New rules fail to clean out dirty money

Australia and other leading economic nations are playing an unwitting role in hiding illegal money, even ranking worse than some of the world’s more infamous tax havens.

A new study led by Griffith University researcher Professor Jason Sharman has found the constraints around forming potentially misleading shell companies are less rigorous in Australia, Canada, the UK and US than in more recognised tax shelter countries like the Cayman Islands and Jersey.

The findings question the effect of international rules banning untraceable, anonymous shell companies designed to fight tax evasion, money laundering and the financing of terrorism.

“It is easier to obtain an untraceable shell company from incorporation services -though not law firms – in the United States than in any other country save Kenya,” Professor Sharman said.

“Organised crime and terrorism depend on financial secrecy and untraceable companies are the most important means of providing this financial secrecy.

“Such companies can be set up online in dozens of countries in days or even hours for as little as a few hundred dollars.

“Recognising this danger, the international community has responded by mandating that authorities must be able to look through the corporate veil to find the real individuals in control of these companies.

“Our study identifies the serious weaknesses in the existing regime. We hope to provoke governments to much greater efforts in enforcing corporate transparency.

“The research also provides a unique insight into what causes those who sell shell companies to either comply with or violate international rules requiring them to collect identity documents from customers.

“Some providers were often remarkably insensitive to even obvious criminal risks. In some cases posing a ridiculously obvious corruption risk did not make corporate service providers any less willing to provide illegal shell companies.”

Professor Sharman (left) joined forces with Professor Michael Findley from the University of Texas and Associate Professor Daniel Nielsen at Brigham Young University in Utah for the experiment.

“Our research team impersonated a variety of low- and high-risk customers, including would-be money launderers, corrupt officials, and terrorist financiers when requesting the anonymous companies.”

Evidence is drawn from more than 7,400 email solicitations to more than 3,700 Corporate Service Providers that make and sell shell companies in 182 countries.

Read The Economist coverage of the report.