How do shell companies help with money laundering?
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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.
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