Shell Company definition and meaning | AML glossary
Shell company definition: What it means in AML compliance.
A shell company is a business entity that exists on paper but has no significant operations, employees, or physical presence. While some shell companies serve legitimate purposes, such as corporate restructuring or holding assets, they are often exploited for money laundering, tax evasion, and financial crime.
How shell companies are used for financial crime.
Criminals use shell companies to:
- Conceal ownership by hiding the identities of ultimate beneficial owners (UBOs).
- Move illicit funds through complex corporate structures.
- Evade taxes by shifting profits to low-tax jurisdictions.
- Circumvent sanctions by disguising transactions linked to restricted entities.
Examples of shell company structures.
Shell companies can be structured in ways that make tracing ownership difficult:
- Layered corporate structures, where one shell company owns another, obscuring the true owner.
- Nominee directors and shareholders, who act as stand-ins to disguise real ownership.
- Offshore incorporation, using secrecy jurisdictions that do not require public disclosure of ownership.
How businesses can identify shell companies.
To mitigate risks, businesses should:
- Conduct thorough KYB (Know Your Business) checks to verify company ownership.
- Screen for high-risk jurisdictions linked to offshore shell companies.
- Investigate discrepancies in company registration, financial activity, and ownership records.
How technology helps detect shell companies.
Automated KYB solutions help businesses verify UBOs, corporate structures, and financial activity. Real-time screening tools flag high-risk entities linked to sanctions, fraud, or money laundering, ensuring compliance with AML regulations.
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