Power to Truth: Anat Admati & David Barboza on Global Markets, Hidden Ownership, & the Power of Data

David Barboza's Pulitzer Prize-Winning Investigation

• David Barboza, a longtime New York Times reporter in China, conducted a multi-year investigation that showed some people at the top of the Chinese government owned indirect shares in public companies in China, which was published in 2012 and earned him the Pulitzer Prize (54s).
• The investigation involved finding corporate documents, searching through public and private company records, and tracing shell companies to prove that the relatives of senior officials in China held secret shares (2m7s).
• Barboza found that China has some of the best corporate records, allowing him to access private and public company records and understand the ownership structure of companies, which is not always possible in the US (3m8s).
• In contrast, the US lacks a corporate transparency law, and even when implemented, it would only be accessible to the government, not journalists (4m5s).

The Nature of Investigative Journalism

• As an investigative journalist, Barboza's job is to find records and sources that can reveal hidden truths, which is part of the excitement of doing investigative journalism (4m32s).
• Barboza's work highlights the importance of transparency and the challenges of uncovering the truth in a world where some people want to hide it (4m27s).
• Investigative journalism involves tracking down sources and verifying information, which can be done through various means such as government documents, whistleblowers, or leaked documents, and each story requires a different approach to pursue the truth (4m58s).
• The use of government documents in China allowed for the tracking of corporate records and the identification of secret shares held by government officials and their families (5m4s).
• The process of investigative journalism can be time-consuming, with one investigation taking about a year and a half to map company records by hand, but digitizing the process can make it faster and more efficient (6m33s).

Wies Screen: A Platform for Corporate Transparency

• The company Wies Screen was co-founded to create a platform that can organize and analyze large amounts of company records, similar to a Bloomberg terminal, and provide answers to various questions about companies, including ownership and investments (5m58s).
• The platform aims to incorporate data from multiple countries, starting with the US and China, and then expanding to other countries, including Hong Kong, Taiwan, Vietnam, Russia, the UK, and India (8m38s).
• The goal is to create a "Golden Triangle" of data that includes ownership, investments, and trade information, which can provide a comprehensive understanding of companies and their activities (9m1s).
• The company is focused on building a nexus of data between countries, including the US and China, and is working to incorporate data from various sources, including offshore jurisdictions (7m56s).
• The founder's experience in China and knowledge of corporate records have been instrumental in developing the platform and its capabilities (5m1s).

Challenges and Opportunities in US Corporate Data

• The US has a significant amount of hidden information due to corporate privacy, making it challenging to track ownership data, especially for privately held companies, but publicly traded companies provide more accessible ownership data (9m14s).
• In the US, various types of data are available, including trade data, patent data, and personal information, which can be obtained through companies like TLO, but this raises privacy concerns (9m52s).
• Journalists can access certain data, such as digitized white pages, to gather information on individuals, including phone numbers and addresses, but this also raises questions about journalistic ethics (10m23s).
• Each country has different types of data available, and it's essential to understand what data is available in a particular country and how it can be used for investigations while being mindful of journalistic ethics and the purpose of seeking truth (11m21s).

The Purpose of Seeking Truth and Corporate Transparency

• The purpose of seeking truth is to hold individuals and companies accountable, prevent corruption, and give power to the truth to drive change (11m43s).
• Corporate transparency is crucial, especially for global companies, as it allows for mapping and tracking of ownership, investments, suppliers, and other relationships across the world (11m57s).
• The data generated by companies can be useful for various stakeholders, including the private sector, government agencies, and journalists, to monitor who they're dealing with, enforce laws, and make informed decisions (12m57s).
• Government agencies can use this data to enforce laws, such as export controls, and prevent illicit activities, while the private sector can use it to conduct due diligence and make informed investment decisions (13m28s).
• Companies may want to understand their suppliers and partners, including their corporate governance, to identify potential conflicts of interest and ensure due diligence (13m35s).
• This information can be valuable for companies to understand who they do business with, including the background of executives and their potential interests in competitors or suppliers (13m53s).
• Investors also want to conduct due diligence on companies they plan to invest in or take over, and may need to gather information on the company's ownership structure and assets (14m31s).
• Governments and tax authorities may also need to gather information on individuals and companies, including their assets and ownership structures, to enforce laws and regulations (14m45s).

