Shell company
Also called shell corporation, front company
A shell company is a legal entity with no significant operations, staff or assets of its own. Many have lawful uses, such as holding assets or preparing a merger. Criminals use them to hide who owns money and to move funds through layers of companies, so AML rules treat them as a higher risk.
How it works
At onboarding, a regulated firm checks whether a corporate customer trades, employs people and has a real address. Signs of a shell include a registered agent address, nominee directors, no website and accounts showing no turnover. The firm then traces ownership through each layer to the individuals at the top and asks why the structure exists.
Shell companies are a common feature of laundering cases because they break the link between money and its owner. FATF Recommendation 24 requires countries to keep adequate, accurate and current beneficial ownership information. Banks are barred from correspondent relationships with shell banks, which have no real physical presence where they are incorporated.
The rules
Requires countries to ensure adequate, accurate and up-to-date beneficial ownership information on companies is available to authorities, including through a register or alternative mechanism.
FATF member jurisdictionsBars covered US financial institutions from maintaining correspondent accounts for foreign banks with no physical presence in any country.
US banks and broker-dealersSets enhanced checks for correspondent relationships and prohibits correspondent relationships with shell banks.
UK credit and financial institutionsCommon questions
Are shell companies illegal?
No. Shell companies are legal in most countries and are used for holding assets, joint ventures and mergers. They become a money laundering concern when they hide the real owner or have no clear business reason.
What is the difference between a shell company and a shell bank?
A shell company is any entity without real operations. A shell bank is a bank with no physical presence in the country where it is licensed and no regulated group. Correspondent relationships with shell banks are prohibited.
How do firms spot a shell company?
Common indicators include a mass registration address, nominee directors, dormant or nil accounts, no online presence, and payments that do not match a stated business. Each sign prompts further ownership checks.
