“Not a dog. Not a wolf. All he knows is what he’s not”: detection indicators for Buffer Companies involved in complex fiscal frauds

Buffer Companies (BCs) are used in complex fiscal frauds, where they play a role in obscuring the link between illicit transactions and their final beneficiaries. They help extend the fraud chain and shield Real and Operating Companies (ROCs) from direct involvement, while these latter ultimately benefit from illicit activities. This makes detection more difficult for AML functions of financial intermediaries. In this study, we build and analyze a unique dataset of BCs, sourced from Italian Supreme Court rulings and suspicious transaction reports submitted to the Italian Financial Intelligence Unit (UIF). Our findings reveal that BCs exhibit an “amphibious” behavior, combining features of both Shell Companies (SCs) and ROCs. We develop a composite indicator for identifying potential BCs, offering a screening tool for AML functions of financial intermediaries. This tool can support more effective detection and timely reporting of suspicious entities to UIF, thereby reducing the risk associated with serving potential criminal clients.