Criminal Defense Lawyers

How White Collar Criminals Use Shell Companies to Hide Assets

Introduction

White collar crime is a big problem these days. Lots of rich and powerful people use shady methods to hide their money and avoid getting in trouble with the law. One of the main ways they do this is by setting up shell companies. These shell companies don’t really do any business – they just exist on paper to hide assets and money trails. Let’s take a closer look at how this works and why it’s such a challenge to crack down on.

What is a Shell Company?

A shell company is a company that exists only on paper and has no real operations¹. Shell companies are often formed in offshore tax havens like the Cayman Islands or Panama specifically to hide assets and obscure ownership. The directors of a shell company are usually just nominees – people paid to lend their name without actually running the company. Shell companies don’t make any products, have employees, office space, or anything like that. They mostly just have a mailing address and a bank account. But they allow people to move money around while concealing who really owns the assets².

How Criminals Use Shell Companies

Shell companies are perfectly legal in most places. But criminals can take advantage of them to facilitate all kinds of illegal activity:

• Tax evasion – People can shift income and assets around between shell companies to avoid taxes.
• Money laundering – Shell companies can help “clean” money from criminal enterprises like drug trafficking or corruption.
• Sanctions evasion – Shell companies set up in places like Russia allow oligarchs to avoid economic sanctions.
• Fraud – Scammers can use shell companies to trick people into sending money for fake investments, products, etc.
• Terrorism financing – Terror groups like ISIS have used networks of shell companies to raise and transfer funds.

The anonymity provided by shell companies helps white collar criminals cover their tracks. Investigators often hit dead ends when they try tracing money through a web of offshore shell companies³. Even just figuring out who really controls a shell company can be extremely difficult.

Real Estate Schemes

One common way white collar criminals exploit shell companies is through real estate scams. For example, they might:

• Use a shell company to secretly buy up property owned by vulnerable people like the elderly.
• Transfer ownership of someone’s home to a shell company fraudulently through forged paperwork.
• Obtain mortgages for rundown properties using shell companies that exist only on paper.
• Launder money by selling property back and forth between shell companies at inflated prices.

These schemes let criminals profit from real estate they don’t actually own. And victims often don’t realize their property was stolen until it’s too late⁴. The secrecy of shell companies enables this type of fraud.

The Role of “Professional Enablers”

Shell companies don’t set themselves up. They require the services of lawyers, bankers, accountants, and other professionals. These “professional enablers” are essential for creating complex offshore corporate structures. Some specialize in catering specifically to criminals trying to hide illicit activity. For example, the Panama Papers exposed law firms that routinely helped clients launder money, dodge sanctions, and evade taxes using shell companies⁵.

Professional enablers like these grease the wheels for financial crime. Limited ethics and lax regulation allow them to operate. Cracking down on the enablers could help disrupt the shell game.

Challenges Fighting Shell Companies

So why is it so hard to stop white collar criminals from abusing shell companies? There are a few big challenges:

• Legal obstacles – Shell companies are legal in many jurisdictions, so regulators have limited options.
• Lack of transparency – Ownership information for shell companies is often concealed, protected by privacy laws.
• Resource constraints – Investigating sophisticated corporate schemes requires significant time and expertise.
• Corruption – Some places like tax havens make lots of money off shell companies, so have little incentive to crack down.

These roadblocks allow shell companies to thrive as vehicles for shady activity. But some reforms could help pierce the corporate veil…

Policy Solutions

While shell companies are a tough nut to crack, there are some policy approaches that could help:

• Require real people behind shell companies to be named in company registries, to increase transparency.
• Impose regulations on lawyers, bankers, etc. to prevent aiding illegal shell company activity.
• Increase resources for investigating complex financial crimes.
• Create stronger international information sharing practices to follow money across borders.
• Close loopholes that allow shell companies to skirt the rules.
• Penalize tax havens that enable shell company abuses.

These kinds of reforms could make it a lot harder for criminals to play the shell game. But implementation faces political and practical difficulties. Still, targeting professional enablers and increasing transparency seem like promising angles of attack.

The Bottom Line

Shell companies allow white collar criminals to conceal and move assets while often staying anonymous themselves. Real estate scams are one common way they exploit shell companies to profit illegally. Lawyers, bankers, accountants, and other gatekeepers make shell company abuses possible. While cracking down presents challenges, policy changes like transparency requirements could help expose secretive corporate structures.

Stopping sophisticated financial crimes and international money laundering requires persistence. But shining light on the shell game could help ensure white collar crooks have fewer shadows left to hide in.

References

1. Investopedia – Shell Corporation [↩︎]

2. OECD Report – Ending the Shell Game [↩︎]

3. Shell Companies – White Collars Mafia [↩︎]

4. Real Estate Shell Company Schemes [↩︎]

5. OECD Report – Ending the Shell Game [↩︎]