Moral Hazard and Operations of Shell Companies
In 2012, Jason Sharman presented a paper on "Financial Secrecy, society and vested interest" in Norway. The paper discussed whether the FATF laws to counter the anonymity issue of the shell companies effective? As per the FATF recommendation 24, he pointed out, corporate service providers should maintain relevant information about the ownership of the shell corporations that they aid in setting up. This includes, for example, asking for notarized copies of individuals involved in the setting up of the shell company and other relevant authorisation documents. To test the hypothesis the researchers created around 21 fictitious identities. Each identity was assigned citizenship of a different country e.g Pakistani, Arab (Saudi), Mexican etc. The role of assigning different citizenships was to provide some signal to the corporate service providers about the potential areas that the shell firm might be involved in. For e.g. enquiry for setting up of a shell company in Pakistan o