Glossary term
Shell Company
Subject: Financial Crime, Money Laundering, Typologies and Asset Recovery
Also known as: Paper company, Letterbox company
A shell company is a registered legal entity with no real operations, staff or assets of its own. It has some legitimate uses, but is often used to hide who owns or controls money.
Explanation
A shell is registered like any other company but does little or no actual business. Legitimate uses exist, such as holding a planned acquisition or a group's property. The risk lies in how cheaply one can be set up and how thinly it is run: a nominee director, an address shared with hundreds of other firms, and a bank account opened abroad. Money can then pass between shells as invoices, loans or fees while the real owner stays out of sight. Chains of shells in several countries make tracing slow. A shell differs from a front company, which runs a genuine trade and mixes dirty money into its takings. Banks look for missing staff, no website, vague business purpose and flows that match nothing. Without a look past the registration, a bank can end up handling money for owners it has never identified.
Example
An online payments provider reviews a merchant applying for an account. The company was registered six months ago at an address shared with 400 other firms, has one nominee director and no employees, yet expects 2 million a month from overseas buyers of "consulting services". The provider asks who owns it and why the money is coming. No clear answer is given, so it declines the application and files a suspicious transaction report.
Not to be confused with
- Front Company
- A front company runs a real business and uses it to blend illicit money with honest income. A shell has little or no activity.
- Shell Bank
- A shell bank is a bank with no physical presence or supervision in any country, a narrower and specifically barred type of entity.