Dr. AbdelGadir Warsama Ghalib
Banks are following very tough strategy to curb and firmly control money laundering through banking avenues. Many steps were taken to achieve this, including know your customer (KYC) policy. As consequence to this bold stand in the face of money laundering, the launderers initiated other alternatives to pursue their criminal activities. Incorporating shell companies is one of the lucrative alternatives.
The use of shell and shelf companies to facilitate money laundering is an active method. Many definitions are given for shelf company, a corporation that has no activity and has been created and put on the “shelf”. This corporation is later sold to someone who would prefer to have an existing than a new one. Shell company, is a company that is incorporated at time it has no significant assets or operations.
The easy way in which corporate vehicles can be created and dissolved in some jurisdictions, allows these vehicles to be used for legitimate purposes and also to be misused by those involved in financial crime to conceal the sources of funds. Shell companies can be set up in onshore as well as offshore locations and their ownership structures can take several forms. Shares can be issued to a natural or legal person or in registered or bearer form. Some companies can be created for a single purpose or to hold a single asset. Others can be established as multipurpose entities.
The ability for competent authorities to obtain and share information regarding the identification of companies and their beneficial owners is essential for authorities responsible for preventing money laundering. The reasons to establish or control a company for money laundering purposes include, companies with the objective of converting cash proceeds of crime into alternative assets, through shell companies, the launderer can create the perception that illicit funds have been generated from a legitimate source. Once a company is established, commercial accounts can be created at banks or other financial institutions. Especially attractive to money launderers are businesses that customarily handle a high volume of cash transactions. Illicit revenues can then be deposited into bank accounts as legitimate bearer, or “bearer shares,” are prime money laundering vehicles because they belong, on the surface, to the “bearer.” The dirty money is laundered by pretending it is revenue earned by these front companies.
Generally, front companies also have legitimate revenue, but sometimes their total revenue comes from money generated by crime. Then there is no real business going on anymore. In these cases, criminals may have the whole vertical business column in his power, from production to wholesale to retail.
Once a company is established, a wide range of legitimate and/or bogus business transactions can be used to further the laundering process. These include lending money between criminally-controlled firms, paying out fictitious expenses or salaries, disguising the transfer of illicit funds under the guise of payment for goods or services, offering public shares in the company, or purchasing real estate with proceeds of crime disguised as mortgages issued by a shell company. As a medium between criminal organizations and other laundering vehicles, companies are flexible and can be tailored to a launderer’s specific needs.
To distance a company from its criminal connections, nominees will be used as company owners, officers and directors. Nominees will often, but not necessarily, have no criminal record. Criminal proceeds from offshore are used to buy a company that is already owned by the criminal enterprise. In this way, the launderer successfully returns a large sum of money. Often, the business will be purchased at an artificially inflated price. The difference between the artificial and the real market value is deposited in a bank account. A reverse situation may occur where a company is sold at an artificially low price and so on there are unlimited ways to achieve the bad purpose. This is how, dirty money will be laundered through using certain dirty techniques and, therefore, tough measures are required otherwise criminal minds will be able to manage the whole economy through illegitimate means ….
As indicated in my first article about this subject, shell companies are often legally incorporated and registered by criminals but have no real business apart from laundering activities. To disguise their criminal activities, criminals often tend to purchase “off the shelf” companies as convenient vehicles to launder money. They take many steps, including concealing the identity of the beneficial owner of the funds, make company records more difficult for law enforcement to access because they are held by professionals who claim secrecy and other defenses, moreover, the professionals who run the company mostly act on remote instructions. However, once the company is established, the primary objective is to claim the proceeds of crime as legitimate revenue and mix the dirty criminal proceeds with legitimate revenue.
There are other laundering techniques used in conjunction with such criminally controlled companies including use of “nominees” as owners. The aim here, is to distance the company from its criminal connections and the nominees will be used as company owners. Such nominees will often, but not necessarily, have no criminal record. No body to doubt their integrity, truthfulness and good character.
In some cases, number of companies were established and connected through a complex hierarchy of ownership. This helps to conceal criminal ownership and facilitates the transfer of illicit funds between different hands, different places, and different companies. This clearly shows how money laundering is masterminded through a chain of gangsters with octopus hands and legs. Also, they employ a laundering technique known as “double invoicing” , wherein a company orders goods and payment is sent to the bank account of a subsidiary sister company. Here, both companies are owned by the same criminal and the “payment” is actually a form of repatriation of illicit money. Moreover, the company may be charged high price for the goods whereas the books of the company show a low level of profit, this means that company will pay less in taxes. It can also work the other way around, a company buys goods from another company at price that is too high. The difference between the real price and the inflated price is then deposited in a bank account and could be utilized for other purposes.
When the criminal sells the business, he has a legitimate source or capital. The added benefit of selling a business through which illicit money circulates is that it will show significant cash flow and, as such, will be an attractive investment and realize a high selling price. Here investors and their advisors are to be vigilant and beware of such practices.
It looks an attractive and an effective laundering technique to “purchase” a company already owned by the criminal. This laundering method is most frequently used to repatriate illicit money that was previously in a secret havens. In this way, the launderer successfully returns a large sum of money as the business will be purchased at an artificially inflated price. The difference between the artificial and the real market value is deposited in the bank account of a subsidiary company.
In addition to claiming the proceeds of crime as legitimate business revenue, criminally-controlled companies also help legitimate certain participants in a criminal conspiracy by providing them with salaries. In some cases, salary cheques were signed back to the company by the “employee” as part of the laundering operation. Sometimes, the stock of these shell corporations is issued in bearer shares, which means that whoever carries them related to the Shell company..
The used techniques and temptations are enormous and endless as they are carefully designed by very crook professional criminals, to attract potential innocent investor start-ups or others. Crime never stops and fights for survival all through with new teeth and aggressive weapons.
Beware and make sure that you know with whom you are dealing and where you are going and with whom you are going and how and why?. There is a lot of dirty money, all around the globe, looking for opportunities, don’t be the launderer, don’t be the victim irrespective of any lucrative promises or gains. The war against money laundering should be your war and should start from you.. Yes, prepare yourself to win the war.