Shall Corporation and their Role in International Fraud

This paper investigates whether firms interacting with shell corporations face a higher likelihood of being engaged in fraudulent activities. As such, it can be theorized that three variables play an important role – Interaction, Attractiveness and Complexity. The first variable considers the relative amount of cash flows exchanged between the parties of interest and whether firms possess significant controllership interest in shell corporations. Attractiveness considers the location of the shell corporations interacting with the firm in interest. A location is deemed to be attractive if it provides high anonymity, financial secrecy and a stable environment for assets. The last variable quantifies the overall complexity of the financial scheme. Complexity is calculated using an algorithm which in essence estimates the level of interrelatedness between the parties involved in a shell scheme