Government and Private Sector Use of Corporate Data

• In some countries, governments collect and share information on companies and individuals, but in the United States, the government may not collect enough information and may need to purchase it from private companies (15m20s).
• The US government's ability to collect and analyze corporate ownership data is limited, and it may need to build its own platform or rely on private companies to provide this information (15m53s).
• The Securities and Exchange Commission (SEC) may have a good database for US companies, but it may not have access to information on companies operating in other countries (16m19s).
• The federal government may need to request information from other countries or rely on private companies to provide global data on corporate ownership and structures (16m42s).
• Private companies, such as Bloomberg and PitchBook, have been founded to provide this type of information and analysis, as governments may not have the ability or resources to do so (17m17s).

Complexities of Corporate Structures

• Corporate structures can become complicated due to various reasons, including tax purposes, jurisdictional differences, and the need to navigate regulations in different regions, which can lead to a complex web of entities and investments (17m42s).
• In China, the tax authorities in different provinces may require companies to register in their province, even if the company is registered in another province, leading to multiple registrations and complex structures (18m8s).
• The Variable Interest Entity (VIE) structure was created in China to allow foreign investors to invest in Chinese companies while navigating regulatory restrictions, but this structure can also lead to complexity and uncertainty (19m5s).
• The VIE structure involves a foreign investor setting up an offshore entity, often in the Cayman Islands, to invest in a Chinese company through a Hong Kong entity, which can create questions about ownership and control (19m15s).
• The complexity of corporate structures, including the use of VIEs, can add to transparency questions and make it difficult to understand the true ownership and control of a company (20m6s).
• In the case of Alibaba, the company's structure involves multiple entities, including a local entity in China and a Hong Kong entity, which can make it difficult to determine where the money is really going (20m23s).

China's Control over its Economy and VIE Structures

• The Chinese government may maintain the option to change its rules or enforce existing regulations, even if it has allowed complex structures like VIEs to exist, which can create uncertainty for investors (20m56s).
• The Chinese government has allowed VIEs to exist because it benefits from the foreign capital and expertise brought in by foreign investors, but it also maintains control over the companies through its regulations (21m29s).
• China implemented a rule to allow foreign investment in its companies while maintaining control, which has been highly successful in bringing in money and talent to build up its companies, but also allows the Chinese government to pull the lever and exert control when needed (21m51s).
• The rule was implemented to control the internet and companies with internet licenses, as the Chinese government wanted to have the power to pull the plug if needed, and did not want foreigners to lead the effort (22m53s).
• The rule allowed Chinese companies to take in foreign investment while maintaining control, and has led to the creation of some of the most valuable companies in the world, such as Alibaba (23m21s).
• The Chinese government has strong control over the internet, surveillance, and data, and has the power to exert control over its citizens and companies (23m52s).
• The Chinese government's control over its economy is much stronger than that of the US government, and entrepreneurs in China can be given free rein for a little while before being brought under control (24m55s).
• The Chinese government has the power to exert control over its entrepreneurs and companies, and has been known to put pressure on companies and individuals, such as Jack Ma, who have become too powerful (25m12s).
• China's economic system is a mix of Wild West capitalism and state control, and the government has maintained control over the economy by not allowing the creation of real oligarchs (26m1s).

Comparison of State Control in China and Russia

• The difference in power between China and the US lies in the fact that China's government has much more control over its economy, while the US has a more decentralized system with more private power (24m25s).
• Russia also has a system of state control, but it is different from China's, and Russia has allowed the creation of oligarchs, whereas China has not (25m53s).
• China's economy has flourished due to a different concentration of power and wealth, allowing private companies to thrive in various sectors, unlike Russia which focused on heavy industry and state control (26m21s).
• Both China and Russia have similarities in controlling information, narratives, and truth, with strong leaders shaping the truth and suppressing opposing views, which can lead to trouble for those who speak out (27m4s).

Mapping Global Business Networks: Challenges and Goals

• The speaker is now busy with their company, which aims to map global business networks across borders, a task that has never been done before, and faces huge technical challenges, including different jurisdictions, languages, and secrecy (28m17s).
• The company's goal is to surface valuable parts of global business networks, despite technical challenges, such as dealing with different names and jurisdictions, and secrecy jurisdictions that hide data (28m32s).
• The speaker is exploring the use of AI systems to give confidence scores, fill in gaps, and train the system to do tasks that are currently done by hand, such as investigating records across different languages and rules (29m50s).
• The company's mission is to make ownership public, but it's not the only part, and they are looking at other ways to achieve their goal, including contracting different data sets and putting them together (29m25s).
• The speaker is looking to develop data in China and elsewhere, despite potential challenges, such as China cutting off data, and hopes that US rules will become more transparent (29m5s).
• The company has a small team of about 40 people and is working to scale up their operations and achieve their goals (28m4s).