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.
Moody’s Shell Company Indicator helps you uncover hidden risks related to shell companies through insightful, typology-driven flags during customer or third-party onboarding and investigations so you can make better, faster decisions about who you work with.
CNBC interview on shell company risk with Ted Datta, Moody’s financial crime industry practice lead.
What are the key characteristics of a shell company? Moody's has identified seven risky corporate behaviors that may indicate the presence of a shell company in a third-party network.
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 beneficial owner 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.
Shell companies can be used to facilitate money laundering from illegal transactions and activities such as fraud; bribery and corruption; forced labor and exploitation; and illegal trafficking of people, drugs, wildlife, or other goods. Throughout due diligence and investigative processes, Moody’s solution can flag suspicious corporate behaviors to alert banks, corporations, and governments who can investigate further.
Leverage insights derived from Moody’s market-leading data on more than 580 million corporate entities. Our database also includes extensive corporate ownership structures and information on ultimate beneficial owners (UBOs), and a holistic view of companies. Weekly updates ensure the pre-processed indicator flags are based on the most up-to-date data to help get you the answers you need, fast.
In the user interface, a summary page lists all indicators reviewed to determine shell company risk; each is coded as 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, repeated registration, and more.
In addition, a data feed can be configured to suit your organization's need to access Shell Company Indicator flags and underlying data via Moody's DataHub, a cloud-based delivery platform.
It is easier to incorporate a check for shell companies in your compliance workflows on our unified risk platform, or you can leverage it as a standalone research tool. Moody's Shell Company Indicator 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 third-party network.
Identify shell company-related 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 retain.
Uncover signs of circular ownership, atypical directorships, mass registrations, abnormal dormancy issues, jurisdictional risk, beneficial ownership, and financial anomalies with greater confidence during due diligence.
Shell company insights are accessed through an easy-to-use, task-based tool that enhances your ability to detect associated risk, while reducing the time needed for research and investigation work from months and days to hours and minutes.
As part of a standard compliance or KYC workflow, reduce manual work and better understand shell company risk associated with an entity for faster decision-making and more efficient process execution.
Fraud is a big concern, risk, and cost to corporations worldwide. And in many jurisdictions, fraud prevention is a legal requirement. In addition, businesses need to ensure they are not trading with sanctioned individuals or entities; that they understand politically exposed persons (PEPs) risks; and that they are helping prevent use of forced labor in their supply chain.
Investigations teams are therefore in a process of continual review to identify whether companies within their counterparty network are legitimate, which can include uncovering sanctions exposure and updating beneficial ownership information. Knowing if there is a shell company risk can also help guide investigations and decision-making.
Moody’s Shell Company Indicator supports greater transparency by automatically flagging outliers related to business ownership and other material factors to aid investigations, which can be part of 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 offenses. It is their responsibility to protect global security, citizens, and economies. Any shell company used to process money acquired illegally, and hide illicit practices or beneficial ownership by a criminal or sanctioned individual can facilitate crimes like fraud, sanctions or tax evasion, and human trafficking.
Moody’s Shell Company Indicator helps users identify irregularities and uncovers potential risks during procurement, supplier checks, criminal investigations, and due diligence on companies seeking loans or licenses. This allows for more efficient allocation of resources and can point investigators in the right direction with a data-driven, risk-based approach.
Understanding risk across a customer portfolio or supplier network is a continuous process and is essential to deciding whether to do business with an individual or entity.
As one of the most highly regulated sectors, banks and financial institutions (FIs) can benefit greatly when they understand shell company-related risks.
Moody’s Shell Company Indicator provides a picture of risk at any time, including if there are changes in material risk factors. During due diligence 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 it is likely that a shell company is present, which may show increased risks of money laundering, sanctions evasion, or other financial crimes. It can be invaluable during due diligence investigations and ongoing monitoring, and support filing suspicious activity reports.
This paper – Looking inside the shell – discusses the intricacies and complexities of shell companies that may be used to commit financial crime. The paper highlights the risk-related flags that can help detect potential shell companies in a customer or third-party network.
The report also provides a lens for businesses, government departments and agencies, and financial institutions trying to uncover hidden shell company risk. It outlines the innovative solution – Moody’s Shell Company Indicator – that helps organizations understand their exposure to target investigations.
Moody’s Industry Practice Lead, Rich Graham, discussed the findings of our research into shell company risk, which probed the constitution of nearly 500 million organizations to identify and define suspicious corporate behaviors. He explained how these risky behaviors are identified and can be categorized for use in investigations and due diligence.
Then our panel featuring Sam Dorshimer, Bureau of Economic and Business Affairs, US State Department; and Anila Haleem, Principal, Sanctions and Export Controls UK Finance; and host Choon Hong Chua, a Moody’s Industry Practice Lead, shared how new risk insights have practical application for anti-financial crime, sanctions compliance, and third-party risk management.
Listen to the playback, and if you have any questions, please get in touch.
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 risks are not always easy to spot, especially when relying on manual, time-invasive processes.
In this episode of Risk Reframed, 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 to the discussion on:
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.
For a second year, Moody’s was recognized for its industry-leading shell company detection capabilities
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