Don't agree to be a straw man

A straw man is an operator that acts in their own name but that in reality acts on behalf of another party or as a proxy. Operator can as well be a company. Operators are also called, for example, as a front man or person, a straw buyer, a shell company or a buffer company. A straw man can play a role in a variety of different situations such as business arrangements, concealment of ownership or conclusion of contracts. These arrangements are mainly used in the grey economy and criminal activities but they are also common in artificial arrangements aimed at circumventing legislation or official supervision. Straw man arrangements used in the shadow economy are costly to individuals, companies and society at large. For this reason, uncovering and preventing straw man operations is a key part of combating the grey economy and economic crime.

Straw man arrangements as a criminal tool

In business activities, a straw man is often an individual nominally in charge of a limited liability company or a shareholder acting as a nominal beneficiary and mandator. However, the actual control lies in the hands of somebody else. Straw men allow their names to be used in the setting up of companies, conclusion of contracts and financial transactions, and they are often compensated for their services. A straw man does not necessarily work in the company, own any part of the company or have any position of responsibility in the company. A straw man may also be a victim of an identity fraud, which means that the personal details of this individual have been stolen. Straw men are also used to circumvent sanctions in transactions in which the purpose of complex ownership arrangements is to hide the transactions of the sanctioned parties. 

A straw man can be registered as an individual in charge of a company, for example, when the individuals actually in charge of the business have payment defaults that prevent the company from using the prepayment register of the Finnish Tax Administration. Similarly, a ban on business operations may lead to the use of a straw man as the actual operators of the company cannot carry out any business activities in their own name. Professional criminals can continue their business activities despite being caught by setting up new companies, which are nominally managed by straw men. This allows the individuals in question to continue their criminal activities in a seemingly legal manner.

The authorities have ways to prevent straw man arrangements

At national level, the authorities have a range of different supervisory tools to combat the straw man operations, and there are also laws that explicitly prohibit such arrangements. For example, restrictions and obligations have been imposed on business activities requiring a licence, notification and registration, and the laws on the use of straw men prevent the circumvention of these provisions. The purpose of the provisions prohibiting straw man arrangements is to ensure that the laws function in accordance with their original purpose. 

The provisions on prohibiting straw man arrangements typically apply to company owners, board members and other persons in charge of the company. These provisions protect consumers, business partners and employees against dishonest actors. In straw man arrangements, the actual business partner may be a dishonest actor, in which case the assets used in the operations may also originate from criminal activities, or the business partner may otherwise neglect their obligations. In certain business activities, it is also important to ensure that the individuals actually in charge of the companies have the required professional competence and financial credibility. 

Acting as a straw man can have serious consequences

The risk of being caught is high if straw man arrangements are used. They may have consequences to the straw man, the actual business operator and other individuals assisting in the arrangements.

1. Criminal liability
The straw man may be sentenced for a registration offence or a ban on business operations may be imposed on them. A straw man may also be charged with abetting or complicity in an offence (for example, in a tax fraud or other economic offence). The consequences can be severe even if the straw man had not benefited financially from their activities.

2. Financial risk
The straw man may be held liable for the contracts that they have signed, and the debts and damage caused in their name. Board members are also liable for damage that their activities have caused to a limited liability company. The straw man may lose their creditworthiness, and their assets may be seized. Acting as a straw man on behalf of another individual may also prevent you from running a business. 

3. Moral and ethical problems
Becoming a straw man often means that you participate in activities aimed at misleading the authorities, customers or other parties. Acting as a straw man may affect your trustworthiness and reputation. Participating in a fraudulent arrangement may conflict with your own values. 

4. Risk of being caught
The authorities have extensive control instruments to uncover straw man relationships, and they also cooperate to identify them. Information on straw men and beneficial owners is obtained, for example, in the supervision carried out by the authorities, official whistleblowing channels and money laundering reports. 

If you suspect that a company is using straw men, check its background thoroughly or refrain from doing business with such actors. You can report your observations using official reporting forms, while the parties required to submit reports under the Act on Preventing Money Laundering and Terrorist Financing can report suspicious transactions on a money laundering report. Preventing abuse is everyone’s responsibility.

Protect yourself against theft of personal or business data

You can also become a straw man without knowing it. To gain access to your personal data, criminal actors may illegally submit a notification to the Trade Register in the name of another individual. You can check your data kept in the Trade Register from the suomi.fi service. You can also prevent the misuse of your details by making a prohibition of registration [.fi]› in the Trade Register, the Register of Associations and the Register of Foundations. In that case, the Finnish Patent and Registration Office (PRH) may not register you as a person in charge of a company or a corporate entity without your consent.

In corporate hijacking, criminal actors may submit an illegal update notification concerning a company’s Board of Directors to the Trade Register in the name of the company. Companies can use the free service [.fi]› provided by the PRH to monitor changes in the company’s trade register data. The PRH will send the company an email informing it of the arrival of an update notification in the Trade Register.