In a world where following the money increasingly means following a thread back to a shady foreign shell company, it’s no surprise one of the most common and frustrating investigative roadblocks is not being able to pierce the veil of complex and murky ownership structures.
The issue of how to uncover, collect and make available beneficial ownership information is not new, but it is a vexing one different jurisdictions have taken different tacks to attempt to solve in the face of increasing pressure from groups like the Paris-based Financial Action Task Force, European Union, the G20 and other watchdog and civil society operations.
The United Kingdom is one of the few jurisdictions committed to creating corporate registries and keeping them open to the public, while the European Union is currently working to create registries as it updates its anti-money laundering (AML) directives, but with caveats that the information may only be available to interested parties, such as law enforcement and banks.
Ironically, one of the countries, the United States, seen as a leader in financial crime laws to counter money laundering, tax evasion and corruption, is also the least transparent when it comes to company formation.
States, including Delaware, require little information to form a company, an issue not expected to change even as the US Treasury works on rules requiring banks to ask corporate clients for the details while not giving the institutions any way to verify the information they are given.
That is why ACFCS has talked with several experts in the fields of investigations, both criminal and open source, who have had to regularly scour disparate sources across cyberspace to piece together these details. They share some of the top strategies in how to be agile and creative in triangulating ownership details and get a better sense of a firm’s financial crime risk.
The information is gleaned from interviews with:
- Garry Clement, president and chief executive of Clement Advisory group, and the former director of the National Proceeds of Crime program for the Royal Canadian Mounted Police.
- Chris Taggart, co-founder and chief executive officer of OpenCorporates, a database of 80 million companies with related ownership and director information and other details.
The key is triangulating among multiple sources, experts say – open source and private vendor databases, court databases, social networks and available business and professional associations to gauge legitimacy and financial crime risk.
Leads through Licensing
When looking for the individuals behind companies, and the information is not public or in a centralized database, think of what kind of sector they are in and what applicable licenses could be needed at the federal, state, regional or city level.
Those licenses typically ask for owners, in most cases actual human beings. Businesses, including restaurants, clubs, bars or others must have a liquor or entertainment license.
If the firm does bookkeeping, it could be required to have a CPA license. Look for any and all business or professional required licenses. Also looking any industry or sector associations, which could publish member company names and lists of key executive or ownership contacts.
Widen parameters to capture more crimes
When you have some information on the company, a director, shareholder or even the beneficial owner, go back to open source Internet searches to see if they have even been publicly linked to a financial crime.
Be sure to go beyond just putting in the name of the entity and the search terms “laundering,” “money laundering” or “anti-money laundering,” but also look up the entity with terms including, “fraud,” “corruption,” “tax evasion” and even “identity theft” or “hacking” and “cybersecurity.”
Also, use this strategy when searching federal and state court records databases, like PACER, to ensure you get a wide range of responses that cover the full spectrum of financial crime. Not every financial crime, like fraud or corruption, has a money laundering charge attached.
Check the newspapers and publications in that specific country, or at least English language versions or outlets.
Mesh public, private databases, social media
If you are using a private, vendor database, such as WorldCheck, Lexis Nexis, TLO, or others, try both global and country-based searches. Depending on those results, go back to the Internet and search using different browsers, Chrome, Internet Explorer, Firefox or Opera, as they can have different results.
Don’t just look at official company or business records, but look for details on social media, blogs or other posts that could reveal higher risk or illegal activities, including Facebook, LinkedIn and Twitter.
Another option when looking for ownership ties to a company is searching for patents and trademarks for the company and any related individuals involved, through the US Patent and Trademark Office, www.uspto.gov site or, internationally, the World Intellectual Property Association, www.wipo.com as well.
OpenCorporates a key tool
Search other business sites, including: OpenCorporates.com, Manta.com, ZoomInfo.com, Connect.Data.com.
OpenCorporates, for instance, lists 80 million companies and 90 million directorships through more than 100 jurisdictions. In the United States, the group has information on 41 states.
Currently, people can filter the search by company name, address and the names of directors. The site also links back to the origin of the information and date procured. It is working in the coming months to add professional and licensing information.
In the United States, be aware that many companies don’t operate in the state they are incorporated in, for instance Delaware. You can get more information on a company in many cases by looking up their information in the states they do business.
For example, in New York, if a company is a foreign LLC or corporation, they have to register with the state and must provide certain details, such as the name of top executives, while other states ask for the names of directors and owners.
Dissolved, not absolved, companies
Know the importance of closed or dissolved companies. The company not being in operation is sometimes just as important as who is operating it. You can look up how many other companies a director or top official was a part of to see if they create companies, engage in fraudulent or illegal activities, and then let the company wither away.
Know the search metrics and be creative. In the United Kingdom, for instance, one of the few countries with a corporate registries database, you can search by date of birth. One thing is to look up and see, for instance, how many people are still directors at 100 years old.
“That might not be fraudulent, but that would make me a bit nervous,” Taggart said. “The chances the person is doing their duty, even if they are still alive, is pretty remote.”
Shell red flags
Here are several key red flags the entity could be a shell company or at a higher risk to be involved in a financial crime:
Incorporation capitals: The company is filed in Delaware or Nevada. They are some of the most common incorporation spots, for good or ill, because the entity creating the company has to provide very little information for set up, including details about company officers.
Gone stale: Website activity, or a lack thereof, can also be an indicator the operation is a sham. Check sites, including StateMyWeb.com or Alexa.com for website traffic, value and activity. Also, don’t hesitate to check archived pages through a site called the Wayback Machine to see if the site has had little to no updates.
Too general: A general lack of information on the company, in general internet searches or business and other directors, is also a red flag for a shell.
If the site of a company seems sparse, bland or generic, with little data on activities, capabilities and executives, compare that with other similarly-sized firms in the same sector. Most companies want to market their abilities, leadership and ownership.
Mismatches: If a company is a restaurant, they would need these licenses or if a casino, would need certain state licenses or federal registration. If those never occurred, it could mean the company is just a shell.
Rinse and repeat: In addition, if dozens of companies have the same directors or addresses, or if a company gets created, dissolved and created again at the same address, or with the same group of directors, that could be an indication of fraud or other crimes. In the UK, they even have a name for such operations, called “phoenix companies.”
Cumbersome complexity: If it is too complex, with ownership entities including other foreign companies or nominees, bearer shares, a trust in one jurisdiction and a trustee in another, in jurisdictions that market secrecy, such as Panama, Cayman, the British Virgin Islands and others, a bank or investigator should “put a big red circle around that,” Clement said.
For complex structures, realize you will likely need to access to registries in multiple jurisdictions. Here are some further links and tools. Some international bodies also maintain sites that allow direct or indirect access to registry information:
- In the US: http://www.blackbookonline.info/
- International Association of Commercial Administrators (IACA) http://www.iaca.org/
- Corporate Registers Forum (CRF) http://www.corporateregistersforum.org
- European Business Register (EBR) http://www.ebr.org/section/4/index.html
- European Commerce Registers’ Forum http://www.ecrforum.org/
- Association of Registrars of Latin America and the Caribbean (ASORLAC) http://www.asorlac.org/ingles/portal/default.aspx