Shell companies are providing safety to fraudsters, criminals, and politically exposed persons PEPs by hiding their identities. Shell companies have a policy to hide the details of entities behind them, so illicit business persons are encouraged to become part of it. Generally, such companies are involved in money laundering, which cause hefty fines and sanctions to business partners in the future. The Panama Leaks of 2016 is a real-life example of when the names of prominent businessmen were exposed. The politically influential people were involved in money laundering by hiding their identities. Since then, shell companies have been under high-level scrutiny by legal authorities.
What is a Shell company?
A shell company is a ghost firm that only exists in papers without real offices and employees. A shell company is also referred to as a hollow company because of no physical location, no business operations, and no management. These companies have a policy to hide the ultimate beneficial owner identity to avoid tax payments. Usually, the shell companies are registered in offshore tax havens such as the Cayman Islands, Bermuda, Bahamas, British Virgin Islands, and Switzerland, where offshore companies are challenging to track. Beyond any doubt, shell companies operate for legitimate purposes, but criminals find ways to do business there. They are engaged in converting black money into white without being detected.
Legitimate Uses of Shell Companies
- Purchasing the property by hiding the ownership of assets and showing the company as the buyer.
- Most of the time, shell companies are used to avoid taxes on personal income or to lower the tax rate for wealthy people by copyrights that are returned to the beneficial owners of tax havens. It is a party of tax regulations but has threatened to be charged with tax evasion.
- A shell company may be used to hold investments or property but hide from creditors.
Illegitimate Uses of Shell Companies
- Shell companies are working to hide the money laundering of influential people by showing that black money comes from legitimate businesses. Such companies may hide the source of financial transactions.
- Shell companies hide the ownership of the company or invalid information of the beneficial owner as these companies are involved in fraud cases.
- Some of the shell companies hide their beneficial owners, directors, and shareholders to evade sanctions.
- Shell companies are used to evade taxes by hiding taxable income and assets in bank accounts in different countries.
Furthermore, it can be argued that the term “shell company” has negative connotations. While the term has been used in some cases for fraudulent activities such as fraudulent trading and money laundering, the concept of a shell company should be viewed without prejudice. A shell company is one of the many financial tools available for use. Indeed, these effects can be attributed to either being good or bad depending on the kind of people involved and what they involve themselves in as they use it.
Shell Company in Money Laundering
Shell companies are known to engage in money laundering, corruption, and other unlawful financial practices. The criminals, the sanctioned people, and politically exposed persons (PEPs) also prefer to conduct their businesses through this mode of shell companies. UBO is concerned with any individual or a group of individuals bearing direct or indirect benefits in a company. A shell company conceals the UBO’s designations, which assist criminals in doing business.
In addition, shell companies help different criminals launder money because of the actual copies of the bills. This account describes how business people talk to each other with strict laws on privacy. Therefore, it means that an investigator never traced any illegitimate funding source. As for the identity filter, shell companies minimize the chance that their actual name will be investigated by money laundering agents.
Final Words
Money laundering poses a severe risk to several businesses and, as a result, leads to penalties and imprisonment. Making financial crimes smooth and even less detectable is one-way shell companies help out. It is a very difficult procedural task to determine the shell companies in the market while carrying business. A corporation cannot always carry out its due diligence against a particular company that, in fact, turns out to be a shell company, but it turns to third parties for assistance to help it in the process. Once the risk on time is managed, these financial relations are built securely.
