In 2016, a leak called the Panama Papers revealed that several influential people, including former Iraqi Prime Minister Ayad Allawi, the brother-in-law of Chinese president Xi Jinping, associates of former Russian president Vladimir Putin, along with known drug kingpins, criminals, and even a soccer player, channeled finances through shell companies. Industry experts like Dan Greenhalgh can tell you that anonymous shell companies can only bring mischief.
The secrecy a hidden owner registry affords is a crucial enabler for corrupt practices, money laundering, international organized crime, and even terrorism. Hiding behind shell companies, they are able to move profits from illegal activities, opening bank accounts, making purchases, and wiring money around the world. The important thing to note, and is also the main reason why hiding ownership is usually used for shady activities, is that it is extremely difficult and near impossible to trace these financial movements.
On June 20, 2018, with the aim of eradicating the ill effects of hidden owner registry in the country, the British Columbian Ministry of Finance has released white paper legislation requiring landowners in B.C. to report. Titled Land Owner Transparency Act, it intends to collect information on owners of the property and make the data available to the public. The government expects that the measure is helpful for preventing tax evasion, fraud, money laundering, and other similar illegal activities
How does this help the housing industry?
If Dan Greenhalgh’s statement can be interpreted, not much. “As for the hidden owner registry, I’m not sure how different it would be from the Land Title Registry that’s already in place.”
While it is true that such foreign ownership is a factor in the housing crisis, the government that is the Canada Mortage and Housing Corporation (CMHC) lacks concrete data to back up such a conclusion.
Although it is but one of the many issues plaguing the country, moving toward its eradication is not a bad start. As we have discussed earlier, shell companies are tools fraudsters and criminals use to:
- hide nefarious schemes
- protect their identities and that of their accomplices
- conceal money trails that end in criminal activities
- hide ill-gotten wealth
- protect the identities of the end beneficiaries
As no single law covers all of these processes, and the criminal underworld easily abuses such a flaw, shell companies are their favorite.
But how does one go about identifying them?
According to Ryan C. Hubbs, CFE, CIA, CCEP, Global Anti-Corruption and Fraud Manager, a comparison between a suspected shell company and a normal entity should highlight obvious differences that will shed light on the entity’s true intentions. The basic rule is that the more instances of data being concealed, the more likely it is of shady origin. Fraud checkers should also be on the lookout for:
- use of jurisdiction to enable anonymity
- online and real-world location red flags
- mismatching information
- concealed contact information
If present, you’d have to make a decision: Do I continue dealing with this company? Or should I terminate contact at once, and maybe even file legal action? Whatever you decide on, it is important to clarify to all parties concerned the situation. This will showcase your professionalism and highlight your level-headedness in problematic situations.
Keep in mind these facts, and you’ll not fall prey to shell companies.