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The role of shell entities in fraud and other financial crimes

Carl Pacini (Kate Tiedemann College of Business, University of South Florida-St. Petersburg, St Petersburg, Florida, USA)
William Hopwood (College of Business, Florida Atlantic University, Boca Raton, Florida, USA)
George Young (College of Business, Florida Atlantic University, Boca Raton, Florida, USA)
Joan Crain (BNY Mellon Wealth Management, Ft. Lauderdale, Florida, USA)

Managerial Auditing Journal

ISSN: 0268-6902

Article publication date: 6 September 2018

Issue publication date: 20 May 2019

1209

Abstract

Purpose

The purpose of this paper is to review the use and application of shell entities, as they facilitate crime and terrorism, impede investigations and harm societies.

Design/methodology/approach

The study details the types and characteristics of shell entities, reviews actual cases to exhibit how shells are abused, outlines reasons shells disguise beneficial ownership and analyzes steps taken by countries and organizations to thwart the abuse of shell entities.

Findings

Many types of shell entities are used by white-collar criminals and are often layered in an intricate network which conceals the identity of beneficial owners. Nominees and bearer shares are used in tandem with shell entities to optimize concealment. Accountants, lawyers and trust and company service providers facilitate and promote the use and abuse of shell entities by lawbreakers. The G-8, Financial Action Task Force and G-20 have begun steps to improve ownership transparency, but the effort is moving at a modest pace.

Research limitations/implications

The analysis makes clear the reasons for and means by which the wealthy and powerful, along with criminals, conceal trillions of dollars of income and wealth that remain untaxed and may be used for nefarious purposes. The paper is limited by the paucity of data on concealed assets and their beneficial owners.

Practical implications

The findings clearly show the need for more concerted action by national governments, organizations, the United Nations and law enforcement and to improve ownership transparency and information exchange regarding shell entities.

Social implications

The findings demonstrate that shell entities used to conceal wealth prevent untold trillions in taxes from being collected by governments worldwide. This lack of revenue facilitates income inequality and skews national economic and fiscal policies. Also, more white-collar criminals and terrorist financiers could be brought to justice if ownership transparency is improved.

Originality/value

This study adds to the limited literature on shell entities, their characteristics and uses and abuses.

Keywords

Citation

Pacini, C., Hopwood, W., Young, G. and Crain, J. (2019), "The role of shell entities in fraud and other financial crimes", Managerial Auditing Journal, Vol. 34 No. 3, pp. 247-267. https://doi.org/10.1108/MAJ-01-2018-1768

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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