Moody's finds 942-year-old director among 21 mn red flags on shell companies

Moody's Analytics has raised 21 million red flags across 472 million companies, uncovering corporate structures that can be used to enable sanctions evasion, money laundering, fraud, and other financial crimes.

The United Kingdom, at almost 5 million, triggered the most shell company flags, followed by China with some 3.4 million flags. China scores high on mass registration and circular ownership flags, contributing to a narrative around deliberately obfuscating ownership, according to research by Moody's Analytics.

South Asia, mainly India, has the most firms with circular ownership concerns, the research finds. Moody's says India is characterised by high complexity in corporate governance structures, which are often opaque and characterised by substantial family ownership, including pyramidal arrangements and cross-holdings.

Moody's says in one extreme case, the analysis revealed an individual who has 5,751 roles at 2,883 different companies, and one company that had 292 directors, nearly 150 times greater than the overall average of 1.5 directors.

Multiple businesses being registered at the same address is often an indicator of risk. In one instance, Moody's Shell Company Indicator identified over 22,000 companies with a registered address for the 'Pyramids' in Egypt.

"Among 'atypical directorships', we found thousands of examples of directors below the age of 5, and 30,000 over the age of 100. One listed director — at 942 years old — would have been born in the 11th century," says Moody's.

Of the 472 million companies analysed in November 2023, around 19 million raised one flag, and more than 900,000 companies raised two or more flags, as per Moody's.

With over 600,000 combined directorship flags, Italy and Spain far exceed most other countries in terms of concentration of corporate control, where a small number of directors are across company oversight responsibilities.

The business services sector raises the most flags with approximately 3.6 million, the wholesale sector follows with 1.5 million flags, and retail comes in third with 1.4 million flags.

Registered companies in the United States have the most flags related to financial anomalies, with over 1.25 million flagged activities like revenues, profits or capital flows that are inconsistent compared to industry averages.

Though the number of anonymous company registrations in Panama dropped by 50% following the Panama Papers investigation, over 47% of companies in Panama raise flags, the highest flag incidence of any country analysed.

A single residence in South Africa registered around 61,000 companies, while in Spain another address registered over 8,000 Chinese-named businesses, representing a jurisdictional anomaly, the research shows.

One China-based textiles and clothing manufacturer reported more than $2 billion in revenue in 2019 – and only one employee, it finds.

Shell companies are often 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. With $1.6 trillion laundered annually, shell companies remain a persistent threat to governments and legitimate organisations, says Moody's.

By analysing over 485 million companies and identifying seven key behaviours that may indicate shell company misuse, the Shell Company Indicator reveals the vast scale of risks, says Ted Datta, senior director – Head of Financial Crime Compliance Practice Europe, Africa, and Americas at Moody's Analytics.

Shell companies may have legitimate purposes but are often used as tools for financial crime, presenting a significant challenge for compliance teams given the opaqueness often associated with them.