Global Shell Games: Testing Money Launderers’ and Terrorist Financiers’ Access to Shell Companies, by Michael Findley, Daniel Nielson and Jason Sharman, Centre for Governance and Public Policy

Comment by Geoff Cook, Jersey Finance

Shell Company Research demolishes tax lobbyist claims.

For many years a small but noisy group of disaffected tax lobbyists who favour large government and high taxation have attempted to characterize Jersey as secretive and poorly regulated.

Research published this week demolishes a major plank in their arguments and demonstrates very clearly how these groups indulge in wild exaggeration and raw speculation.

The most comprehensive and rigorous testing of anti money laundering and fighting financial crime defences ever attempted has recently concluded. The exercise involved the formation of bogus companies intended as a cover for illicit funds.

This major academic study entitled “Global Shell Games” is authored by Michael Findley, Daniel Nelson and Jason Sharman under the auspices of the Centre for Governance and Public Policy, at Griffith University Australia.

For criminals moving large sums of dirty money internationally, there is no better device than an untraceable shell company. That is why the Financial Action Task Force (FATF), the world’s standard-setter and enforcer of anti-money laundering standards put in place clear-cut standards on establishing beneficial ownership to thwart their use.

The report, released this week, reveals the results of a ground-breaking experiment in which researchers posed as fictitious consultants soliciting offers for prohibited anonymous shell corporations. It was designed to test how effective international ‘Know-Your-Customer’ rules and the global ban on untraceable shell companies actually are. More than 7,400 email solicitations for shell companies were made to more than 3,700 Corporate Service Providers in 182 countries.

The results were striking: overall, 48% of the replies received failed to comply with international rules on customers identification, and 22% failed to require any proof of identity at all.

Running directly counter to conventional wisdom on the subject, providers based in “tax havens were significantly more likely to comply with the rules than providers in OECD countries like the United States and Britain” (p.3 of Global Shell Games report). Another surprise was that providers in poorer, developing countries were at least as compliant as those in rich, developed countries. In a table entitled “Dodgy Shopping Count by Country” (p.22 of the report as attached image), Jersey is shown to be one of the top-ranked countries in terms of compliance with international standards. A “Dodgy Shopping Count” measures the average number of providers a particular type of customer would have to approach to receive a non-compliant response, that is, be offered a shell company with no need to supply any identity documents.

The report also shows that Jersey has the only registry (within the parameters of the research carried out) that holds information on beneficial owners: “Though some registries hold more information on companies than others, currently to our knowledge only one, that in Jersey, holds the information on the beneficial owner” (p.9 of the report).

We welcome this thoroughly researched report based on exhaustive testing by credible and independent academic experts. The research offers the clearest independent evidence yet that Jersey is among the highest rated jurisdictions $globally for complying with international standards on anti-money laundering and anti-terrorist financing and is fully committed to fighting financial crime including tax evasion.

What is more, this research further exposes the hollowness of the claims made in respect of Jersey by tax lobbyist organisations hungry for publicity and funding.

For more on this story go to:

http://www.jerseyfinance.je/news/comments-from-geoff-cook/global-shell-games-/

To read the report in full, please go to:

Note: The paper found all of the approached service providers in the Cayman Islands were fully compliant with relevant anti money laundering requirements, based on Financial Action Task Force rules.

The Cayman Islands was one of only eight countries where service providers were fully compliant.

Co-Author Daniel Nielson is speaking at the OffshoreAlert Conference Europe, which is being held at The May Fair Hotel in London on 26-27 November. See separate story in iNews Cayman