Brief 14: The Truth Behind Anonymous Shell Companies

Table 1: Experimental Conditions
ConditionKey Features
PlaceboAlias originates from low-corruption, minor-power “Norstralia” country.
CorruptionAlias hails from high-corruption “Guineastan” country and works in government procurement.
TerrorismAlias claims citizenship in one of four nations associated with terrorism and purports to work in Saudi Arabia for an Islamic charity.
FATFAlias notes that the Financial Action Task Force requires identification.
PenaltiesAlias notes FATF standards and invokes the possibility of legal penalties (for international firms only).
IRSAlias notes that the Internal Revenue Service enforces disclosure requirements (for U.S. firms only).
PremiumAlias offers to “pay a premium” to maintain confidentiality (for international firms only).
U.S. OriginAlias originates from the United States (for international firms only).
NormsAlias notes FATF standards and appeals to international norms (intn’l firms).
ACAMSAlias attributes identity rule to private Association of Certified Anti-Money Laundering Specialists (intn’l firms).
ACAMS+FATFAlias attributes identity rule to both ACAMS and the FATF (intn’l firms).
No DocumentsAlias does not mention identity documents (intn’l firms).
  1. Whether the CSPs responded with an offer of a shell company and
  2. What identity documents were requested.
INTERNATIONAL SAMPLE
TreatmentTotalNon-CompliantPart-CompliantCompliantRefusalNo response
Placebo111897184211124502
  8.68%16.46%18.87%11.10%44.90%
FATF39135646636190
  8.95%16.37%16.88%9.20%48.59%
Premium38123675447190
  6.04%17.59%14.17%12.34%49.87%
Penalties38329746129190
  7.57%19.32%15.93%7.57%49.61%
Corruption42938606536230
  8.86%13.99%15.15%8.39%53.61%
Terrorism42523476543247
  5.41%11.06%15.29%10.12%58.12%
UNITED STATES SAMPLE
TreatmentTotalNon-CompliantPart-CompliantCompliantRefusalNo response
Placebo82992133106602
  11.10%1.57%0.36%12.79%72.62%
FATF5495411262417
  9.84%2.00%0.36%11.29%75.96%
IRS5534212254442
  7.59%2.17%0.36%9.76%79.93%
Corruption533548152417
  10.13%1.50%0.19%9.76%78.24%
Terrorism557328250458
  5.75%1.44%0.36%8.98%82.23%
  • Experimental methods such as this should be relied upon more frequently to provide valuable insight regarding critical international problems.
  • Untraceable shell companies are a major provider of financial secrecy for organized crime, money laundering, tax evasion, sanctions busting, and terrorism.
  • Compliance with international corporate transparency standards is highest when governments regulate and audit corporate service provision; knowledge of international law has little effect on compliance.
  • The cost of compliance is not particularly prohibitive since poor countries tend to comply better with international standards than rich countries. This likely shows an unwillingness to comply on the part of rich countries rather than a lack of capacity.
  • CSPs and individuals are increasingly responsible for compliance with international standards rather than governments. In addition to financial transparency, the effectiveness of other international agreements increasingly depends on these non-state actors.