Shell Companies and Shell Banks for Money Laundering

A shell company is just that - a shell and no real business is conducted.  There are, for example, shell banks - corporate entities that look like banks, but are not really banks.  The purpose is to deceive others into thinking the company is a bank.  A shell bank (or other company) can be a convenient vehicle to launder money.  It conceals the identity of the beneficial owner of the funds, and the company records are often more difficult for law enforcement to access because they are offshore, held by professionals who claim secrecy, or the professionals who run the company may act on remote and anonymous instructions.  Such companies would be used at the placement stage, to receive deposits of cash which are then often sent to another country, or at the integration stage, for example to purchase real estate.

Dealings with shell banks are explicitly prohibited by the US Patriot Act, Title III.  A similar prohibition also forms part of a Third EU Money Laundering Directive and the UK’s Money Laundering Regulations.

Money Laundering Regulations 2007:

Shell banks, anonymous accounts etc.

16. —

(1) A credit institution must not enter into, or continue, a correspondent banking relationship with a shell bank.

(2) A credit institution must take appropriate measures to ensure that it does not enter into, or continue, a corresponding banking relationship with a bank which is known to permit its accounts to be used by a shell bank.

(3) A credit or financial institution carrying on business in the United Kingdom must not set up an anonymous account or an anonymous passbook for any new or existing customer.

(4) As soon as reasonably practicable on or after 15th December 2007 all credit and financial institutions carrying on business in the United Kingdom must apply customer due diligence measures to, and conduct ongoing monitoring of, all anonymous accounts and passbooks in existence on that date and in any event before such accounts or passbooks are used.

(5) A “shell bank” means a credit institution, or an institution engaged in equivalent activities, incorporated in a jurisdiction in which it has no physical presence involving meaningful decision-making and management, and which is not part of a financial conglomerate or third-country financial conglomerate.

(6) In this regulation, “financial conglomerate” and “third-country financial conglomerate” have the meanings given by regulations 1(2) and 7(1) respectively of the Financial Conglomerates and Other Financial Groups Regulations 2004 .

 

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