Shell Company

A shell company is a legal entity that has no significant assets or operations but exists for a specific purpose—sometimes legitimate, sometimes not.

Characteristics

Operations: None or minimal

Employees: None or very few

Physical presence: Registered agent address only

Assets: May hold cash or other entities

Purpose: Hold assets, facilitate transactions

Legitimate Uses

• Holding companies: Owning subsidiaries or assets
• Special purpose vehicles (SPVs): Financing, real estate transactions
• Pre-operational entities: Companies formed before launching business
• Asset protection: Legal liability isolation

Illicit Uses

Shell companies are frequently used for:

• Money laundering: Layering funds through opaque entities
• Tax evasion: Hiding income in low-transparency jurisdictions
• Sanctions evasion: Obscuring true ownership to evade OFAC restrictions
• Fraud: Creating false appearance of legitimate business
• Corruption: Receiving bribe payments

Shell Companies and KYB

Shell companies present significant KYB challenges:

No operating footprint: Verify purpose and source of funds

Nominee directors: Identify true beneficial owners

Complex structures: Map full ownership chain

Opaque jurisdictions: Apply enhanced due diligence

The Corporate Transparency Act specifically targets shell company opacity by requiring beneficial ownership disclosure.

---

Related: UBO | Money Laundering | CTA