenpeace USA

Investors Against Genocide

Main Street Alliance

Natural Resource Governance Institute

New Rules for Global Finance

Open Contracting Partnership

OpenCorporates

OpentheGovernment.org

Oxfam America

Project On Government Oversight

Project On Organizing, Development, Education, and Research (PODER)

Transparency International – USA

U.S. Public Interest Research (PIRG)

cc: Mary Beth Goodman, Senior Director for Development & Democracy, National Security Council

Sean Donovan, Director, Office of Management and Budget

Dr. Karen Pica, Management Analyst, Office of Management and Budget

Corinna Zarek, Senior Advisor for Open Government to the US Chief Technology Officer, Office of Science and Technology Policy

The Honorable John Mica

The Honorable Michael Turner

The Honorable John Duncan

The Honorable Jim Jordan

The Honorable Tim Walberg

The Honorable Justin Amash

The Honorable Paul Cosar

The Honorable Scott Desjarlais

The Honorable Trey Gowdy

The Honorable Blake Farenthold

The Honorable Cynthia Lummis

The Honorable Thomas Massie

The Honorable Mark Meadows

The Honorable Ron Desantis

The Honorable Mick Mulvaney

The Honorable Ken Buck

The Honorable Mark Walker

The Honorable Rod Blum

The Honorable Jody Hice

The Honorable Steve Russell

The Honorable Buddy Carter

The Honorable Glenn Grothman

The Honorable William Hurd

The Honorable Gary J. Palmer

The Honorable Carolyn Maloney

The Honorable Eleanor Holmes Norton

The Honorable William Lacy Clay

The Honorable Stephen Lynch

The Honorable Jim Cooper

The Honorable Gerald E. Connolly

The Honorable Matt Cartwright

The Honorable Tammy Duckworth

The Honorable Robin Kelly

The Honorable Brenda Lawrence

The Honorable Ted Lieu

The Honorable Bonnie Watson Coleman

The Honorable Stacey E. Plaskett

The Honorable Mark Desaulnier

The Honorable Brendan F. Boyle

The Honorable Peter Welch

The Honorable Michelle Lujan Grisham

[1] On two separate instances the Administration has committed to conducting an alternative analysis to evaluate a possible replacement for the Data Universal Numbering System (DUNS) Number; however, the analysis has not begun. Department of Defense, General Services Administration and National Aeronautics and Space Administration, Federal Acquisition Regulation; Unique Identification of Entities Receiving Federal Awards, November 18, 2015; Karen Lee, Branch Chief, Office of Federal Financial Management, OMB, DATA Act Summit 2016: Leadership Panel, DATA Act Summit, Washington, DC, May 26, 2016, (Q/A at 43:05-48:00).

[2] Mike Findley, Daniel Nielson and Jason Sharman, Global Shell Games, 2014.

[3] See Global Witness, Hidden Menace: How secret company owners are putting troops at risk and harming American taxpayers, July 12, 2016; Global Witness, The Great Rip Off, Anonymous company owners and the threat to American interests, September 25, 2014, (including the ways in which owners of anonymous companies are ripping off America’s national security, U.S. taxpayers, the vulnerable, businesses and investors, poor countries and democracy).

[4] Federal Spending Transparency Data Act Collaboration Space, Elements: Awardee/recipient unique identifier, awardee/recipient legal entity name, ultimate parent unique identifier number, ultimate parent legal entity name, July 13, 2015.

[5] Department of Defense, General Services Administration and National Aeronautics and Space Administration, Proposed Rules, Federal Acquisition Regulation; Unique Identification of Entities Receiving Federal Awards, November 18, 2015.

[6] Department of Defense, General Services Administration and National Aeronautics and Space Administration, Federal Acquisition Regulation; Information on Corporate Contractor Performance and Integrity, March 7, 2016; Department of Defense, General Services Administration and National Aeronautics and Space Administration, Federal Acquisition Regulation; Commercial and Government Entity Code, May 30, 2014. Information disclosures are required by Federal Acquisition Rule (FAR) Subparts 52.204-17 and 52.204-20, requiring the highest-level and immediate ownership information, predecessor information, and subsidiaries. FAR Subpart 4.1801 defines “highest-level owner” to mean “the entity that owns or controls and immediate owner of the offeror, or that owns or controls one or more entities that control an immediate owner of the offeror. No entity owns or exercises control of the highest level owner.”