New research from Moody's Analytics reveals far-reaching risk of shell companies

LONDON, UK, January 22, 2023 – New interactive research from Moody’s Analytics uncovers a wealth of corporate structures that can be used to enable sanctions evasion, money laundering, fraud, and other financial crimes.

Shell companies may have legitimate purposes but are often used as tools for financial crime, presenting a significant challenge for compliance teams given the opaqueness often associated with them. Moody’s new research reveals this risk is far-reaching. As of November 2023, more than 21 million risk activity flags have been raised by Moody’s Shell Company Indicator across 472 million companies.

The Shell Company Indicator flags seven key behaviors commonly associated with shell companies that may indicate illicit activity. These span atypical directorships, mass registration, jurisdictional risk, dormancy, financial anomalies, outlier ultimate beneficial ownership, and circular ownership. The solution also provides breakdowns showing the number and types of flags raised globally, as well as by country and sector to show potential shell company risks.

Multiple businesses being registered at the same address is often an indicator of risk. In one instance, the Shell Company Indicator identified over 22,000 companies with a registered address for the “Pyramids” in Egypt for example. Among ‘atypical directorships’, we found thousands of examples of directors below the age of 5, and 30,000 over the age of 100. One listed director — at 942 years old — would have been born in the 11th century.

The Shell Company Indicator also found that:

• Among the 472 million companies analyzed in November 2023, approximately 19 million raise one flag, and more than 900,000 companies that raise two or more flags.
• With almost 5 million flags, the United Kingdom far exceeds any other country for the number of shell company risks detected.
• With over 600,000 combined directorship flags, Italy and Spain far exceed most other countries in terms of concentration of corporate control, where a small number of directors are across company oversight responsibilities. 
• In one extreme case, the analysis revealed an individual who has 5,751 roles at 2,883 different companies, and one company that had 292 directors, nearly 150 times greater than the overall average of 1.5 directors.
• The business services sector raises the most flags with approximately 3.6 million, the wholesale sector follows with 1.5 million flags, and retail comes in third with 1.4 million flags.
• Registered companies in the United States have the most flags related to financial anomalies, with over 1.25 million flagged activities like revenues, profits or capital flows that are inconsistent compared to industry averages.
• Though the number of anonymous company registrations in Panama dropped by 50% following the Panama Papers investigation, over 47% of companies in Panama raise flags, the highest flag incidence of any country analyzed.
• A single residence in South Africa registered around 61,000 companies, while in Spain another address registered over 8,000 Chinese-named businesses, representing a jurisdictional anomaly.
• One China-based textiles and clothing manufacturer reported more than $2 billion in revenue in 2019 – and only one employee.
• Of the top seven most used company names in Moody’s database, all are of French origin, including three that are a synonym for post office. One French postal operator is attached to 10,320 firms, making it the most widely used name among the 472 million companies surveyed.

In an era of complex global business ownership, regulators are driving new transparency laws targeting the illegal use of shell companies, such as ATAD III in Europe, the UK’s Economic Crime and Corporate Transparency Act, which became law in late 2023, and the US’ Corporate Transparency Act. However, with $1.6 trillion laundered annually, shell companies remain a persistent threat to governments and legitimate organizations.

“Organizations today face mounting complexity in understanding true ownership structures and detecting risky corporate relationships. By analyzing over 485 million companies and identifying seven key behaviors that may indicate shell company misuse, the Shell Company Indicator reveals the vast scale of risks,” said Ted Datta, Senior Director – Head of Financial Crime Compliance Practice Europe, Africa, and Americas at Moody's Analytics.

“Our goal is to leverage our global data to arm organizations globally - across banking, insurance, corporations and government sectors - with unprecedented detection of hidden networks of shell companies that span the globe. By detecting these discrepancies, we can equip investigators and analysts with the tools to better investigate fraud, unmask the beneficiaries of financial crime, and take action against bad actors.”

Access Moody’s Shell Company data story: Risky business? The seven indicators of shell company risk.

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