Uncovering the Hidden Relationships in the Corporate World

Did you know… close to a billion dollars will be laundered in just the United States today? That’s more than $300B over the course of a year. So who is providing the visibility and transparency to uncover crimes committed by corporations? 

Relegating this responsibility to banks and their fraud and anti-money laundering teams does not address the broader responsibility we all have to question the ethical practices of the companies we interact with. 

Also, looking simply at companies in isolation does not uncover the truth. It is the network of relationships between companies, entities and people that creates visibility of the hidden practices. However, most corporations and legal entities are being left unchecked.

Secret and hidden relationships between corporations and their directors and executive teams are leading to actions and practices that challenge our ethical expectations. As they find increasingly complex and abstruse ways to avoid the law, their practices can be anything but legal. 

It is no longer acceptable for a company to care only about revenue and profits. Customers, employees and investors are all looking for corporate responsibility and increasingly at the values of a company. In fact 81% of millennials expect their company to make a public declaration of their corporate citizenship. Sustainable business practices are essential to the future viability of any corporation. Business leaders must be transparent and accountable for where and how business is conducted, to the highest levels of ethics and integrity.

Direct & Unquestionable Fraud

The most direct and blatant of unethical practices is intentional fraud. Global statistics indicate that two million corporations, including limited liability companies (LLCs), are formed in the United States every year. The ease with which these companies can be established provides a perfect cover for criminals to conceal assets and activities through the establishment of seemingly legitimate US businesses. This makes the US, one of the most economically developed countries in the world, a preferred target for criminals, fraudsters and corporate shenanigans involving illicit practices and intentions. 

One example of these illicit behaviors arises in relation to the recent government interventions that were aimed at helping local businesses survive the global COVID19 pandemic. These government interventions created an opportunity and fertile environment for financial fraud. A recent investigation by the Miami Herald/McClatchy and the Anti-Corruption Data Collective using data from OpenCorporates uncovered fraudulent entities, companies and universities who had been created for the sole purpose to defraud the American taxpayer of money and resources. This investigation targeted some 600,000 companies who had filed for $150k or more in PPP (Paycheck Protection Program) loans. It was found that many of the fraudulent entities could have been detected if more due diligence and analysis had taken place on networks of company owners to identify those for example with troubled financial pasts, including multiple personal bankruptcies and previous convictions for fraud. It was only through linking PPP data to OpenCorporates’ official standardized company data from across the US that this investigation was possible in the relatively short time frame it was conducted in.

Unsustainable Business Practices

Corporate crimes and unethical practices are not only limited to the financial aspects of our world. Even when public companies are open and transparent with their financials, their practices to obtain those revenues and profits can be far from desirable. As businesses and supply chains have evolved to be global, we are increasingly hearing about unethical practices that are unsustainable, both exploitative of the most underprivileged populations and exploitative of the limited resources provided by the planet we live on.

As part of efforts to counter this, a new tool powered partly by OpenCorporates’ data, aims to bring unprecedented transparency to the hundreds of billions of dollars that finance tropical deforestation each year – by linking the trade of commodities that drive deforestation to financial markets worldwide. By mapping the companies involved in the commodity supply chains and enriching them with OpenCorporates’ data, it was possible to very quickly see an emerging network of connected entities that, directly or indirectly, finance tropical deforestation.

Corporate Kleptocracy

Not many are familiar with Corporate Kleptocracy but it is almost guaranteed that you would be shocked to learn how prevalent this practice is. Investopedia defines Corporate Kleptocracy as: 

“a phrase that describes the greed of corporate executives who use underhanded tactics to siphon off wealth at the expense of shareholders”. 

This definition can be broadened to include the unfair and unethical implications that kleptocracy has on employees, customers and our society in general. The evaded tax dollars and siphoned money is being snatched from our healthcare systems, infrastructure projects and other societal initiatives that would otherwise have the greatest impact on the most vulnerable and disadvantaged populations.

Operating in the shadows with a lack of visibility and transparency allows corporate directors and executives to hide nefarious activities. However, understanding the openness of a company, and the registers that provide company information, can help to identify these bad actors who are purposely acting in secrecy. OpenCorporates have done just this by creating a score for how ‘open’ company data is around the world based on six factors: unrestricted online search (20 points), open licensing (30 points), free machine-readable data (20 points), a public list of company directors (10 points), freely available annual reports (10 points), and publicly available significant shareholder data (10 points). Full and open access to official company data creates a deterrent for negative behaviors and the illicit use of companies. Furthermore, analysis of this data can be crucial to uncovering hidden relationships, bringing networks of bad actors or ‘kleptocracy’ to the forefront.

Lending My Voice to Corporate Transparency

The examples above highlight the need to go beyond our systems of check and balance today that focus on individual entities, to analyzing networks of relationships. Fraud, unethical practices and kleptocracy have matured to use sophisticated approaches that rely on complex, difficult to decode networks that make it near impossible to detect these events, even within public companies. 

However, one organization is committed to bringing global visibility to these networks: OpenCorporates. By providing a much larger and global picture of corporate entities, executives, directors and board members, OpenCorporates are creating the world's largest database  of companies covering 187m+ companies in over 130 jurisdictions around the globe. This helps form the foundation for understanding the discrete networks of entities that run the world. By understanding associations and relationships, it is suddenly possible to see how bad money flows and risk perpetuates across networks, avoiding discovery.

OpenCorporates’ database is already used by millions of web visitors every month and over 400 organizations rely on its data at scale for verification, investigations and to help solve data management challenges. These organizations include financial institutions, governments, a plethora of technology platforms and most recently the UK’s Financial Conduct Authority.  

With a strong desire and motivation to be part of the solution for a fairer and more ethical world, I today announce my new role as Chair for OpenCorporates, driving a high integrity, open and ethical business culture.