Buy or Shell

Author: Chelsey Franks

There’s a new (old) area of risk for investors – the shell company. Although the tools for detection are more readily available than ever, lack of awareness has allowed this vehicle for fraud to grow over time.

The New York Times, the BBC and other notable publications have reported on the inherent risks and gaps in compliance surrounding shell companies in business dealings. In this age of the Paradise Papers, it’s never been more important for an investor to know who they’re dealing with, including what shell companies they might be hiding behind.

The Association of Certified Fraud Examiners recommends in a recent article published in Fraud Magazine (July/August 2018) that several measures need to be taken to reverse the growing trend of fraud perpetration through the use of shell companies – including increased response by governments, regulatory agencies, law enforcement and compliance and consulting organizations.

These are part of the myriad of reasons Sterling Diligence (formerly Bishops®) recommends that you consult with a trusted due diligence provider to educate yourself on your own gaps and susceptibility to this type of fraud – particularly one who stays up-to-date on trends in the fraud frontier. Then, take the next step and incorporate a thorough screening process that applies to any key parties in a transaction.