Written By Gavin Hayman and Ruairi Macdonald, 12 Jan 2016


Are we going to see a dance-off in 2016? #IDdanceoff

Happy New Year. Perhaps you were at an epic, boozy party over the holiday when the music stopped, the lights went on and you gazed in wonder and horror at the wreckage all around you. During the 2008 financial crisis, when the music stopped and the lights went on, the people trying to save our lurching economies had trouble identifying the revelers, their level of intoxication, and even the size of their tab.

Trying to prevent this problem from happening ever again inspired the development of the first international open, non-proprietary source identifier for companies called the Legal Entity Identifier (LEI).

Corporate identifiers are also vital for tracking government spending. Governments craft trillions of dollars of contracts, grants, and other deals a year. To track all these interactions, it’s hugely helpful to have governments’ record the corporate ID of entities that are receiving federal funds through contracts, grants or other means to know who is getting taxpayer money, how much, what for, and whether it is being spent honestly and effectively. It’s also important for businesses, especially small businesses, who want to understand the government market. The ID is like a barcode for all that entity’s transactions with the government. (The Open Contracting Data Standard – our open data standard to track all this spending – is specifically designed to accommodate different identifiers from different governments.)

The US government has given notice that it will “establish a transparent process for exploring potential alternatives to existing entity identifiers” and remove reference to the current proprietary ID in the Federal Acquisition Regulations (FAR). We see a dance off coming and, so we are starting our blog this year with a call for action: Civil society should insist upon a role in the selection and maintenance of an open, non-prioritary corporate ID for recipients of US taxpayer money.

This may sound like a technicality, but it has significant potential implications for open data and corporate transparency globally.

The Dance-Off Contestants

This issue is now center stage as the White House Office of Management and Budget (OMB) and the U.S. Treasury Bureau of the Fiscal Service (Fiscal Service) implement the Digital Accountability and Transparency Act of 2014 (DATA Act). (See this DATA Act information page.) The DATA Act requires all federal spending to be published according to new data standards on a new USASpending.gov site and the entity identifier is a critical data element.

To that end, US government is currently receiving comments on a notice about removing the proprietary DUNS® number from the Federal Acquisition Regulations (FAR) and consideration of an alternative, non-proprietary identifier. This is major progress.

Though not explained in the notice, the U.S. Government’s choice appears to be between LEI, the Commercial and Government Entity Code (“CAGE code”) and DUNS®. It’s not a straight choice as each of which may evolve in some way through this process. It’s more a kind of dance-off. We want civil society and public interest organisations to circle round and check out their moves.

According to the notice, analysis of alternatives is anticipated to be completed in Fiscal Year 2017, which begins October 2016. The analysis is important because the identifier selected may create a new international norm in both its use and its governance. The selection process and the subsequent governance and maintenance should include civil society organisations.

That’s good news. This is why we are asking transparency, open government, and civic tech organizations to co-sign this comment letter. Submissions are due next week — Tuesday, January 19.

The proprietary old pro: DUNS ® from D&B.

When it comes to US government spending, companies have long been identified by a proprietary number, a DUNS® number, from storied American public company Dun & Bradstreet Inc. (D&B). D&B boasts that DUNS® maintains accurate and timely information on over 250 million global businesses.

Remarkably, DUNS has been expressly included in US regulations at FAR Subpart 605(b). As a result, if the government or anyone else wants to perform new analysis of federal spending using this official government identifier, they need permission from D&B. This private monopoly hardwired into government data has become increasingly problematic in a world of open government and open data. The problem has been highlighted by the Government Accountability Office (GAO) and there have been calls to ”#DumpDUNS” from non-profits and industry associations.

The new DATA Exchange standards refer to DUNS®, but promise to consider a non-proprietary standard. This promise is remade by the FAR Council agencies in the notice inviting comments.

The international new star: LEI

The winner may well be the LEI given that it was specifically set up to do exactly this during the financial crises. It is a global solution with the support of the G20 and the international Financial Stability Board (FSB).

