BYU professors explore the shady world of shell companies

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Three BYU professors explored the intricate and shady world of anonymous shell companies, a company that exists in name only. The professors’ discoveries could weed out terrorists in the United States.

BYU Researchers have found multiple cases of money laundering through anonymous shell companies. Photo by Elliot Miller

Unlike normal businesses, shell companies have no office space or products and primarily exists to perform bank transactions for a larger corporation. Anyone can purchase a shell company from a corporate service provider. The corporate service provider is supposed to ask the beneficial owner, and not another director within the shell company, for a notarized copy of the owner’s passport or driver’s license, according to international laws. However, several do not ask. BYU professors studied this issue further.

Daniel Nielson, a professor in the political science department; Shima Baradaran, a professor in the law school; and Mike Findley, a former BYU professor, tested how frequently corporate service providers asked for copies of passports and driver’s licenses. This simple inquiry could prevent terrorists and dishonest people from conducting illegal business transactions.

The group created 21 different aliases in 21 different countries and sent emails to nearly 3,800 corporate service providers around the world. The professors assumed the role of private individuals who were looking to form a company as confidentially as possible.

“In our experiment, we acted as customers seeking to form anonymous shell companies in a variety of scenarios resulting in either greater risk or greater reward,” Baradaran said in an email. “On the whole, forming an anonymous shell company is as easy as ever, despite increased regulations following 9/11. The results are disconcerting and demonstrate that we are much too far from a world that is safe from terror.”

“We also found that forming a shell company — capable of terrorism and corruption — is much easier within the United States than abroad,” Baradaran said in an email. “In fact, it was easier to form a shell company in the United States than any other country besides Kenya.”

Nielson referenced a Reuters special news report. Wyoming Corporate Service Inc., based in Cheyenne, Wyo., houses 2,000 shell companies engaging in illegal activities such as shielding illicit illegal internet poker profits, the selling of phony truck parts to the Pentagon, illegal selling of prescription drugs and trademark infringement.

Nielson explains that while people use shell companies for dishonest activities, shell companies are not illegal.

“Many shell companies are legal and legitimate, the problem is when they are anonymous,” Nielson said.

Nielson explains that people use shell companies as shields from legal liability to set up bank accounts and to buy and sell things for a company.

“All that is good, commerce would struggle without shell companies; you need these things,” Nielson said.

The researchers undertaking the study discovered that it was the hardest to obtain an anonymous shell company in a tax haven country. In fact, it was three more times difficult in a tax haven than in a wealthy democratic country, Nielson said.

“The United States is the biggest tax haven in the world,” Nielson said.

The irony makes this statement worth considering. The U.S. government claims to have heightened security measures after 9/11, yet it is still easy to not get caught for not paying taxes if one chooses to remain anonymous.

To read more about the experiments from BYU faculty go to http://scholar.byu.edu/danielnielson/publications/

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