LEGAL VIEWPOINT – Shell Companies Two By Dr AbdelGhadir Warsama Ghalib

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Dr AbdelGadir Warsama Ghalib, Principal Legal Counsel, Bahrain

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.

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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.