Some people use shell companies to make investments in foreign markets.A shell company can also be used by someone to gather and store funds they need to start a new business before the new company is registered.Sometimes, a shell corporation is simply the remnants of a business that has gone defunct or had all its assets bought out by another company during a merger or acquisition.We will discuss the role of shell companies in financial crime in the next section. Some of these reasons are legitimate, others exist in legal grey areas, and some are directly related to financial crime.īelow are some of the more legitimate reasons people use shell corporations. Shell companies are used for a variety of reasons by large public companies and private individuals alike. However, this anonymity is not guaranteed or absolute, as is shown by high-profile financial investigations and data leaks such as the Panama Papers. This makes the true ownership of assets difficult to trace-especially if each layer is registered in a different country.
This process can be repeated multiple times to create Russian-doll-style layers. The leak revealed the different ways that rich and influential people use offshore tax regimes to hide their wealth.Ī shell company owner can also hire a nominee director to register the corporation under their name.įor further anonymity, it is possible to create shell company subsidiaries within a shell company.
For example, the Panama Papers was a leak from Panamanian law firm Mossack Fonseca. Popular shell company locations include the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, Luxembourg, and Switzerland.Ī shell corporation can be set up by a law firm in its host country, effectively masking its true owner. Certain countries, known as tax havens, are particularly popular destinations for shell companies because of their lax business or tax regulations. Shell companies may open bank accounts and engage in financial transactions, buy real estate, and own copyrights and royalties.įurthermore, a shell company can be set up and owned from a different country. They’re generally created solely to hold and move assets on behalf of individuals or other businesses. Shell companies have no employees and are not publicly traded, and they don’t deliver any goods or services to earn revenue. We also discuss some of the reasons shell corporations can be cause for concern-including tax evasion. In this article, we explain what a shell company is and what purposes it can serve. People and organisations use shell companies for a variety of purposes, some of which are legitimate while others involve committing financial crimes. You’ve likely seen the term ‘shell corporation’ in news coverage of political corruption and financial crime, and in the wake of the 2016 Panama Papers data leak.īut what is a shell corporation, and why do people use them?Ī shell corporation or shell company is a registered corporation that has no active business operations, so named because it is merely the ‘shell’ of a company with nothing ‘inside’ it.
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