I appreciate the FCPA Blog’s exploration of the topic of transparency as applied to transparency groups, which discusses the different facets of secrecy and confidentiality, and how those concepts operate in different contexts. There may be some overlap between the rationale that transparency groups use to justify “private” communications with sources, and the rationale that users of anonymous companies use to justify secret or anonymous ownership of companies for ‘benign’ purposes. That said, I believe the overlap is much smaller than this post suggests, and there is a bit of a false equivalency at play here.
Journalists (and NGOs that work with whistleblowers) are professionally obligated to protect their sources whenever it’s appropriate, and to the furthest extent possible. While it’s possible that confidentiality also provides some protection to the group or journalist, I can say with confidence that the driving objective is protecting the source. Secure drops and encrypted communications not only can help keep the identities of sources confidential, but can provide some protection in real time for those sources, who may be under surveillance by government officials, companies or private intelligence firms.
In an age where there’s a dismal track record of protecting whistleblowers by both governments and the private sector; where journalists and activists are being routinely harassed and even assassinated; and where leaders of western governments publicly seek to out whistleblowers, the risks are real and severe. So, the initial rationale is both a professional obligation as well as a sensible reaction to a very clear and present danger.
I hear your readers now saying “Well, it’s the same for attorneys who create shell companies. They have a professional obligation regarding confidentiality, and use shell companies to protect their clients.” Sure, sometimes. But, I would argue there’s a few holes in this comparison. First, as a transparency campaigner, I’ve heard numerous times from those objecting to UBO transparency for companies that there are individuals under threat from governments/companies who use shell companies to protect themselves (hide ownership of a house; move assets away from the reach of acquisitive govt. officials).
I’m sure that’s theoretically possible, and does happen. But, when I’ve asked to be pointed to concrete examples or data on how often this use case occurs, I’ve gotten very little in return (even accepting the fact that some of those examples may not be public knowledge). Meanwhile, there are dozens, hundreds, thousands of examples of individuals – even whole communities or countries – who are suffering from oppression or threats to their lives who are made less safe and less free because their oppressors routinely and flagrantly use anonymous shell companies to prop up their political and economic power.
In the end, I would argue that the anonymity of shell companies has a net negative impact in this case, which suggests that the public interest in more transparency outweighs the private interests of a few.
Additionally, the more common examples of why some people have legitimate need for an anonymous company lean on less concrete and immediate threats or risks. “I need an anonymous company to protect my investment strategy from competitors”; “I need an anonymous company to hold my home because my angry relative wants to take back the family home from me,” etc. We even had some lawmakers on Capitol Hill ask us about the need for a husband to hide assets from his wife during a divorce proceedings (note: such action would generally be seen as risky, if not illegal).
While these may be legitimate concerns for the people who hold them, in some cases they are either diffuse risks (not immediate, not specific), or highly individualized, and seem to reflect the concerns of a very specific set of people. Indeed, if you read experts like Brooke Harrington who’ve surveyed professionals in the wealth management industry, the main reasons their clients seek secrecy services from them is to protect their assets from creditors, tax agents, or family members. Not exactly a freedom-fighting mantra for all.
Lastly, I would argue that, at least in principle, the notion of a legal entity created for the primary use of business didn’t begin with secrecy as its paramount concern. Business corporations, LLCs and other entities were created to facilitate business activity in number of ways.
You set up an LLC to minimize risk, to manage tax obligations (responsibly), to enable business to business transactions, and a host of other reasons that intrinsically have little do with anonymity.
Arguably, anonymity was initially a byproduct of how legal entities were structured, though some forms have since been developed with anonymity in mind. But, at the core, business entities aren’t primarily intended for anonymous use. In contrast, a secure drop for whistleblowers to post information that could lead to investigations or disclosure is primarily intended for that purpose; confidentiality is the reason it exists.
So, it is right to ask transparency campaigners what they believe the appropriate balance of between privacy, confidentiality and transparency should be – in any given context – but it’s difficult to make apples to apples comparisons.