Shell Shock When Setting Up A Company Hide Money

Recent headlines about how firms and individuals mitigate their tax liabilities have focussed on them using complex company structures to hide their money behind.

But researchers have found that setting up a shell company, complete with directors who have no involvement in the firm, is much harder to do in countries most believe are tax havens.

Indeed, it’s easier to create these untraceable companies in most other countries.

The results mean it is far easier for criminals to launder the cash proceeds of their crimes without using a tax haven to do so.

Researchers found there were eight countries in which they were unable to set up a shell company:

  • The United Arab Emirates
  • The Seychelles
  • Jordan
  • Jersey
  • Israel
  • Denmark
  • The Cayman Islands
  • The Bahamas

Most of those countries, many people believe, are welcoming to people setting up such front companies to hide their money and avoid tax.

Number one choice for criminals

The United States and the UK are among the easiest to create a shell company, with Kenya being the easiest. Researchers also found that Canada was also fairly easy.

The report, entitled Global Shell Games, was first published in September but headlines about America’s Foreign Account Tax Compliance Act (FATCA) and the UK’s move to find out who is holding bank accounts in its Crown Dependencies offshore financial centres has led to the report being reviewed again in a fresh light.

Professor Daniel Neilson, one of the report’s authors from Brigham Young University, Utah, USA, spoke at a recent conference held in London for the international financial services industry.

He said: “Using a shell company is the number one choice for criminals to move large sums of money internationally.

“But we found that it’s three times more difficult to establish a shell company in a tax haven than in other countries.”

Rules are toughest in tax havens

The report claims to be the result of the ‘most robust test’ ever carried out to establish how easily criminals could establish shell companies with evidence taken from more than 3,500 corporate service providers which market a service to create shell companies in almost 200 countries.

Researchers posed as potential clients wanting to set up a shell company and in 48% of responses they were not asked for proper identification. In 22% of responses, they weren’t asked for any identity documents at all.

Prof Neilson said: “Tax havens have very high compliance legislation for shell companies but it turns out that other countries have varying rates of statutory compliance.

“However, we also found that there is no evidence of a correlation between statutory compliance and actual compliance so more analysis needs to be done.”