How do shell companies help with money laundering?
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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.
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