Shell Companies and Disclosure

Transparency in government should not be limited only to officials.
Disclosure rules should also apply to everyone seeking special benefits from government, such as
contracts, permits, or grants. For one thing, without transparency
on both sides of every transaction, it is impossible for the public or officials to know if
there are any conflicts that particular officials need to deal with.<br>
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One popular way to get around transparency is the shell company. A
company can easily be set up so that its ownership is secret. This
is often done with development companies. The company has to have a
front man, at least an attorney, who appears at zoning board
meetings and the like. But it usually is not required to disclose
the names of its owners. Without the disclosure of these names, how
can anyone know whether officials, their family members, or
their business associates own a company involved in a matter before
them? And without disclosure, it is easy for an official to say she
didn't know her brother was an owner, if this fact comes out later.<br>
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Shell companies are also used by contractors who have relationships with officials or who have gotten into trouble with the law. Nonprofits, which due to limited reporting requirements are often not much different from shell companies, are used to get grant money to officials' family members. And as we saw in the 2012 election, shell companies are a good way
to get around campaign finance disclosure requirements.<br>
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Where should company ownership disclosure rules be placed? They
could be placed in zoning laws or regulations, grant-related laws or
regulations, and procurements laws or regulations. But this would
mean numerous reforms, which might easily be stopped or watered down
along the way. Therefore, the best way to handle such disclosure is
to place it in an ethics code, and have the rule require action by
each of these areas to make disclosure requirements clear to
companies seeking benefits, for example, by including the disclosure
requirement in every RFP and other procurement document, in every
grant request, and in every permit request. The disclosure
requirement should include a requirement to disclose the names of
immediate family members and business associates of both individuals
and company owners (say, where there is at least 10% ownership by an
individual or immediate family). And there should be a requirement to update such information quarterly, even after the contract, grant, or permit has been obtained, for at least the contract, grant, or permit period.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
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