Compliance Today (April 2024)
I’m not talking about your organization. I’m talking about that company in your vendor master files. A recent report from Moody’s found some downright silly attributes about shell companies.[1] One that jumped out at me was the identification of 2,200 companies with directors aged 123 or above. Good healthcare is one thing, but 123-year-olds aren’t very common—particularly since the oldest known person lived to age 122. One director apparently is 942 years old.[2]
Other directors keep very busy schedules. One individual was found to have 5,751 roles with 2,883 different entities. I can only imagine what this person’s resume must look like.
Shell companies are sometimes mistakenly associated solely with money laundering, thanks to the coverage from the “Panama Papers.” But shell companies have many uses. Dishonest employees can use them as a method of stealing money from an organization, as an intermediary for paying bribes, and much more. So, the identification of shell companies should be on every organization’s compliance risk radar.
Moody’s identifies seven categories of red flags to look for in identifying shell companies:[3]
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Jurisdictional risk
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Circular ownership
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Dormancy
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Mass registration
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Atypical directorships
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Outlier age
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Financial anomalies
Exploring these seven areas goes beyond what could be covered in a short column like this. And the data needed to identify some red flags is easier—or more public—to come by than others. But, in most jurisdictions, some basic information about owners, registered agents, officers, or directors is publicly available. Determining the ages of these individuals may not always be easy, but other red flags can exist simply by examining names, addresses, and other available information. Anomalies in details about individuals—coupled with identification of anomalies in company data—can quickly identify possible problems.
So, whether you’re with a small, resource-strapped organization where you need to perform third-party due diligence the old-fashioned way, or you’re fortunate enough to be with an organization that can afford access to sophisticated databases, some level of review for red flags is critical. You don’t want to be the organization found to be doing business with a company that has a 942-year-old director.
1 Moody’s, “Risky business? The seven indicators of shell company risk,” January 22, 2024, https://www.moodys.com/web/en/us/about/insights/data-stories/kyc-innovation-shell-company-indicator.html
2 Giulia Morpurgo and Bloomberg, “Over 2,000 shell companies have directors aged 123 years or older, Moody’s found. The oldest known human lived to 122,” Fortune, January 22, 2024, https://fortune.com/2024/01/22/moodys-red-flags-shell-companies-directors-123-years-old/.
3 Moody’s, “Risky business? The seven indicators of shell company risk.”
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