Seven indicators of shell company risk

^{(1)        Numbers refer to the total number of companies within the Moody’s dataset that have or display this outlier or anomalous characteristic.}

1. Outlier directorships
   Individuals holding an unrealistic number of directorships can flag potential risks. Moody’s data shows that one person was observed to have 5,751 roles in 2,883 companies. Such prolific involvement raises flags that can prompt further investigation into these interconnected companies. Within the Moody’s dataset, there are 11.5 million outlier directorships flags.
   
   
2. Mass registration
   Mass registration is a flag for shell company risk involving corporate formation patterns where companies share names, addresses, or directors. Moody’s Shell Company Indicator is able to identify a strip mall in South Africa with 61,000 registered businesses since 1998 and an address given as the “Pyramids” in Egypt that hosts more than 22,000 companies. The scale of registrations such as these could suggest systematic efforts to obfuscate ownership, which may demand further investigation. There are 4.2 million instances of mass registration within Moody’s dataset.
   
   
3. Jurisdictional risk
   Jurisdictional information can provide an indication of shell company risk. For instance, if the identified nationality or residency of an individual director or beneficial owner is different from the company's country of registration, and at least one of these jurisdictions is defined as high risk, it may warrant further review. Shell Company Indicator flags 1.2 million individual-company combinations with jurisdictional risk.
   
   
4. Financial anomalies
   The Shell Company Indicator raises flags on 3.4 million companies with financial anomalies. These extreme financial anomalies are another outlier that can indicate suspicious shell company behavior, i.e. when the revenue of a firm appears to be way out of odds with the number of employees – this may present as millions of dollars in revenue, but only a handful of employees. These financial anomalies are useful to law enforcement and government agencies trying to investigate and disrupt criminal networks.
   
   
5. Dormancy
   Dormancy flags show companies that have laid dormant for extended periods - Moody’s has identified more than 655,000. Dormancy can be an indication that the company is being strategically "aged" to avoid detection before being used for criminal purposes, such as money laundering. There are cases of businesses that have been dormant for several years before seeing a sudden spike revenue, which could be viewed as a risk worth investigating.
   
   
6. Circular ownership
   Circular ownership flags identify companies entangled in circular relationships, which can be a sign of fraudulent transactions and money laundering, as circular ownership can create complexity to deliberately obscure true beneficial ownership. Indicators of circular ownership can include instances such as a company without a website or digital presence, but with various concurrent directorships. Moody’s data has identified more than 60,000 flags for companies engaging in circular ownership.
   
   
7. Outlier ages
   Information that shows outliers to an expected norm, even one with a very wide range, can be an indicator of shell company risk. For example, the age of a company’s beneficial owner can be improbably elderly or young. Moody’s data shows that some firms have beneficial owners who are older than 122 (the oldest living human is 116) and as young as 0. These extreme ages indicate potential risk and can help organizations target further investigations. Moody’s Shell Company Indicator shows more than 38,000 instances where a beneficial owner is flagged by this outlier ages typology.