involving criminal networks that set up multi-layered, multi-jurisdictional structures to
hide ownership. It is possible for a variety of persons to initiate these transfers; however,
in this paper, particular focus will be paid to corrupt foreign ofcials or kleptocrats.
Each kleptocrat, through use of their position of power, has in some way looted their
country using methods such as accepting bribes for resource or defense contracts and
permitting extortion. There are numerous reasons for kleptocrats to move money to
other countries. For example, the funds are less subject to seizure if a new regime takes
power, keeping funds in foreign jurisdictions provides access to luxury goods that may
not be available domestically and assets held outside the country are harder to trace.
These kleptocrats use a variety of methods to try and conceal their illicit activities.
The most common method is to use a legal entity or arrangement known as a “corporate
vehicle (Does de Willebois et al., 2011)”. This term primarily refers to companies,
corporations, foundations and trusts, and other different domestic variations. Of these
types of corporate vehicles, the company was the most frequently used (the study found
that 128 of 150 cases used companies to hide illegal transfers), and, in many cases, a
whole web of vehicles are linked together across several different jurisdictions (Does de
Willebois et al., 2011). Because companies are the most common method used, that entity
will be the focus of this paper.
There are many types of companies that are used to hide illegal transfers. The rst of
this kind is a shell company. The OECD (2001, p.17) denes shell companies as:
[…] entities established not to pursue any legitimate business activity but solely to obscure the
identity of their benecial owners and controllers, constitute a substantial proportion of the
corporate vehicles established in some off shore nancial centers.
A shell company in context of this paper can be dened as: “a non-operational company,
meaning a legal entity that has no independent operations, signicant assets, ongoing
business activities, or employees (Does de Willebois et al., 2011)”.
Unlike normal companies, shell companies have no economic activity, which makes
it difcult to acquire any information. A normal company will typically engage in
marketing, join a chamber of commerce, build a Web site, buy space in the phonebook,
sponsor events and purchase supplies and equipment. Importantly here, a normal
company will also have employees who can be interrogated, keep meeting minutes that
may be consulted and produce nancial data that can be compared with normative
industry benchmarks. A shell company is not obligated to do these things (Does de
Willebois et al., 2011).
Another type of company is a shelf company. The term shelf company is typically:
[…] applied to a company that (a) is incorporated with a standard memorandum or articles of
association; (b) has inactive shareholders, directors, and secretary; and (c) is left dormant – that
is, sitting “on a shelf” – for the purpose of later being sold (Does de Willebois et al., 2011).
Law enforcement authorities are concerned about shelf companies because criminals
can easily throw investigators off the trail by purchasing shelf companies and then
never ofcially transferring the ownership. This often leads to a dead-end formation
agent who has long ago sold the company with no records of the purchaser and no
obligation to note the ownership change.
The nal type of company to be addressed here is a front/operational company.
Front/operational companies have incoming and outgoing ows of assets which enable
streams of illegal transfers emanating from bribes, extortion and other acts to