In Global Shell Games: Experiments in Transnational Relations, Crime and Terrorism, Michael Findley and Daniel Nielson show how shell companies are used to commit bribery, circumvent sanctions, launder money and evade taxes.
Posing as 21 different international consultants, the authors approached nearly 4,000 incorporation services in 180 countries to learn how hard or easy it is to form untraceable shell companies.
Remember Ukraine's former president Viktor Yanukovych? In his opulent estate was a private zoo, vintage car collection, hovercraft and golf course, among other things.
What was less obvious, Findley and Nielson said, was the network of anonymous and untraceable shell companies used to acquire and hide the ownership of the presidential palace.
Another Ukraine leader, Pavlo Lazarenko, was accused of stealing $200 million during his two years as prime minister. Transparency International once named him the eighth most corrupt world leader in history. He was convicted of money laundering in California in 2006, where he lived in a luxurious estate.
Lazarenko kept some of his money in U.S. shell companies set up by a firm in Cheyenne, Wyoming, the authors said.
Of the replies the authors received to their requests to set up shell companies, almost half never asked for proper, certified proof of identity. Just over a fifth failed to ask for any photo ID at all.
Many of those selling shell companies weren't concerned about corruption risk. "They were just as willing to sell untraceable companies to our obvious high-risk profiles as to the innocuous, low-risk customers," the authors said.
A few other findings included:
- Classic tax havens such as the Cayman Islands do s better job of enforcing corporate transparency rules than richer, more powerful countries.
- Some of the least compliant incorporation service providers were found in Delaware, Nevada and Wyoming.
- Most shell companies are untraceable because those selling them often don't need to be licensed to do so.
The authors argue that G20 leaders need to adopt international standards on corporate transparency to limit the use of anonymous shell companies.
Julie DiMauro is the executive editor of FCPA Blog and can be reached here.