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How could a shell company be illegal?

On Behalf of | Dec 20, 2023 | Money Laundering

A shell company is a legal entity that has been established but that doesn’t actually operate as a business. It may not own any assets. It may not have any employees. It may not have any business contracts or revenue. It is a company in name only, and it exists on paper.

Creating a shell company is not illegal. There are legitimate reasons why these can be used and they sometimes are. But many shell companies are created specifically to engage in illegal activity, such as money laundering.

How would this be beneficial?

The reason that people use shell companies in this way is that they need to falsify records. Money laundering, after all, is the process of taking money that was illegally obtained and running it through a legitimate business so that it appears to have a different source. Someone may set up a shell company just so that they can funnel their money in and out of that company, even though it’s not actually doing any business. They falsify the paperwork to make it appear that the company is how they’re earning money, rather than the illegal tactics that they are actually using.

Money laundering doesn’t necessitate having a shell company, however. People will sometimes create very legitimate businesses, such as restaurants or car washes, and funnel the money through these entities. The businesses are operating and making money, but the owner just inflates the numbers. A shell company simply takes things one step further because the business isn’t doing anything except creating that financial record.

Accusations of money laundering are very serious and could have life-altering consequences. Those who are facing such charges must know about the criminal defense options at their disposal.