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Study highlights shell company loopholes

Member: Nifa

According to a new study of corporate filings, some UK shell companies under offshore control may be skirting new rules that were designed to clamp down on corruption and tax evasion. 

A shell company is a corporation without active business operations or significant assets that is used to preserve anonymity and, sometimes, illegal activity, such as tax evasion. In such cases, the purpose of the shell company is to hide the particulars of ownership from the authorities. However, the new system should mean that company records must show details of “persons with significant control” (PSC) along with shareholders and directors, which should expose the true beneficial ownership. According to the study, however, of the 22 offshore shell companies identified by the report, only one has complied with the new legislation, which came into effect on 1 July. The report suggests that the way they have avoided the rules exposes several loopholes in the new regulation.

However, hiding behind a shell does not always mean that PSCs remain unknown. Many beneficial owners believe that setting up a shell company will preserve their anonymity until a forensic investigator is put on the case. The leak a year ago of 11.5 million secret documents from Panama-based law firm Mossack Fonseca, which became known as the ‘Panama Papers’, laid bare a “parallel, offshore financial system” and set forensic accountants on the trail of most of them, as they are likely to be the only experts capable of untangling such complex financial dealings.

Author: Roger Isaacs, 30 August 2017

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