Shell Companies and Fraud: An Investigative Primer at IRE by Kelly Carr
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Transcript of Shell Companies and Fraud: An Investigative Primer at IRE by Kelly Carr
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Shell Companies and Fraud!an investigative primer !
Kelly Carr | Senior Online Producer
Reynolds Center for Business Journalism
June 14, 2013
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What exactly is a shell company?
A company incorporated having no significant assets or operations.
¡ Exist mainly on paper. ¡ Most have no “true” physical
presence. ¡ Little to no economic value.
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Why form a shell company?
Shells can play a vital role in the underground economy. Here’s how:
¡ Money laundering ¡ Tax evasion ¡ Market manipulation: Pump and dump stock schemes ¡ Fraudulent services scams ¡ Fraudulent invoicing ¡ Financing terrorism
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Why should we care?
Viktor Bout “The Merchant of Death” used at least 12 shell companies in Delaware, Texas and Florida as part of a global scheme that involved selling weapons to a terrorist organization.
Source – Willebois, Emile van der Does de, Halter, Emily M., Harrison, Robert A. Park, Ji Won, Sharman, J.C. (2011). The Puppet Masters.
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Why should we care?
The son of the president of Equatorial Guinea used a series of California shell companies to move more than a $110 million in suspected funds.
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Text!
Shell?!
Shell!
Shell?!
Shell?!
Source: United Nations Office on Drugs and Crime, http://www.unodc.org/unodc/en/money-laundering/laundrycycle.html
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Which country ranked No. 1 in the world for shell companies used by
corrupt officials, according to a 2011 World Bank study?
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Onshore havens: Secrecy U.S.A.
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“Shell Games”
� Six part series on the impact of U.S. corporate secrecy.
� Lax U.S. incorporation laws enable corporations to operate secretly.
� Some states offer similar (or more enhanced) secrecy selling points as well- known offshore tax havens.
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Onshore havens: Secrecy U.S.A.
� Rules for corporate formation vary by state. � Some states allow additional perks that can aid
a veil of secrecy. � Most states do not require beneficial
ownership information (aka the name of the true owners of a company).
� There is no licensing for corporate service providers who incorporate mass numbers of entities.
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What states have been consistently dubbed as secrecy havens by regulators?
Onshore havens: Secrecy U.S.A.
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“In the U.S., business incorporation is completely unregulated. Somalia has slightly higher standards than Wyoming and Nevada.” – Jason Sharman, a professor at Griffin University in Australia.
Source: Carr, Kelly, Grow, Brian. (2011) “A Little House of Secrets on the Great Plains.” Reuters.
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To address beneficial ownership disclosure and challenges stemming from the allowance of certain perks like nominee officers Sen. Carl Levin proposed:
“The Incorporation Transparency and Law Enforcement Assistance
Act”
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Corporate service providers
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Corporate service providers
� Lawyers � Accountants � Entrepreneurs � Anyone!
Who are they?
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Corporate service providers
� Company formation � Document upkeep � Registered agent services � Other various services
What services do they offer?
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Corporate service providers
� Nominee officers/ directors � Help setting bank accounts � Virtual office services � Shelf sales
Some offer perks like….
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Shelf Corporation:
A company with no significant assets or operation that’s incorporated and then placed on the shelf to age.
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Text!
Shell?!
Shell!
Shell?!
Shell?!
Shell?!
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Finding stories involving shells
� Consumer scams � Pump and dumps: (Often penny stocks) � Reverse mergers: (Existing public “shell” takes over a
private company.) � Government contractors � Political donations/expenditures � Real estate transactions � Hidden within a corporate structure � Incorporators/Mail drops
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Tools for digging: Business registries
� Secretary of state entity search: www.BusinessJournalism.org/registration/llc
� European Business Registry: www.ebr.org
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Tools for digging: Online intelligence
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Tools for digging: CorporationWiki
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Tools for digging: Open Corporates
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Questions?
� Email: [email protected] � Twitter: @KellyCarrBiz � BusinessJournalism.org
Where to find me: