THE BLOG
01/21/2015 11:52 am ET Updated Mar 23, 2015

Are Anonymous Companies a 'Getaway Vehicle for Corruption'?

We know that corruption is bad for business. Corruption adds significant costs, undermines competition, and negatively affects sustainable and human development. Anonymous companies are the "getaway vehicle" for corruption. They appear as a common thread in cases of crime, corruption, and schemes to defraud investors. Ethical and effective businesses do not require anonymous companies to operate and succeed, yet such businesses may suffer the consequences of their use by business partners, or be targeted by patent trolls hiding behind them.

Since The B Team began to advocate for beneficial ownership, and against anonymous companies, people have asked us, "What is the business case for beneficial ownership?". Beneficial ownership transparency involves knowing the identity of the real, living people who ultimately own and control companies and other legal entities.

For me, the answer could not be clearer. I have never heard a legitimate case for the business, economic, or social function of anonymous companies. So, for me, the case is closed.

However, I understand that many of my colleagues would like more reasons to help them stand with us against anonymous companies and in support of beneficial ownership transparency. This week, The B Team has provided those reasons in a new report: Ending Anonymous Companies: Tackling Corruption and Promoting Stability through Beneficial Ownership Transparency.

We believe that ending anonymous companies is good for business. Instituting beneficial ownership transparency has four main benefits for business:

  • Increasing competitiveness: Corruption distorts markets by not allowing the best and most competitive companies to win contracts or have their projects and developments approved. Making beneficial ownership transparency a global norm, and a global reality, can increase competitiveness in national markets, and make sure that there is a level playing field where the same rules apply to all companies in all jurisdictions.
  • Reducing risk by knowing who you are doing business with: Transparency in beneficial ownership helps companies know who they are doing business with and can reduce the costs of due diligence if information is more easily available. Knowing who you are investing in or trading with can better inform investment decisions and reduce the risk of misallocated capital.
  • Managing financial exposure and increasing stability: The global financial crisis made clear the difficulty of gauging risk exposure within a complex web of financial transactions. Many investors and financial institutions were unable to determine their exposure to collapsing investment banks because they could not be sure whether they were investing in or had exposure to those banks' subsidiaries or not. Beneficial ownership transparency supports more effective risk management due to greater knowledge of exposure and contributes to the overall stability of the global financial system.
  • Reducing impunity: Beneficial ownership transparency supports law enforcement -- within and across borders -- to track down those responsible for corruption and crime.

These are business reasons why we emphatically support beneficial ownership transparency. As global leaders, we see the damage that corruption, money laundering, and fraud cause, and the economic and human toll these activities can have. We envision a future where the purpose of business is to be a driving force for social, environmental and economic benefit - this is incompatible with corrupt business practice, including the practice of hiding behind an anonymous front to evade legal obligations.

In recent months, the B Team has been pleased to see the momentum behind government action on beneficial ownership transparency. In November 2014, the G20 Leaders agreed to a set of High-Level Principles listing "concrete measures G20 countries will take" to implement beneficial ownership transparency and in December 2014, the EU adopted the 4th Anti-Money Laundering Directive requiring countries to create central registers listing the ultimate owners of companies. The B Team welcomes these developments. We believe is time for business to get on board, and we hope that you'll join us.

There are two main ways that business can act to support beneficial ownership transparency:

  • Implement transparency and anti-corruption measures within companies: We urge businesses to work together through platforms such as the World Economic Forum's Partnership Against Corruption Initiative to find the best ways to be transparent about beneficial ownership within our own structures and operations, and adhere to the highest anti-corruption standards; and
  • Advocate for a global, harmonized approach to regulating beneficial ownership transparency: All businesses can play a positive and constructive role in promoting implementation and pushing for action. Businesses can advocate for the adoption and implementation of G20 Principles in all countries, as well as support implementation of the EU's 4th Anti-Money Laundering Directive.

For me, the case against anonymous companies is very simple. If you are successful in business you do not need them, and they have no economic or social purpose. Working together, business, government and civil society can globalize the norm of beneficial ownership transparency and end anonymous companies. Doing so will mean more competitive markets, more stable financial systems, and more sustainable development. This is good for business, and good for people and the planet.

This post is part of a series produced by The Huffington Post and the B Team to mark the World Economic Forum's Annual Meeting 2015 (in Davos-Klosters, Switzerland, Jan. 21-24). The B Team is a not-for-profit initiative formed by a global group of leaders to create a future where the purpose of business is to be a driving force for social, environmental and economic benefit. Read all the posts in the series here.