As part of the fiscal year 2021 National Defense Authorization Act, Congress enacted Section 885, a provision to enable government officials and the public to learn more about the beneficial owners — or true owners — of companies that receive in excess of $500,000 in federal contracts or grants. 1 This transparency is critical in the fight against bad actors, like Russian oligarchs and kleptocrats, who take advantage of anonymous corporate structures to hide assets and fuel their involvement in illicit activities ranging from fraud to supporting a war against a sovereign nation. 2 As the Project On Government Oversight has previously reported, anonymous companies have also been tied to public corruption, organized crime, intellectual property theft, money laundering, terrorist financing, and the opioid crisis. 3
Unfortunately, there is a loophole in this provision as it is currently written that undermines its original intent. Specifically, Section 885 provides too much discretion to corporations on when to comply. The law as it applies to corporate information includes a “to the extent practicable” condition that creates a major gap, which will allow contractors and grantees to conceal their beneficial owners. 4 This makes it possible for covered entities to decline to submit their beneficial ownership information by claiming it was simply too burdensome to produce.
Section 885 must be amended to strike the “extent practicable” language and close this reporting loophole. Additionally, the beneficial ownership identification provision must be fully incorporated into current law in order to close all other potential regulatory loopholes. It must be referenced in multiple sections related to the corporate information included in an existing contractor responsibility database and the semiannual disclosures that the entities are required to submit to the government.
Remedies to hold corporations accountable for not identifying their beneficial owners are also missing from the law. It is commonplace for contractors to violate existing spending transparency reporting rules, so a provision establishing penalties would help encourage compliance and reducing the beneficial ownership reporting threshold would make it consistent with Section 847 of the National Defense Authorization Act for fiscal year 2020.
Finally, it is important to track the collection and use of beneficial ownership information. Doing so will help the federal government better understand how it can use this information, in coordination with our allies and partners abroad, to identify criminal actors and crack down on misconduct.
SEC. __ Liability for Failure to Disclose or Update Information.
Section 2313 of title 41, United States Code, is amended—
