Residents in Consett, County Durham, were paid to forward post that came to their address, but said they otherwise had no involvement in the companies.
One, John Mawson, said he “didn’t really know” what his role involved.
Simon Dowson, who set up the legal firms, said everyone was informed.
Mr Dowson, 35, from Shotley Bridge formed the shell entities to provide a UK address, directors, company records and tax returns to meet UK requirements so overseas online businesses could trade in Europe.
These were businesses considered by credit card companies to be at high risk of refund requests.
The investigation by the Reuters news agency found at least 429 unconnected people in the town were paid £50 cash to become directors, with a further £150 a year for forwarding company mail and fees for extra paperwork.
Mr Mawson, 61, was recruited by a neighbour who had already signed up.
“All we were told was that we would just get letters sent and all we had to do was hand them on,” he told BBC Newcastle.
“Money was rather tight. All we wanted was a bit of extra cash.”
Another director, Andrew McBride, 46, said he did not realise what he had agreed to, but accepted he should have checked further.
Mr Dowson was paid between £2,500 and £3,000 per shell company, administering 1,200 at his peak.
Using unconnected individuals as directors prevented “cross contamination” if credit card companies withdrew services from one company, he said.
“It’s a very simple operation. It’s commonplace. It’s just not commonplace here,” he said.
Mr Dowson said the directors were given information about the companies, their role and any documents they had to sign.
“There was nobody ever kept in the dark,” he said.
Mr Mawson only found out a few years ago that one of his directorships involved pornography sites and wanted “nothing more to do” with the arrangement.
Mr Dowson said the overseas companies’ trade included travel, bingo and “vanilla” dating sites, not just adult entertainment.
He has been investigated by the Insolvency Service, part of what is now the government’s Department for Business, Energy and Industrial Strategy, he said.
Some of the firms using his service have also been investigated, and some closed down, but there have been no criminal charges or sanctions brought against Mr Dowson or any of the directors.
He was told what he had been doing was “incorrect or maybe not best practice” but “not illegal in any way, shape or form”, he said.
He has agreed to stop using untrained people as directors and said his company formation business would soon close.
The government declined Reuters’ request for comment.
Loading...