The Global LEI System (GLEIS) has a tiered structure (warning, plenty of additional acronyms below to add to your jargon): At the top, there’s the Regulatory Oversight Committee (ROC), which has representatives of over 80 public regulators. The central operations are run by the Global LEI Foundation (GLEIF), a Swiss nonprofit. On the ground, the Local Operating Units (LOUs) assign LEIs to corporate entities.

More explanation is available on the GLEIF website here, including a very helpful blog post by Matthew Reed, Chief Counsel for the Office of Financial Research at the U.S. Department of the Treasury, who chairs the Regulatory Oversight Committee (ROC) that sits atop the LEI governance structure.

While also part of the U.S. Department of Treasury, the Office of Financial Research is different from the Fiscal Service working on DATA Act, but presumably this gives LEI some American credibility.

GLIES reports that about 400,000 LEIs have been issued to firms in more than 180 countries, which is not bad for a standard only a few years old.

The line dancing giant: CAGE from DoD DLA

Every recent awardee of federal money already has a Commercial and Government Entity Code (“CAGE code”). CAGE codes are received through registration in the System for Award Management (SAM). CAGE is already imbedded in the FAR at Subpart 4.18 and is now supposed to be on all contracts. CAGE codes are also starting to be used to identify other corporate owners of contracting companies, which is very important for managing risk in your supply chain and tackling abuses of power, money laundering, and financial crime generally. (See this great blog making the business case for going further and tracking beneficial ownership information.)

However, a potential problem with the CAGE code is that it’s run by the U.S. Department of Defence (DoD), Defense Logistics Agency (DLA), who seem somewhat, well, “cagey” about the whole CAGE oversight process. It is not an open, non-proprietary standard. This is the DLA webpage on CAGE. Also, it’s not very foreigner friendly, which is important if we want to track federal spending in, for example, international development. If you are a foreign entity, then you need to go through the North Atlantic Treaty Organisation (NATO) to get a NCAGE number. It should be easier for foreigners to join in. Finally, one wonders how the DoD DLA and the Treasury Fiscal Service will coordinate through this selection process. Can the DoD pas de deux?

The Outcome?

As the crowd circles and contest begins, LEI seems the likely winner. DoD DLA is probably the contestant that most understands the importance of knowing who’s getting your money and who’s in your supply chain, but they may not have the right transparency and engagement moves. However, just because DUNS® is losing its enviable mandate in the FAR, it does not mean that D&B cannot evolve their business model and perhaps even grow through this shift. Afterall, D&B is a great American company that has been in the data business for over 150 years and has spun off other data giants like Nielsen and Moody’s. In this light, D&B’s chances don’t look so bad. If there is a #FedMoneyID-Danceoff, D&B may move more nimbly than both the GLEIS and DoD DLA.

Whatever the outcome, open government civil society organisations need to be engaged in the decision process and in the subsequent governance process to make sure the result is a genuine open source, non-proprietary identifier useful for analysing government datasets and cross referring data and deconstructing corporate hierarchies. Please join the OCP in asking for a seat at the table. And please do so this week, so you can be part of our submission next Tuesday, January 19.

PS For a deeper and more technical analysis of the alternatives, see this excellent report by American Council for Technology-Industry Advisory Council (ACT-IAC).

NB This post has been necessarily horribly filled will acronyms so here is a list for your reference:

ACT-IAC – American Council for Technology-Industry Advisory Council
CAGE – Commercial and Government Entity Code
DATA Act – Digital Accountability and Transparency Act of 2014
D&B – Dun & Bradstreet, Inc.
DoD DLA – U.S. Department of Defense, Defense Logistics Agency
DUNS ® – Data Universal Numbering System, owned by Dun & Bradstreet, Inc.
FAR – Federal Acquisition Regulations
GLIEF – Global LEI Foundation, part of the Global LEI System
GLEIS – Global LEI System
ISO – International Standards Organisation
LEI – Legal Entity Identifier, part of the Global LEI System
LOU – Local Operating Unit, part of the Global LEI System
NATO – North Atlantic Treaty Organisation
NCAGE – NATO Commercial and Government Entity Code
OCP – Open Contracting Partnership
OMB – Office of Management and Budget
ROC – Regulatory Oversight Committee, part of the Global LEI System
SAM – System for Award Management

Image credit: Sallee Design (CC BY-NC 3.0 NL)