Shell Companies and Fraud: An Investigative Primer at IRE by Kelly Carr

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Award-winning investigative journalist Kelly Carr presents "Shell Companies and Fraud: An Investigative Primer" at the 2013 Investigative Reporters and Editors Conference.

Additional resources on this topic can be accessed as a self-guided tutorial at bit.ly/shellcompanies2013.

For more information about free training for business journalists, please visit businessjournalism.org.

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Shell Companies and Fraud: An Investigative Primer at IRE by Kelly Carr

  1. 1. Shell Companies and Fraud! an investigative primer ! Kelly Carr | Senior Online Producer Reynolds Center for Business Journalism June 14, 2013
  2. 2. 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.
  3. 3. 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
  4. 4. 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.
  5. 5. 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.
  6. 6. Text! Shell?! Shell! Shell?! Shell?! Source: United Nations Office on Drugs and Crime, http://www.unodc.org/unodc/en/money-laundering/laundrycycle.html
  7. 7. Which country ranked No. 1 in the world for shell companies used by corrupt officials, according to a 2011 World Bank study?
  8. 8. Onshore havens: Secrecy U.S.A.
  9. 9. “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.
  10. 10. 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.
  11. 11. What states have been consistently dubbed as secrecy havens by regulators? Onshore havens: Secrecy U.S.A.
  12. 12. “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.
  13. 13. 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”
  14. 14. Corporate service providers
  15. 15. Corporate service providers —  Lawyers —  Accountants —  Entrepreneurs —  Anyone! Who are they?
  16. 16. Corporate service providers —  Company formation —  Document upkeep —  Registered agent services —  Other various services What services do they offer?
  17. 17. Corporate service providers —  Nominee officers/ directors —  Help setting bank accounts —  Virtual office services —  Shelf sales Some offer perks like….
  18. 18. Shelf Corporation: A company with no significant assets or operation that’s incorporated and then placed on the shelf to age.
  19. 19. Text! Shell?! Shell! Shell?! Shell?! Shell?!
  20. 20. 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
  21. 21. Tools for digging: Business registries —  Secretary of state entity search: www.BusinessJournalism.org/registration/llc —  European Business Registry: www.ebr.org
  22. 22. Tools for digging: Online intelligence
  23. 23. Tools for digging: CorporationWiki
  24. 24. Tools for digging: Open Corporates
  25. 25. Questions? —  Email: Kelly.Carr@BusinessJournalism.org —  Twitter: @KellyCarrBiz —  BusinessJournalism.org Where to find me:

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