After the Panama Papers: A Private Law Critique of Shell Companies

The International Lawyer, Volume 51, Issue 3, 2019

32 Pages Posted: 3 Jun 2019 Last revised: 21 Jun 2019

Date Written: October 1, 2018


Current measures against the abuse of shell companies are public-law centered: they involve the creation of new stores of information for regulators, in the form of corporate registers of beneficial ownership and international exchange of account information. These regulatory measures do not, however, shed light on the private law foundations that also underpin the success of shell companies as institutions of capitalism. This article attempts to identify and critically assess some of these private law foundations. It argues that a central explanation is the move towards formalist deference to the law of jurisdictions of incorporation versus the laws of where activities are conducted. This evolution results from combined factors at once contingent and unrelated: the geographical spread of the English common law system (including the “incorporation theory” of corporate recognition also applied in the US as the “internal affairs” doctrine), the demise of the German-French alternative “real seat” theory through “accidental” jurisprudence of the European Court of Justice, the rise in legal jurisprudence of contractarian theories of the firm, the rise of post-communist emerging market economies (e.g. China and Russia) for whom corporate existence is traditionally a function of state fiat, and the appearance of a global market for incorporation services that is dependent on preservation of the “incorporation theory” model. The paper suggests that in addition to regulatory initiatives certain private law avenues should be expanded for the curbing of abuse, even within existing paradigms. This would involve reducing deference to the incorporation law in international corporate veil-piercing and for the determination of director liability, and compiling international best standards of substantive corporate law that could serve as soft law benchmarks, similar to current FATF/OECD initiatives on tax evasion and money laundering.

Keywords: shell companies, tax evasion, incorporation theory, real seat theory, regulatory competition, private international law, conflict of laws

Suggested Citation

Nougayrède, Delphine, After the Panama Papers: A Private Law Critique of Shell Companies (October 1, 2018). The International Lawyer, Volume 51, Issue 3, 2019, Available at SSRN:

Delphine Nougayrède (Contact Author)

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States

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