Corporation financial secrecy

Business enterprises disclose as little information as possible concerning: the identity of stockholders (frequently hidden by the use of nominees) and the amount of their holdings; annual financial accounts; the location and identity of subsidiary and associated corporations; and the relations with other corporations in the same business (particularly when mergers are envisaged). The need for secrecy is invoked by corporations because of the competitive disadvantages resulting from untimely disclosure. However, in many cases the owners of a corporation are able to remain totally anonymous, to the point that it is impossible or very difficult to determine who controls its operations and what their relationship is to other, supposedly competing, enterprises or official bodies. Since such secrecy is not complete, networks of privileged individuals with differing degrees of access to such information are built up. The information they obtain is often used, in some cases illegally, to the advantage of privileged clients and to the disadvantage of the small investor.

It is a commonly accepted practice for management or directors to manipulate the information presented in corporate financial accounts so that advantages or even tax relief may be obtained from the tax administration. The information may then be presented in a modified manner for the stockholders and general public. A separate presentation is frequently developed for the management of the corporation. The process is sometimes known as 'window-dressing'.

Although a great deal of information is made available on corporations in the USA, even there it is only with great difficulty and after much study that it is possible to determine, for example, how centralized is the control of major corporations. Less information is made available in other English-speaking countries. In continental Europe it is not common practice to make the same amount of information available. The owners of many corporations are able to remain totally anonymous and few financial details are made available to the public. In many other countries, governments have no reliable information on the bank accounts and incomes of their own taxpayers since banking secrecy could be invoked against most tax administrations.

In 1993 it was argued that the level of business secrecy operating in France was causing that country to lag behind other industrial countries in business intelligence, leading to reluctance to communicate useful business leads to colleagues in other companies. Much more commercial information is held confidential by the government than in other countries. In Japan it is common practice to minimize public disclosure through corporate income statements or balance sheets. Many items, such as currency transactions, are deliberately omitted from such documents. Inconsistent depreciation policies are used whereby straight-line and declining-balance procedures are alternated as required to dampen surging or diminishing profits. By cross-trading corporations sell shares they own to affiliates as a means of generating large amounts of cash which are then treated as operating profits, although the shares are still effectively owned by the parent corporation.