David Debenham (Co-Chair- Fraud Law Group, McMillan LLP)
“When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us.”
Alexander Graham Bell
In Canada, it is common for high net worth individuals to maintain their privacy by using nominees, agents, shell companies and the like to protect others from learning of their involvement in a variety of business transactions. That did not seem so offensive when ordinary Canadians were anonymous in their own business transactions simply because there were too many transactions and too little technology to monitor them. Now, however, that has changed. Our digital dossiers now extend well beyond our viewing patterns on Google, or buying patterns, on Amazon, to information that predicts our patterns of behaviour based on various stimuli. Seemingly mundane activity, such as who, and what, I “like” on Facebook — can be leveraged to reliably predict, among other things, intelligence, personality traits and politics. The company Cambridge Analytica, advertised that it used data analysis techniques commonly used in jury selection to instrumental in identifying supporters, persuading undecided voters, and driving turnout to the polls, on Donald Trump’s behalf. All these little actions we think of as our “private” business have become public actually data points that are aggregated and wielded to manipulate our behavior in ways we don’t recognize, let alone understand. When a data firm cracks open our smart phone or laptop, we may never find out what it has learned or inferred from the data obtained. We also have no opportunity to correct incorrect inferences.
Many businesses today find themselves locked in an “information race” with competitors to see who can convert customer secrets into the most pennies. To try to win, they are building digital dossiersof facts about every member of our society in an effort to capture market share. One Harvard Professor has argued that these databases will grow to connect every individual to at least one closely guarded secret. This might be a secret about a medical condition, family history, or personal preference. “It is a secret that, if revealed, would cause more than embarrassment or shame; it could lead to serious, concrete, devastating harm. All these secrets will be placed “a database of ruin“[1]. Consider the most famous recent example of big data’s utility in invading personal privacy: Target’s analytics team can determine which shoppers are pregnant, and even predict their delivery dates, by detecting subtle shifts in the purchasing habits of their customer. This is the exciting possibility of Big Data, but for privacy, it is a recipe for disaster.
Now recall George Orwell’s “1984,” where the working class “proles” are spared a life of constant surveillance, while higher-ranking members of society are exposed to Big Brother’s watchful eye. In our society do we really want to expose higher ranking members of society to more, rather than less surveillance? Will gated communities and phalanxes of security guards be enough to protect them in a data-centric world where the highest value is “transparency”, and databases of ruin become prevalent to manipulate the behavior of those who are so wealthy that money no longer can be used as a lever of controlling conduct? In an 1890 paper called “The Right to Privacy”, Samuel Warren and Louis Brandeis cited “recent inventions and business methods” — including instant photography and tabloid gossip — that they claimed had “invaded the sacred precincts of private and domestic life.” They argued for what they called the right “to be let alone,” but also what they called “the right to one’s personality”[2]. The authors noted:
“The press is overstepping in every direction the obvious hounds of propriety and of decency. Gossip is no longer the resource of the idle and of the vicious, but has become a trade, which is pursued with industry as well as effrontery. To satisfy a prurient taste the details of sexual relations are spread broadcast in the columns of the daily papers. To occupy the indolent, column upon column is filled with idle gossip, which can only be procured by intrusion upon the domestic circle?”
With the press being “democratized” into blogs, and business methods morphing into big data analytics, whither our right to privacy? Now that every sip I take, every breath I take, every move I make, every bond I break, is being watched and analyzed, and monetized, privacy is not seen as a right but as a luxury good. WE now have to buy premium products to protect our browsing habits from sale. We are essentially paying a data tax for using the technology of every day life.
The surveillance economy works on such information asymmetry: Data-mining companies know everything about us, but we know very little about what they know. We have lost our “privacy” so we don’t know why the rich and anonymous should not lose theirs. “We’ve arrived at a place where public institutions and figures can be precious about their privacy in ways we’re continually deciding individual people can’t”[3].
In such a world it is a democratic value for there to be universal transparency. The “data base of ruin” must include the dirty secrets over everyone, especially the titillating gossip fodder of the rich and anonymous. What is the ideological justification for this? Law and Order, the typical foil to the right to privacy. “If you have done nothing wrong, you have nothing to hide”. Today law and order is fighting terrorism, and its weapon of choice, money laundering. Tax authorities have joined in to fight tax evasion. Any attempt to hide the true participant in a transaction must be seen as aiding terrorism, money laundering, and/or tax evasion.
Laws in Canada that allow one person to conduct business on another person’s behalf without disclosing their relationship, including agents, trustees, nominee directors and nominee shareholders are suspect, as effective anti-money-laundering (AML) and terrorism financing (TF) regimes would legally require all trustees, agents and nominees to disclose their status to government officials, financial institutions and designated non-financial businesses and professions (DNFBPs). Powers of attorney are, it is said, frequently used to perpetrate real estate fraud, and may be abused to obscure the true ownership or control of the holder of the power of attorney. Trust laws in Canada easily allow for the abuse of trusts to obscure true ownership or control for criminal purposes, it is argued. Currently, provincial land title registration systems collect only registered owners’ information – not beneficial ownership information. Indeed trust information typically cannot be registered on title. This, it is argued, can provide a cover of legitimacy for properties paid for through proceeds of crime, including proceeds of corruption, and it is impossible for authorities to ascertain the true owners of property.
In this world, privacy laws may close some doors, while transparency “law and order” policies, open others. Governments are ending anonymous company ownership by creating open, public registers of the true “beneficial” owners of companies – the individuals who ultimately control or profit from a company. Open registers of beneficial owners make it harder for corrupt individuals to hide their connection to illicit flows of capital and help authorities recover stolen assets, prosecute criminals and collect taxes. Query whether exemptions should be provided in cases where access would expose the beneficial owner to the risk of fraud, kidnapping, blackmail, violence or intimidation, or where the beneficial owner is a minor or otherwise incapable.
In Canada, amendments to the Canada Business Corporations Act will require private companies to register “individuals with significant control”. Those individuals with either a 25-per-cent interest in the corporation or who have a “significant influence over the corpororation” will need to register a document including their name, birth date, address, tax jurisdiction, the date they acquired significant ownership or control and for which they ceased to have such control and a description of why they meet this criteria. The register is not a public document but must be held with the corporation and made available to shareholders of the corporation and its creditors, as well as, if requested, Corporations Canada. This very private personal information of individuals is going to be in this register, potentially available to shareholders, creditors, and investigative bodies of the corporation for a significant period of time. According to the federal Department of Finance, provincial and territorial finance ministers from across the country have agreed in principle an intention to produce legislative amendments “to ensure corporations hold accurate and up to date information on beneficial owners that will be available to law enforcement, and tax and other authorities”[4]. British Columbia and Manitoba are leading the provinces in promulgating their version of transparency for beneficial ownership of “private” companies.
Implications for Investigators
Will beneficial ownership registries be open to those who sue civilly? Will allegations of fraud and piercing the corporate veil become more prevalent in order to get at that information? Will DAGG orders be used to get at public investigators’ files that contain that information? Will “whistleblowers” with access to those registries use them as a “data base of ruin”?
[1] https://hbr.org/2012/08/dont-build-a-database-of-ruin
[2] https://www.cs.cornell.edu/~shmat/courses/cs5436/warren-brandeis.pdf
[4] https://www.fin.gc.ca/n17/data/17-122_4-eng.asp updated to https://www.canada.ca/en/department-finance/programs/agreements/strengthen-beneficial-ownership-transparency.html