Shell Companies and Fraud: An Investigative Primer by Kelly Carr

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Award-winning investigative journalist Kelly Carr presents "Shell Companies and Fraud: An Investigative Primer," a free webinar hosted by the Donald W. Reynolds National Center for Business Journalism.

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

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Shell Companies and Fraud: An Investigative Primer by Kelly Carr

  1. 1. Shell Companies and Fraud!an investigative primer !Kelly Carr | Senior Online Producer Donald W. Reynolds National Center for Business Journalism May 21, 2013
  2. 2. What definition best describes a shell company?—  A company incorporatedhaving no significant assetsor operations.—  A company formed to act asa trustee or to deal withtrusts.—  A flexible form of enterprisethat blends elements ofpartnership and corporatestructures.
  3. 3. What exactly is a shell company?A company incorporatedhaving no significant assetsor operations.¡  Exist mainly on paper.¡  Most have no “true” physicalpresence.¡  Little to no economic value.
  4. 4. Why form a shell company?A few legitimate reasons:¡  To protect trade secrets.¡  For ease in asset transfers.¡  To serve as a holding company.¡  Corporate mergers.¡  To hold property or other assets.¡  A business set up but no official action has been taken.
  5. 5. Why form a shell company?Shells can play a vital role in the undergroundeconomy. Here’s how:¡  Money laundering¡  Tax evasion¡  Market manipulation: Pump and dump stock schemes¡  Fraudulent services scams¡  Fraudulent invoicing¡  Financing terrorism
  6. 6. Why should we care?Viktor Bout “TheMerchant of Death” usedat least 12 shell companiesin Delaware, Texas andFlorida as part of a globalscheme that involvedselling weapons to aterrorist organization.Source – Willebois, Emile van der Does de, Halter, Emily M., Harrison, Robert A. Park, Ji Won, Sharman, J.C. (2011).The Puppet Masters.
  7. 7. Why should we care?The son of thepresident ofEquatorialGuinea used aseries ofCaliforniashellcompanies tomove morethan a $110million insuspectedfunds.
  8. 8. Why should we care?Anthony S. Seminerio, aformer New York StateAssemblyman, used a shellcompany called “MarcConsultants” to lobbylegislative colleagues andgovernment officials,which resulted inhundreds of thousands ofdollars in payments.Source:: http://cityroom.blogs.nytimes.com/2010/02/04/seminero-sentenced-to-six-years/ From political corruption to terrorism, illicit use of shell companies has serious consequences. 2
  9. 9. Text!Shell?!Shell!Shell?!Shell?!Source: United Nations Office on Drugs and Crime, http://www.unodc.org/unodc/en/money-laundering/laundrycycle.html
  10. 10. èèè
  11. 11. Which country ranked No. 1 in theworld for shell companies used bycorrupt officials, according to a 2011World Bank study? Type your answer in the chat box below…
  12. 12. Onshore havens: Secrecy U.S.A.
  13. 13. “Shell Games”—  Six part series on theimpact of U.S. corporatesecrecy.—  Lax U.S. incorporationlaws enable corporationsto operate secretly.—  Some states offer similar(or more enhanced)secrecy selling points aswell- known offshore taxhavens.
  14. 14. Onshore havens: Secrecy U.S.A.— Rules for corporate formation vary by state.— Some states allow additional perks that can aida veil of secrecy.— Most states do not require beneficialownership information (aka the name of thetrue owners of a company).— There is no licensing for corporate serviceproviders who incorporate mass numbers ofentities.
  15. 15. What states havebeen consistentlydubbed as secrecyhavens by regulators?—  Check all that apply:—  Florida—  Delaware—  California—  Wyoming—  NevadaOnshore havens: Secrecy U.S.A.
  16. 16. “In the U.S.,businessincorporationis completelyunregulated.Somalia hasslightly higherstandards thanWyoming andNevada.” – JasonSharman, a professor atGriffin University inAustralia.Source: Carr, Kelly, Grow, Brian. (2011) “A Little House of Secrets on the Great Plains.” Reuters.
  17. 17. To addressbeneficial-ownershipdisclosure andchallengesstemming fromthe allowance ofcertain perks,such as nomineeofficers, Sen. CarlLevin proposed:“The Incorporation Transparencyand Law Enforcement AssistanceAct”
  18. 18. Corporate service providers
  19. 19. Corporate service providers—  Lawyers—  Accountants—  Entrepreneurs—  Anyone!Who are they?
  20. 20. Corporate service providers—  Company formation—  Document upkeep—  Registered agent services—  Other various servicesWhat services do they offer?
  21. 21. Corporate service providers—  Nominee officers/ directors—  Help setting up bankaccounts—  Virtual office services—  Shelf salesSome offer perks like….
  22. 22. ShelfCorporation:A company withno significantassets oroperation that’sincorporated andthen placed onthe shelf to age.
  23. 23. Text!Shell?!Shell!Shell?!Shell?!Shell?!
  24. 24. Finding stories involving shells—  Consumer scams—  Pump and dumps: (Often penny stocks)—  Reverse mergers: (Existing public “shell” takes over aprivate company.)—  Government contractors—  Political donations/expenditures—  Real estate transactions—  Hidden within a corporate structure—  Incorporators/Mail drops
  25. 25. Tools for digging: Business registries—  Secretary of state entity search:www.BusinessJournalism.org/registration/llc—  European Business Registry: www.ebr.org
  26. 26. Tools for digging: Online intelligence
  27. 27. Tools for digging: CorporationWiki
  28. 28. Tools for digging: Open Corporates
  29. 29. Questions?—  Email: Kelly.Carr@BusinessJournalism.org—  Twitter: @KellyCarrBiz—  BusinessJournalism.orgWhere to find me:!*** Don’t forget to stick around for the evaluation. !

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