Moody's report flags seven indicators highlighting risks in corporate structures

economictimes.indiatimes.com:

Moody's Analytics, an arm of the ratings agency, has identified seven indicators in companies that can indicate heightened risks in corporate structures potentially enabling evasion of government sanctions, money laundering, fraud, and other financial crimes.

Abnormal directorships, mass registration of companies in a particular geography, jurisdictional risks, financial anomalies, dormancy, circular ownership, and unusual ages of directors are the seven indicators, according to a report by Moodys’. Risks through one or more of these indicators imply presence of a shell company that may mandate a targeted investigation. $1.6 trillion are estimated to have been laundered each year globally, calling for efforts to stay ahead of evolving risks.

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Shell companies may have legitimate purposes but are often used as tools for financial crime, presenting a significant challenge for compliance teams given the opaqueness often associated with them, the agency said.

As of November 2023, Moody's flagged more than 21 million risk activity across 472 million companies. The United Kingdom, at almost 5 million, triggered the most shell company flags, followed by China with some 3.4 million flags.

The UK with its cheap 12 pound registration fee, 16 year age cut off for directors and easy address verification was a vulnerable target to open a fraudulent company, while China scored high on mass registration and circular ownership flags, contributing to a narrative around deliberately