Moody’s Analytics has uncovered potential risks of sanctions evasion, money laundering, and fraud by raising 21 million red flags across 472 million companies. The analysis exposed corporate structures that could be exploited for financial crimes.
The United Kingdom triggered the most shell company flags, almost 5 million, followed by China with 3.4 million flags. China’s high scores on mass registration and circular ownership flags suggest intentional obfuscation of ownership structures.
South Asia, particularly India, exhibits the most firms with circular ownership concerns, attributed to complex and opaque corporate governance structures, often characterized by substantial family ownership.
Moody’s highlighted extreme cases, including an individual holding 5,751 roles at 2,883 companies and a company with 292 directors, significantly exceeding the average of 1.5 directors.
Risk indicators include multiple businesses registered at the same address, as seen with over 22,000 companies registered at the ‘Pyramids’ address in Egypt.
“Atypical directorships” raised concerns, with examples of directors below the age of 5 and over the age of 100. One director claimed to be 942 years old, dating back to the 11th century.
Out of 472 million companies analyzed, 19 million raised one flag, while over 900,000 companies raised two or more flags. Italy and Spain stood out with over 600,000 combined directorship flags, indicating a concentration of corporate control.
The business services sector raised the most flags (approximately 3.6 million), followed by wholesale (1.5 million) and retail (1.4 million).
Companies registered in the United States had the most flags related to financial anomalies, with over 1.25 million activities flagged for inconsistencies compared to industry averages.
Despite a 50% drop in anonymous company registrations in Panama post the Panama Papers investigation, over 47% of companies in Panama raised flags, the highest incidence among countries analyzed.
An address in South Africa registered around 61,000 companies, while another in Spain registered over 8,000 Chinese-named businesses, representing jurisdictional anomalies.
Moody’s emphasizes that shell companies, though having legitimate purposes, are often used for financial crimes, posing challenges for compliance teams due to their opaqueness. With $1.6 trillion laundered annually, shell companies remain a persistent threat to global economies.
