1. Shell Companies and Fraud!an investigative primer !Kelly Carr | Senior Online ProducerDonald W. Reynolds National Center for Business JournalismMay 21, 2013

2. What definition best describes a shell company? A company incorporatedhaving no significant assetsor operations. A company formed to act asa trustee or to deal withtrusts. A flexible form of enterprisethat blends elements ofpartnership and corporatestructures. 3. What exactly is a shell company?A company incorporatedhaving no significant assetsor operations. Exist mainly on paper. Most have no true physicalpresence. Little to no economic value. 4. Why form a shell company?A few legitimate reasons: To protect trade secrets. For ease in asset transfers. To serve as a holding company. Corporate mergers. To hold property or other assets. A business set up but no official action has been taken. 5. Why form a shell company?Shells can play a vital role in the undergroundeconomy. Heres how: Money laundering Tax evasion Market manipulation: Pump and dump stock schemes Fraudulent services scams Fraudulent invoicing Financing terrorism 6. Why should we care?Viktor Bout TheMerchant of Death usedat least 12 shell companiesin Delaware, Texas andFlorida as part of a globalscheme that involvedselling weapons to aterrorist organization.Source Willebois, Emile van der Does de, Halter, Emily M., Harrison, Robert A. Park, Ji Won, Sharman, J.C. (2011).The Puppet Masters. 7. Why should we care?The son of thepresident ofEquatorialGuinea used aseries ofCaliforniashellcompanies tomove morethan a $110million insuspectedfunds. 8. Why should we care?Anthony S. Seminerio, aformer New York StateAssemblyman, used a shellcompany called MarcConsultants to lobbylegislative colleagues andgovernment officials,which resulted inhundreds of thousands ofdollars in payments.Source:: http://cityroom.blogs.nytimes.com/2010/02/04/seminero-sentenced-to-six-years/ From political corruption to terrorism, illicit use of shell companies has serious consequences.2 9. Text!Shell?!Shell!Shell?!Shell?!Source: United Nations Ofce on Drugs and Crime, http://www.unodc.org/unodc/en/money-laundering/laundrycycle.html 10. 11. Which country ranked No. 1 in theworld for shell companies used bycorrupt ofcials, according to a 2011World Bank study?Type your answer in the chat box below 12. Onshore havens: Secrecy U.S.A. 13. Shell Games Six part series on theimpact of U.S. corporatesecrecy. Lax U.S. incorporationlaws enable corporationsto operate secretly. Some states offer similar(or more enhanced)secrecy selling points aswell- known offshore taxhavens. 14. Onshore havens: Secrecy U.S.A.Rules for corporate formation vary by state.Some states allow additional perks that can aida veil of secrecy.Most states do not require beneficialownership information (aka the name of thetrue owners of a company).There is no licensing for corporate serviceproviders who incorporate mass numbers ofentities. 15. What states havebeen consistentlydubbed as secrecyhavens by regulators? Check all that apply: Florida Delaware California Wyoming NevadaOnshore havens: Secrecy U.S.A. 16. In the U.S.,businessincorporationis completelyunregulated.Somalia hasslightly higherstandards thanWyoming andNevada. JasonSharman, a professor atGriffin University inAustralia.Source: Carr, Kelly, Grow, Brian. (2011) A Little House of Secrets on the Great Plains. Reuters. 17. To addressbeneficial-ownershipdisclosure andchallengesstemming fromthe allowance ofcertain perks,such as nomineeofficers, Sen. CarlLevin proposed:The Incorporation Transparencyand Law Enforcement AssistanceAct 18. Corporate service providers 19. Corporate service providers Lawyers Accountants Entrepreneurs Anyone!Who are they? 20. Corporate service providers Company formation Document upkeep Registered agent services Other various servicesWhat services do they offer? 21. Corporate service providers Nominee officers/ directors Help setting up bankaccounts Virtual office services Shelf salesSome offer perks like. 22. ShelfCorporation:A company withno significantassets oroperation thatsincorporated andthen placed onthe shelf to age. 23. Text!Shell?!Shell!Shell?!Shell?!Shell?! 24. Finding stories involving shells Consumer scams Pump and dumps: (Often penny stocks) Reverse mergers: (Existing public shell takes over aprivate company.) Government contractors Political donations/expenditures Real estate transactions Hidden within a corporate structure Incorporators/Mail drops 25. Tools for digging: Business registries Secretary of state entity search:www.BusinessJournalism.org/registration/llc European Business Registry: www.ebr.org 26. Tools for digging: Online intelligence 27. Tools for digging: CorporationWiki 28. Tools for digging: Open Corporates 29. Questions? Email: Kelly.Carr@BusinessJournalism.org Twitter: @KellyCarrBiz BusinessJournalism.orgWhere to nd me:!*** Dont forget to stick around for the evaluation. !