How do shell companies help with money laundering?
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Say for example you made $10,000 by selling drugs.
But you can’t put that $10,000 in your bank account or spend it on legit shit because IRS and other 3 letter agencies might notice big transactions, especially since they want you to pay taxes.
But if you owned a mattress store, you could write a receipt to someone for selling them 4 mattresses for $2,500 each. Boom there’s your $10,000 you earned by selling mattresses. Your money is now free and clear and it looks like you earned it at your mattress store. You might also hire a lackey to actually sell mattresses. Or maybe the mattresses don’t even exist and it’s all a sham. But either way – based on the receipts it looks like you earned the money in a legit way
It obscures the source of the income. If I own a steel company in western Pennsylvania, the US government can easily track what my business does. If I own a steel company in Western Sahara, it’s a lot harder to know where funds are genuinely coming from. Then you just add layers. My St Lucian management company owns a Nepalese steel group that owns and operates a number of steel mills worldwide.
According to my anti-money laundering course, there’s 3 main steps to launder money.
Placement, layering and integration
You first take the illegally gained funds and need to place them back into the system, typically in small, less noticeable amounts by layering them and eventually reintegration back to the total sum.
Another way to either steal money works the other way too – bug transactions are split into a big sum and several splinters, and eventually the splinters are reintegrated. (so auditors / regulators follow the large sum and lose track of the splinters.
And of course shell companies can be better controlled, by the ultimate parent; and in many cases inter company transactions can be tweaked as payments, premiums, sales, transfers, loans, expenses and a host of accounting labels which can hide their true purposes, create or hide tax liabilities, and benefit from being called accounting errors rather than true crimes.
Shell companies are useful, since all of these things happen inside the holding company, which can hide these actions.
Can I say from someone that has I guessed “laundered money”… Services, not products, launder money. .
Writing a receipt for a product you “sold” needs a receipt of purchase.
Writing a receipt of services, needs little to almost no proof that what you provided is legit.
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Further to this, apart from art appraisal, consultation in most countries is a completely unregulated and uneducated industry. You could have worked in hospitality for 5 years, created a “bespoke cocktail consultation” business and then rinse money like a 1$ laundry.
Many good answers here.
My sister is a drug dealer. She lives by the ocean. She likes to go on long walks and sell drugs. Sometimes she picks up things on her walks. She started a side business selling the things she finds, and reports her drug income as income from that side business.
She sells sea sells by the seashore.
You’re asking about shell companies, but you’re getting answers about front businesses. Fronts are essential to money laundering, but it doesn’t quite answer your question.
There are three phases of a money laundering operation: **placement**, **layering**, and **integration.**
**Placement** is how/where you initially place the dirty money into the financial services ecosystem. In the U.S., financial controls make chartered banks a no-go for this, but other options (like private banks, or even an attorney’s trust account) are available. For serious money laundering, though, you want an overseas bank with obscure and difficult-to-enforce laws about revealing financial information. The Caribbean is a hotbed for this, but there are a lot of other notable sites. I don’t think a Cook Islands trust has ever been pierced in court, for example.
**Layering** is the passing of the dirty money through a series of intermediaries to create distance/obstacles between the money and its true source. At this point, you take the money from where you placed it and transfer it to another company (or more likely several companies) in your destination country at a legitimate-enough financial institution. (HSBC, Santander, and Banco do Brasil are good for this.) If you want to be really devious, you layer your money across multiple different countries. Each different jurisdiction in your layering chain means an entirely different, overseas court battle if the authorities want to try to hunt you down.
**Integration** is where the actual washing of the money takes place. It’s the part you’re most familiar with if you’ve watched Ozark. Integration involves commingling your layered (dirty) money with the cash flow of a legitimate-seeming “front” business. With some phony invoices and receipts, that layered money looks just as legit as anything else, and it can be deposited, taxed, and paid out to the originator (probably back through a *different* layering chain) by a U.S. financial institution.
Shell companies (in the money laundering context) are critical in the placement and layering processes. These are companies that pretty much only exist on paper, and their only assets are bank accounts. They exist solely to move the money while concealing the identity of its true owner. For example, let’s say I want to place my money in the Caymans, transfer it to Switzerland, and then to the U.S. In each of those jurisdictions, I start a company whose only publicly registered officer/agent is a lawyer or a financial advisor or someone else who can invoke a legal privilege to keep from identifying me (which is going to vary wildly from country to country). Those persons/businesses can move my money at my direction without any official/public evidence that I’m associated with it at all.
Corporate tax structures are a key example here. Here’s a very simple example:
Amazon UK sells a ton of stuff for lots of money. But they aren’t ‘real’ Amazon, they only licence the brand so they can operate. They pay a ton of money (almost all their profits) in fees.
But they pay those fees to Amazon Cayman Islands. This is also not real. It is a processing company hired by real Amazon to deal with collecting fees. Amazon Cayman Islands bids for this contract at basement rates to beat the ‘competition’, so it barely covers its operating costs. It also had to borrow hundreds of millions from Amazon Republic of Ireland to get its startup costs, staff legal and IT/digital infrastructure set up. The interest payments on that debt are larger than Amazon Cayman Islands’s profit, so it only ever loses money and borrows more.
Amazon RoI makes money, but writes the debt owed by the barely solvent Amazon Cayman Islands against its taxes each year. After a while, they’ll fold Amazon CI, write off the debt one last time, then loan a couple hundred million to AmaZzon CaYyma IsLlands to start a new business!
In reality, there’s about 12 or 15 more shells and leases, transfers, etc involved in top tier corporate tax avoidance. Then they’ll also hire top level law firms to obscure it in paperwork that will take a forensics team 10 years to cut through.
This is how money laundering works too, because tax avoidance is money laundering! The people/companies who get caught typically do stupid things or set up Ponzie schemes that other rich people lose money to.
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