By Natalie Duffy
Who really owns the office space that the federal government uses, and why are these shrouded owners not required to reveal their identities before contracts and grants are awarded?
The General Services Administration—which is tasked with managing property and certain procurement functions for federal agencies—was criticized for this in a recent report (KI has also highlighted this issue). One of the most shocking findings was that it is impossible to identify the true beneficial owners of foreign-owned buildings used for about one-third of the federal government’s 1,400 “high-security” leases.
This means that agencies conducting critically sensitive work, such as the FBI and DEA, are possibly doing so in spaces owned by America’s enemies—and they don’t even know it. This is a gaping hole in the U.S. government’s due diligence and a clear threat to national security.
The same is true for contracts awarded to companies with undisclosed beneficial owners. In a recent letter to legislators, the FACT coalition highlights the case of a U.S.-Afghan contractor.
“[The contractor] funneled at least $3.3 millions of U.S. taxpayer funds to notorious Afghan powerbrokers, who deliberately hid their ownership interests within the contractor’s network. These individuals in turn funded the purchase of weapons for the Taliban and insurgents.”
Two critical weaknesses emerge from these examples: The use of anonymous companies, and lack of effective oversight by the U.S. government. Until the former are abolished and the latter is addressed, we run the risk of undermining our national security–or even funding our enemies.
One pathway to significantly improving federal procurement transparency would be the adoption of an open, non-proprietary identifier system, such as the Legal Entity Identifier developed by the G20. The latter provides companies with a 20-digit code which enables their transactions in different jurisdictions to be identified and tracked. If possession of such a code were a prerequisite for bidding on federal contracts, and issuance of the code was conditional on the provision of beneficial ownership data, the U.S. government would finally be able to ensure that taxpayer dollars are not going to bad actors.
As the FACT coalition points out:
“The U.S. government has conveyed that 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. It also recognized that an identifier for entities receiving taxpayer 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.”
Natalie Duffy is a Research Associate at Hudson Institute’s Kleptocracy Initiative.