A Look Behind the Shell Corporations

Terrorists, drug traffickers, corrupt politicians, and criminals easily move money around the globe every single day, using shell corporations.

In the third season of Showtime’s drama Homeland, the CIA is working to track the finances of a terrorist group through a maze of shell corporations and offshore accounts from Iran to Venezuela.

This isn’t just a Hollywood plotline. It is, unfortunately, all too real.

Terrorists, drug traffickers, corrupt politicians, and criminals easily move money around the globe every single day. They use shell corporations, which have no assets or operations and exist simply to conduct business transactions.

Shell corporations serve no legitimate business purpose other than to hide their true owners and officers. They enable brutal dictators in Equatorial Guinea and Uzbekistan; terrorist groups, such as Hezbollah; and drug lords to hide their profits from crime and corruption.

The Open Society Foundations have joined the effort to curb the potential abuse of shell corporations and to stop illicit financial flows. The first step is to see who is really behind these corporations.

Information about who owns and profits from companies, which is known as “beneficial ownership information,” is secret in most places. But the European Union, the United Kingdom, and the United States have taken action to require more disclosure:

  • The EU is considering amending its Anti-Money Laundering Directive to tighten loopholes and demand that natural beneficial owners of corporations be named in a public registry.
  • The UK recently held a public consultation on the question of whether to make beneficial ownership registries public. France is considering similar measures.
  • The Obama administration has promised to take action on beneficial ownership as part of its commitment under the transparency initiative Open Government Partnership. Congress is considering legislation to create private corporate registries at the state level.

Just knowing who owns what corporations would help everyone from law enforcement officers to journalists and interested citizens prevent and detect crime and bring perpetrators to justice.

Nevertheless, there are challenges to exposing the owners of anonymous shell companies. Multinational corporations, the financial sector, bar associations, and the countries that profit from corporate secrecy continue to out-lobby and out-spend activists to keep secrecy loopholes in place. 

The Open Society Foundations have had a long-standing commitment to ensuring that money flowing to, from, and within societies is governed in the best interests of all citizens—rather than simply the powerful.

Toward that end, the Foundations have commissioned a paper on the problem of shell corporations and the current efforts to get beneficial ownership information into the public domain.

Download the briefing paper Terrorism, Inc.: How Shell Companies Aid Terrorism, Crime, and Corruption.

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3 Comments

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Unfortunately, the public and masses and hoards of people look sometimes worse than a few cool headed executives. The endless needs of the sea of people that all want it now for free.

Very worthwhile research. What interests me the most is the intersection between this kind of transparency/liability and international criminal law. I look forward to the day when our global justice system targets not only those who order or plan etc. mass atrocities, but when we place equal priority on targeting those who are complicit in these crimes by enabling, financing, or otherwise contributing to their commission. To date, in my view, not enough emphasis has been placed on this and until we prioritise it there will be a sizeable impunity gap in our system (and perhaps a less visible deterrent effect of the system too).

So, I'm looking at this 2013 article early in 2016, shortly after news has once again arisen about some of these "shell companies" that operate still (perhaps even more-so?), and investigations are ongoing still, and money is still being shuffled and otherwise hidden so the "crooks" can still do what it is many of them have lobbied our leaders to let them continue to do...still. I wonder when (if?) the nonsense will really ever cease, y'know?
Just sayin'...

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