Shell companies can be used to disguise illicit activities and the money generated from them. It is difficult and time-consuming to identify patterns of shell company risk.
Our Shell Company Indicator uncovers hidden risk related to shell companies through insightful, typology-driven flags during customer/third party onboarding and investigations for better and faster decisions.
Shell companies can be used to facilitate money laundering of ill-gotten gains from activities such as fraud, bribery and corruption, modern slavery and exploitation, and illegal trafficking of people, drugs, wildlife, or other goods. Throughout due diligence and investigative processes, Moody’s is able to flag suspicious corporate behavior and alert banks, companies, and governments to investigate further.
This paper – Looking inside the shell – delves into the intricacies and complexities of shell companies that may be being used to commit financial crime. The paper highlights the risk-related flags that help detect potential shell companies in a customer or third-party network. It also provides a lens for corporations, government departments and agencies, and financial institutions trying to uncover hidden shell company risk. And it outlines the innovative solution – Moody’s Shell Company Indicator – that enables organizations to understand their risk exposure and target investigations.
Identify risks throughout the lifecycle of a business relationship, including documentation of rationales as to why a prospect, customer, or supplier may no longer be suitable to consider retaining.
Easily uncover signs of circular ownership, atypical directorships, mass registrations, abnormal dormancy issues, jurisdictional risk, and beneficial ownership and financial anomalies when a greater level of scrutiny is needed.
This insight is accessed through an easy-to-use, task-based tool that enhances an organization’s ability to detect shell companies, while dramatically decreasing the hours needed for laborious research and investigation work from months and days to minutes.
As part of a standard compliance/KYC workflow, reduce manual work and immediately understand shell company risk associated with any entity for faster decision-making and more efficient onboarding processes.
Fraud is a huge worry, risk, and cost to corporations worldwide and in many jurisdictions, fraud prevention is a legal requirement. In addition, corporates must ensure they are not trading with sanctioned individuals or entities, and prevent the reputational damage associated with suppliers involved in modern slavery and human trafficking. Investigations teams are therefore locked in a process of continual review to identify whether companies within their counterparty network are legitimate. This includes uncovering beneficial ownership information. Knowing if there is a shell company risk can help guide investigations and decision making. Moody’s Shell Company Indicator supports transparency by automatically flagging outliers to aid investigations that can become a part of your wider due diligence and risk management activity.
National governments and governmental agencies are heavily involved in combating financial crimes such as money laundering and its related offences; it’s their responsibility to protect global security, citizens, and economies. Any shell company used to hide illicit practices, beneficial ownership by a criminal or sanctioned individuals can facilitate many versions of fraud, sanctions or tax evasion, and human trafficking. Moody’s Shell Company Indicator identifies irregularities and uncovers potential risk during procurement, supplier checks, and due diligence on companies seeking loans or licenses. This allows for efficient allocation of resources and can point investigators in the right direction with a data-driven and risk-based approach.
Understanding risk across the customer portfolio is a continuous process and is essential to deciding whether to do business with a company. As one of the most highly regulated sectors financial institutions (FIs) benefit greatly when they understand shell company risk. Moody’s Shell Company Indicator provides a picture of risk at any time, including if there are changes in risk factors. During investigations FIs may need to react quickly, especially when there are indications of circular ownership, or sanctions. Shell Company Indicator makes it easier to understand when there is a shell company present that displays a significant risk for sanctions or financial crime. It can be invaluable during due diligence investigations, ongoing monitoring, and supports filing suspicions activity reports.
When directorship outlier patterns are observed based on counts for current directorships, previous directorships, and associations with inactive companies.
When registration patterns indicate mass or bulk creation, as they share similar attributes within the registration date window.
When the nationality/ residency of the individual director or BO is different from the company's registration, and at least one of these jurisdictions is defined as high risk.
When instances of circular ownership are observed.
When company owners are implausibly young or old.
When the company has been dormant for more than five years within its history.
When operating revenue is higher than normal, based on the number of employees.
Leverage Moody’s insights derived from our market-leading data on over 460 million corporate entities from our Orbis database. The database also includes extensive corporate ownership structures and a holistic view of companies. Weekly updates ensure our pre-processed indicator flags are based on the most up-to-date data available while getting you the answers you need within minutes.
In our user interface, a summary page lists all indicators reviewed to determine shell company risk; each is coded one of three colors for quick recognition of risk level. A simple click from the summary page provides details on risk-relevant data, such as directorships, circular ownership, and repeated registration.
In addition, a data feed can be easily configured to suit your business needs to access Shell Company Indicator flags and underlying data via Moody's DataHub, a cloud-based delivery platform.
The solution gives you the tools to verify and assess the individuals and entities you do business with, so you can understand where risks lie across your network. It is easy to incorporate a check for shell companies in your compliance workflow on our client lifecycle management platform, Passfort, or used or as a standalone research tool.
On March 20th, Moody’s hosted a webinar “Risky business? Addressing hidden shell company risk.”
Moody’s Industry Practice Lead, Rich Graham, talked through the findings of our research into shell company risk, which probed into the constitution of nearly 500 million organizations to identify and define suspicious corporate behaviors. He explains how these risky behaviors are identified and can be categorised for use in investigations and due diligence.
Then our expert panel hosted by Moody’s Choon Hong Chua and featuring Sam Dorshimer, Bureau of Economic and Business Affairs US State Department, and Anila Haleen, Principal, Sanctions and Export Controls UK Finance, shared how new risk insights have practical application for anti-financial crime, sanctions compliance, and third-party risk management programs.
Listen to the playback, and if you have any questions, please get in touch any time.
There are plenty of shell companies formed for legitimate reasons. However, as recently uncovered in a major case in Singapore where 3 billion SGD of assets were frozen, shell companies can also be used for more nefarious purposes. This risk is not always easy to spot, especially when relying on manual, time-invasive processes.
In this episode KYC Decoded, host Alex Pillow welcomes Moody’s Product Manager, Kate Weymouth, and Head of the Financial Crime Practice Group for APAC and the Middle East, Choon Hong Chua.
Their dynamic and educational conversation around shell companies and their risks includes:
Shell companies, characterized by their lack of active business operations or significant assets, pose unique risks to organizations. While not intrinsically illegal themselves, these entities can potentially serve as veils for illegal activities, including sanctions evasion and money laundering, due to their often complex and opaque corporate structures.
Shell companies can be used by criminals to conceal offenses such as fraud, tax crime, money laundering, and sanctions evasion, all of which pose a threat to the global economy. Against this background, there are significant moves from governments and the private sector to create more corporate transparency.
New interactive research from Moody’s uncovers risky corporate structures that can be used to enable sanctions evasion, money laundering, fraud, and other financial crimes.
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