Small businesses need Congress' help to crack down on fraud

Small businesses need Congress' help to crack down on fraud
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Sometimes it feels like you have to be a superhero to build a successful small business. From performing multiple jobs to working long hours, it takes a lot of skill and strength to succeed.

One thing no small-business owner can do, however, is actually fight crime. As a result, Congress must protect small-business owners like me from fraud by requiring businesses to disclose the true identity of their owners.


I run an information technology consulting firm in the cybersecurity and defense logistics space, and corporate transparency legislation would go a long way toward protecting small firms like mine that compete for millions of dollars in government contracts or set-asides intended for small businesses.


Unfortunately, these programs are sometimes exploited by bad actors who hide behind shell corporations in order to defraud the government and block genuine small firms from accessing federal programs.

For example, a shady businessman in Arlington, Va. once created an anonymous corporation with a figurehead CEO in order to secure $31 million worth of federal contracts through the Small Business Administration.

That unscrupulous executive then funnelled the contract work to a larger firm and earned nearly $1.5 million for himself before he got caught.     

Other major fraud cases have drained government resources — and put lives at risk. A big, international business once knowingly fulfilled a government contract with defective bulletproof vests and was fined $30 million.

That should have been the end of the story, but the corporation later registered an anonymous LLC through a wholly owned subsidiary in order to secure future defense work.

Thanks to a multi-layered scheme that included bribery, the company eventually won millions of dollars worth of federal contracts and again sold defective bulletproof vests to federal, state and local agencies.

These are just some of the examples we know of. How many others go unpunished?

Such cases proliferate because business owners are not currently required to list their identity when they establish a business, which has encouraged some to create anonymous shell companies that facilitate this illicit behavior.

Congress, however, is considering bipartisan legislation called the Corporate Transparency Act, which would require businesses to list the real identity of their owners. This information would only be available to law enforcement with a valid subpoena or summons, and it would go a long way toward increasing transparency and boosting accountability and confidence in the system.

Although fraud resulting from opaque corporate ownership may not always get a lot of attention, small-business owners are aware of this threat.

In fact, a new scientific opinion poll conducted on behalf of Small Business Majority found 84 percent of small-business owners say the use of shell companies to secure contracts or obtain government set-asides reserved for small businesses is a problem, and 77 percent of small business owners agree Congress should pass legislation that would mandate businesses to disclose the true identity of their owners.

While some critics of such legislation claim these disclosure requirements would be a burden on small businesses, the survey results indicate entrepreneurs disagree: 76 percent of small-business owners say legislation requiring small businesses to list the true identities of their owners would protect them from contract fraud and give them fair access to government set-asides.

As a woman and a certified disabled veteran, I’ve faced many obstacles to starting my own small business. Some of my challenges have no obvious solution, but Congress can easily ensure government contracts and set-asides intended for small businesses actually find their way into the hands of those firms.

All lawmakers have to do is require businesses to declare the true identity of their owners, a mandate that would cost very little and gain a lot for small business owners.   

Laurie Calkins is the owner of Harpy Information Technology Solutions in St. Louis and a part of Small Business Majority’s network of 55,000 entrepreneurs.