Have you ever thought about how criminals hide illegal money sources without anyone catching them?
One politician said that money hiding is a very serious crime that hurts families and companies. Criminals use fake companies in tricky money-hiding plans.
Fake companies are companies that exist only on paper, not in reality. They do not perform real business work.
Because nobody knows who owns them, fake companies let criminals hide where the money comes from and to whom it belongs.
Using lots of deals with bank accounts in other countries done by fake companies, money hiders can “clean” dirty money to make it appear as if it’s from okay business deals. This article will show an example of how Shell company money laundering process can work step-by-step.
Creating Fake Shell Entities
Criminals set up fake companies, known as “shell companies“. These are easy to establish offshore, and they do practically nothing except exist on paper.
As of 2023, around 70% of all shell companies were registered in tax havens, which made it easy to hide illicit funds.
Once chains of shell companies are established in these jurisdictions, criminals can hide money from drug deals or thefts. This protects them while they are washing money through the financial system.
Bonus: Discover how regulatory reforms and analytics target the role of shell companies in AML.
Setting Up Offshore Bank Accounts
When shell companies are formed, bank accounts under each one are opened abroad. Accounts under different shell companies allow dirty cash to go out of the country, out of the eyes, and without scrutiny.
The objective is to blur the money trails so that the regulators cannot trace the owners or origins. As of 2023, about 60% of shell companies are domiciled in offshore jurisdictions.
The Caribbean region accounted for more than 30% of registrations during the same period, all reflecting the perennial direction of utilizing these entities to hide illicit financial activity.
Initiate a Laundering Transaction
Once fake firms and corresponding offshore accounts are ready, then laundering begins. Dirty money first comes into the web of Shell companies and money laundering as a deposit.
Fake invoices pretend that this was the payment for goods or services between the shells. Bank transfers then shuttle the amount around from account to account of various fake firms.
Each step blends in real money from normal business, obscuring illicit funds within legitimate cash flows.
Estimated worldwide laundering amounts to $800 billion to $2 trillion annually. According to the Financial Action Task Force (FATF), much of this money is laundered through shell companies and other complex financial networks.
Layering Through Multiple Transactions
There are many false financial movements behind this. The amount keeps on rolling between the fake shell companies’ accounts in the banks.
According to a 2023 report from the Financial Action Task Force (FATF), about $1.6 trillion is laundered across the globe annually, and one of the methods being used is layering.
Every time it rolls, tracing dirty money becomes a task. Transfers continue to roll in cycles as borders are crossed within the accounts.
This “layering” step conceals the stolen funds from inception until they lose contact with actual crime tools like drug sales. Rotten webs of trades inside paper companies hide the money.
Conceal True Ownership Details
The real names of owners never surface in the bookkeeping records for shell companies or their bank accounts.
Ghost board members and executives use fake names to create fake corporations. The accounting books keep track of these fictitious people as owners.
When the regulators dig into anomalous mon-ey activity, they end up at a dead-end because the ownership layers are masked with lies.
According to a report in 2023, more than 60% of those identified shell companies had no legitimate economic activity traced to illicit funds. The real criminal bosses pulling the strings stay remote and anonymous in the shadows.
Disguise Illicit Profits as Legitimate
After significant circulation and layering overseas, the cleaned funds are repatriated back home.
The corporate transaction histories give an appearance to the funds as respectable profits from sham business ventures between shell companies.
The dirty money looks clean, as viewed from sources such as high-technology imports or mining agreements.
A laundered money mixed with normal mon-ey re-enters countries clean to spend freely or is sent to other places for further illicit acts.
Exploit Trade Mis-Invoicing Schemes
One deceptive tactic is fake import-export invoices between shell companies. Paperwork reveals that things such as oil or cars were sold between the corporations, but nothing of value was traded.
Fluctuating prices on the fake invoices enables money to be transferred between accounts under the control of the shell. The balances represent legitimate payments for the fake sales.
This manipulation of trade accounts sinks the illicit funds deeper into the general web of legitimate finance activity.
2023 studies indicate that trade fraud will cost the economies more than $1.5 trillion annually. The majority of this was accounted for by the misappropriation of the invoice and the usage of trade documents.
Making Dirty Money Look Clean
In the final stages of the lengthy shell company money laundering example, dirty money has had all fingerprints washed off to trace its illicit origins.
The money is white as snow and all set for criminals to spend unrestrained in the normal economy without questioning where it came from. Their dirty work is done as lawbreakers harvest the spoils in this broken financial system.
Continued follow-through on strengthening measures to undermine deceptive laundering and enhance oversight. Learn what you can do at amlwatcher.com.
