Shell Companies

Shell companies, also known as shell corporations or personal investment companies, are businesses that exist purely on paper and have no physical presence or significant assets. They are often used to facilitate financial transactions and can be used for legal purposes, such as holding intellectual property or real estate assets. However, shell companies can also be used for illegal purposes, such as tax evasion, money laundering, and other financial crimes.

In the context of Anti Money Laundering (AML), shell companies can be used to conceal the actual ownership and control of assets, making it more difficult to trace the origin of funds and identify those involved in illicit activities. This can pose a significant risk to financial institutions and other regulated entities, as they may unknowingly facilitate money laundering or other financial crimes through their dealings with shell companies.

The Panama Papers scandal and the widespread use of offshore shell companies in countries like Bermuda, Luxembourg, and Switzerland have brought the legitimacy of shell companies into question. Many jurisdictions around the world are now closely monitoring the use of shell companies to prevent their misuse for illicit purposes. For example, the Monetary Authority of Singapore recently cracked down on Singapore's onshore shell companies.

Financial institutions are expected to be vigilant in preventing the use of shell companies for illicit purposes, such as money laundering and terrorist financing. To mitigate the risk of establishing relationships with shell companies, financial institutions should implement stringent measures, including conducting thorough due diligence and ongoing monitoring of business relationships.

There are several red flags that may indicate a potential risk associated with shell companies. These include:

• The presence of suspicious activity
• Involvement with high-risk customers or jurisdictions  
• The lack of beneficial ownership information
• Adverse media attention

• Complex ownership structures
• Fake financial transactions
• Large, complex financial transactions with no apparent purpose
• Involvement with other agents or shell companies
• Suspicious wire transfer activity

Financial institutions should be aware of these red flags and take appropriate measures to mitigate the risks of establishing relationships with shell companies.

MemberCheck is a company that provides Risk Management and Compliance Solutions to help businesses meet their Anti Money Laundering (AML) and Counter Terrorism Financing (CTF) obligations.  

In the context of shell companies, MemberCheck helps businesses comply with AML regulations by providing solutions such as Customer Due Diligence (CDD), Business Checks (KYB) and Ongoing PEP and Sanctions Monitoring Services.

CDD involves verifying the identity of customers and beneficial owners, as well as assessing their potential risks for money laundering or terrorist financing. This can help businesses identify and mitigate the risk of establishing relationships with shell companies that may be involved in illicit activities.

Ongoing monitoring involves continuously reviewing customer activity for suspicious activity, as well as updating customer risk assessments as needed. This can help businesses identify and report potential money laundering or terrorist financing activity that may occur through their dealings with shell companies.

MemberCheck offers advanced risk management solutions to assist obligated entities in establishing digital trust.