Glossary term
Shell Bank
Subject: Financial Crime, Customer Due Diligence and Correspondent Banking
A shell bank is a licensed bank with no real office or management in the place that licensed it, and no link to a regulated group whose supervisor oversees the whole group.
Explanation
Such a bank may consist of little more than a licence and a brass plate or mailbox. Because no one meaningful runs it in the place of licensing, no supervisor can see what it does, and it is a convenient channel for moving illicit money. International standards therefore tell banks not to open or keep correspondent relationships with shell banks, and to make sure that their respondents do not allow shell banks to use their accounts. The test is physical presence, meaning real management and records, and not the mere existence of an office or agent. A bank that is a subsidiary of a properly supervised group is not a shell bank, even if it is small. Checking this is a standard part of correspondent due diligence. Unlike most customer-risk questions, there is little room for discretion here: a confirmed shell bank is simply refused.
Example
A foreign bank asks to open a correspondent account. Its questionnaire gives a registered agent's office as its address, lists no staff there and shows no parent group. The compliance team concludes it is a shell bank and rejects the request. It also reviews its other respondents to confirm none is offering services to similar entities.
Not to be confused with
- Shell Company
- A shell company is any entity with no real operations. A shell bank is specifically a licensed bank with no physical presence or supervision.