Book review: Global Shell Games: Experiments in Transnational Relations, Crime, and Terrorism

Mathieu Deflem
www.mathieudeflem.net

This is a copy of a review of Global Shell Games: Experiments in Transnational Relations, Crime, and Terrorism by Michael G. Findley, Daniel L. Nielson, and J.C. Sharman, published in Law and Politics Book Review 24(6):275-279, 2014. Also online from the journal.

Please cite as: Deflem, Mathieu. 2014. Review of Global Shell Games: Experiments in Transnational Relations, Crime, and Terrorism by Michael G. Findley, Daniel L. Nielson, and J.C. Sharman. Law and Politics Book Review 24(6):275-279.



The detection of noncompliance in matters of international law and finding effective ways of enforcement are pressing problems. International legal regimes suffer from lacking a central authority with the legitimacy to coax compliance and the resources to enforce sanctions in cases of noncompliance. In this interesting book, political scientists Michael G. Findley, Daniel L. Nielson, and J.C. Sharman report from their experimental research on the behavior of so-called shell companies that provide anonymous incorporation on the international market. The authors make the strong argument that their study is especially relevant from the viewpoint of its methodological commitment to the scientific approach to an aspect of international relations. The sheer number of transnational actors, they argue, can be seen as an advantage in this respect because it enables a field experiment approach to draw from such a large universe of cases. Therefore, the method used in this book, drawing from some 7,456 contacts established with 3,771 corporate service providers in 181 countries, can provide evidence on shell companies on a global scale to test various causal theories of their behavior.

Specifically, the research reported in this book involved field experiments whereby offers were made for prohibited anonymous shell corporations, in which the identity of those involved remains untraceable. The researchers and their team members posed as customers with more or less questionable motives, involving money laundering, corruption, and terrorist financing. Requesting confidential incorporation, the researchers manipulated various conditions, such as a level of information on international standards and legal penalties, and posed as citizens of various countries that implied different levels of risk. The companies were randomly assigned to the various types of misconduct suggested in the communications, which were done by email in two or three rounds, so that the causes of (mis)conduct could be detected.

The authors’ approach is considered the first field experiment in international relations that is conducted on a global scale, involves multiple nations, and is capable of testing theories concerning international regulatory regimes. The book offers a complement to those studies in international relations that continue to give primacy to the behavior of governments when it comes to regulatory regimes and the compliance that they yield or fail to yield. Findley, Nielsen and Sharman turn radically towards the shell companies themselves to see when and why they do or do not follow international standards that [*276] mandate that it be possible they can be traced back to their owners. The lack of traceability to identity is commonly sees as a major mechanism that allows for various types of corporate misconduct.

Generally, the research found that a large number of private firms routinely violate international standards. Thus, a focus on the inter-governmental sanctions is too limited to reveal important dimensions of the problem. Instead, as the authors suggest, an experimental approach to transnational relations is needed in order to offer an adequate empirical focus alongside of a theoretical orientation that moves away from states and a methodological approach that can benefit from the known advantages of the experimental design.

Findley, Nielsen and Sharman found that firms in tax haven and poor countries generally followed international standards better than those in member countries of the Organisation for Economic Co-operation and Development and rich countries. Information on international law had little effect, while mention of the Internal Revenue Service in the USA did increase compliance. Incorporation service providers in the United States, however, are especially delinquent, although US law firms are more likely to refuse service.

Turning to the results of the experimental conditions, the research investigated if associations with corruption and terrorism would affect service providers’ willingness to offer anonymous incorporation. By example of how the researchers introduced these manipulations, the terrorism treatment involved an email request for incorporation that mentioned consultation for a number of Muslim aid organizations and specified that the request came from Pakistani citizens living in Saudi Arabia. Partially redressing an otherwise bleak picture about the general lack of compliance on a global level, the experimental conditions of corruption and terrorism significantly lowered the response rate compared to both the baseline model and other treatment conditions. However, among the companies that did respond, the results show, unidentifiable incorporation was offered significantly more often. The terrorism treatment did lead to less non-compliance than the corruption treatment. Moreover, compliance rates were found to drop significantly when an additional monetary premium was offered.

Finally, the researchers studied the impact of information on international standards and sanctions. The experimental condition involving the provision of information on international standards generally did not lead to more compliance. Especially information on intergovernmental standards, specifically a reference to the Financial Action Task Force, were weak and not much more impactful than the private standards of the Association of Certified Anti-Money Laundering Specialists. In the United States, however, mention of IRS enforcement did decrease non-compliance significantly. As to the effect of information provided on possible legal penalties and norms, the research found that under these conditions shell companies were less likely to decline service. The authors attribute this peculiar finding to the notion that under such conditions corporations suspect [*277] less-risky behavior and/or a lesser chance that illegal behavior will be reported.

Because of its exciting and novel data collection approach, this small book offers a fine addition to the literature on international relations and international regulatory regimes for both social-sciences scholars and policymakers. The experimental method has much to offer in terms of its strength to provide results of actual conduct, especially when that conduct is by definition problematic because of the implied illegalities. This approach is superior to one that can only lead to speculation on intended or assumed behavior on the basis of a study of norms and the agencies that develop and enforce them. Surely, the authors have done a great service to the study of shell companies by virtue of the specific design and execution of their empirical study alone.

I was impressed with this work for its rigor and commitment to the resolutely analytical approach in seeking to account for variation in empirical reality. Findley, Nielsen and Sharman devote much attention to the value of their methodological approach, both because of its novelty in the field of international relations as well as its advantages over other, case-based approaches and or those that focus on governments and the inter-national agreements they agree upon rather than non-state actors such as private companies. These arguments are serious and in need of some rational response from scholars not following the experimental lead of this book’s authors.

Writing as a sociologist interested in law, especially from a global and comparative-historical perspective, I note that the authors devote a lot of time to praising their experimental methodology. Perhaps the field of international relations is not known for its reliance on experiments or perhaps even more generally its methodological rigor, which would excuse some of the incessant manner in which the authors discuss their methods, both in general methodological respects as in terms of specific technique. Methodological rigor is a noble feature of scientific research, but such methods are not meaningful outside the context of a theoretical framework. In that respect, it appears to me, this book does not climb out of the lower levels of science as mere effectiveness study. This strategy may appeal well to policymakers, but it is in fact lacking in the very important respect of science as an intellectual activity that is based on questions that make sense within a specific theoretical framework of inquiry. A theory is not a regularity or established association between variables but must be able to make sense thereof. Besides, on a methodological level as well, I must question the presentation of the experimental method as scientific relative to other methods when, surely, there are methods that are not-experimental that do contribute to scientific analysis in equally valid albeit different ways.

Multiple methods can prove their merit in a scientific setting and have both their respective strengths and limitations. The present study surely can claim knowledge of many cases under precisely identifiable conditions, but it lacks a depth of knowledge over any one or more cases and the mechanisms that may account for observed regularities. In any case, what this book does not offer, but what can and should be achieved in [*278] another work following up on or complementary to the present study, is the development of a theory of compliance and/or non-compliance and an integration of method with theory, rather than the other way around. With these observations in mind, this succinct book by Findley, Nielson, and Sharman must be seen as a significant addition to our knowledge of international regulatory regimes and the conditions of compliance therewith, the kind of work which case-based approaches not only can but need to know in order to place their own investigations in a more realistic context.