Title: To Fight Fraud, Inspectors General Need Help Identifying
Companies' Ownership

Description: Fraud in federal programs is a significant and persistent
problem. Some fraud is perpetrated by private companies that obscure
their ownership information when competing for government contracts or
applying for other federal benefits. In a new report, we looked at
efforts to help uncover this fraud. We'll learn more from GAO's Rebecca
Shea.

Related work: GAO-25-107143, Fraud in Federal Programs: FinCEN Should
Take Steps to Improve the Ability of Inspectors General to Determine
Beneficial Owners of Companies

Released: April 2025 

{Music}

[Rebecca Shea:] Lack of ownership transparency creates opportunities to
defraud the federal government.

[Holly Hobbs:] Hi and welcome to GAO's Watchdog Report. Your source for
fact-based, nonpartisan news and information from the U.S. Government
Accountability Office. I'm your host, Holly Hobbs. 
Fraud in federal programs is a significant and persistent problem. Some
fraud is perpetrated by private companies that obscure their ownership
information when competing for government contracts or applying for
other federal benefits. In a new report, we looked at efforts to uncover
this fraud, and today we'll learn more from GAO's Rebecca Shea. Thanks
for joining us.

[Rebecca Shea:] Thanks for having me, Holly.

[Holly Hobbs:] Rebecca, maybe we can start with--why would a company
want
to obscure its identity? Why would they want to hide that?

[Rebecca Shea:] Well, the government generally wants to know who it's
contracting with or providing grants or benefits to--partly to make sure
that that business is eligible for those contracts, grants or benefits;
but also because the government can face national security or safety or
other risks if a bad actor is on the receiving side of those awards. And
when you're dealing with a business, it can sometimes be difficult to
know who the real owner is. And if that person who ultimately benefits
financially or otherwise from the company--that's known as the
'beneficial owner'--if they're not eligible, they may try to hide their
ownership or their involvement in the business to fraudulently access
the benefits. And bad actors may use multiple shell and shelf companies
to further obscure their involvement or make it really hard to find and
trace illicit funds or stolen funds.

[Holly Hobbs:] Do we have any idea how often this happens?

[Rebecca Shea:] Yeah, we don't really know how frequently this happens.
But there are a wide variety of ways that risks from opaque ownership
come up in the federal context. For example, in the contracting space,
we highlight a case where a DOD contractor created a company, and then
he used his family members' names on the incorporation to hide his,
involvement in the company. And then, in his official role with the DOD
contractor, he subcontracted to his own company to the tune of $10
million and got away with that for a couple of years. There are also set
aside schemes where these opaque ownership issues come up fairly
frequently, where a company owner will recruit, for example, a disabled
veteran to serve as a figurehead--you know, somebody in name only for
the
company--in order to access set-aside grants for small, disabled,
veteran
owned businesses. And we highlight a case in the report where somebody
did this and received over $32 million in awards under those false
pretenses.
On the grants front, we give some examples in there as well. In
particular, one that involves the Small Business Innovation Research
grant, where this individual established three businesses applied to
three different agencies to receive the awards, pretending that they
were completely separate businesses with separate facilities. But it was
all essentially the same business. He got three awards across three
different agencies for essentially the same work, by using that scheme.
And what I just described, there was fairly typical. 
But opaque ownership risk also come up with national security issues as
well. For example, sanctions evasion. People may hide their ownership in
a company to evade sanctions. And we give an example of a World Bank
contract that was awarded to somebody who was on the sanctions list for
drug trafficking. We did a report a number of years ago also where we
looked at opaque ownership risks in federal leasing space. Where you
don't know the true owner of the federal lease space, it poses risks to
federal agencies from espionage, sabotage and unauthorized access. So, a
lot of different risks in a lot of different contexts.

[Holly Hobbs:] There's a new law, a 2024 law, that is meant to help.
What does it require businesses to do?

[Rebecca Shea:] The Corporate Transparency Act, the CTA, it was actually
passed in 2020. But it's to be in place by 2024. And it was passed to
address some of the concerns I just described. Initially, U.S. companies
were required to report their beneficial ownership information to a
company registry that was developed and managed by Treasury's Financial
Crimes Enforcement Network, or FinCEN. Now, recently, Treasury put in
place a new rule that narrowed the scope of reporting to foreign-owned
companies. So now the foreign-owned companies will be reporting their
beneficial ownership information to this registry. And FinCEN is in the
process of rolling that registry information out to law enforcement
agencies, to financial institutions, and other approved users.

[Holly Hobbs:] So this is a fairly new effort, but do we know anything
about whether it's helped yet?

[Rebecca Shea:] We don't know yet because it's still under development.
But we did do a very comprehensive survey and interviews with
investigators at a wide variety of the inspectors generals' offices to
ask them how it might help them with their investigations. Right now,
the investigators, they use currently available information from
federal, state, and commercial databases to try and identify beneficial
owners from the investigations that they're doing. But there are some
limitations with the variety of these resources. For example, one key
resource is the state registries, right? Businesses are incorporated at
the state level, and every state has different requirements on the
information that businesses incorporating are required to provide. They
have different formats that they maintain that information. They have
different information that's publicly available to different people. And
so, the investigators may have to go looking across 50 different
databases to try and find information and connect things across those
different state databases. One of the key things, too, is that most of
those state registries don't require information on the owners when
forming a new business or registering an existing one, and that's one
thing.
But then there's also not a lot of requirements on the contact
information that has to be provided either. So it can make it very
challenging to identify beneficial owners for law enforcement. So  the
investigators that we spoke to, you know, they were, I'll say a little
bit excited about the registry. You know, they thought that it could be
useful because with all of that information in one standardized
location, it can help them with things like data matching within the
registry and then also matching across to other data sources.

{Music}

[Holly Hobbs:]  So, knowing who really owns a company can help prevent
fraud in federal contracting, grants, and benefit programs, as well as
protect national security. And a new centralized database is a key tool
for tracking this information. 
Rebecca, where is FinCEN and the Inspectors General--where are they
hoping this will go? What are they hoping it'll be used for in the
future?

[Rebecca Shea:] So one of the primary goals of the registry was to
support financial institutions compliance with Bank Secrecy Act
requirements and help law enforcement's ability to investigate money
laundering, illicit finance issues. But it can also support the federal
government's ability to know who it's dealing with. You know, who are we
doing business with, who are awarding contracts, grants and benefits to?
And what we've seen with the cases involving foreign and domestic
beneficial owners is that, you know, these bad actors, they're going to
continue to use this as a mechanism to abuse and defraud public
programs. But the registry, it can give inspectors general an additional
data source to help them run this down. 

[Holly Hobbs:] You've said these efforts are still early on. But is
there anything we think could be done to improve it?

[Rebecca Shea:] Well, especially with the recent changes that Treasury
made to the scope of who's required to report, so the scope of what will
be in the registry--it's more important than ever that they are
communicating with the inspectors general to make sure that they know
what's in the registry, what isn't in the registry, and the limitations
of that data for their investigations.

[Holly Hobbs:] And last question, what's the bottom line of this report?

[Rebecca Shea:] So the lack of business ownership transparency, it
creates opportunities to defraud the federal government. And uncovering
and investigating this can be difficult given the limited information
that is available across the 50 state and territories registries and
also what's available in commercial and existing databases. The
registry, as it is currently planned by Treasury, it's going to have
some information that can support the Office of Inspector General
Investigations. But FinCEN does need to coordinate with the inspectors
general so that it can understand what they need to best leverage the
registry for their fraud investigations. 

[Holly Hobbs:] That was Rebecca Shay talking about our new report on
beneficial ownership and fraud. Thanks for your time.

[Rebecca Shea:] Thanks.

[Holly Hobbs:] And thank you for listening to the Watchdog Report. To
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