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Shell companies: Money laundering, tax evasion and fraud

On Behalf of | Jul 13, 2017 | Criminal Defense

A legitimate business can sometimes appear like a criminal operation to the federal government. For example, shell companies may be legitimate, but they also might be money laundering operations. The federal government may, therefore, pay scrutiny to the operations of a shell company for signs of illegal conduct.

Shell companies could simply be old corporations that are now only partially in business. They could also be illegal operations used to commit false accounting, tax evasion, money laundering, asset hiding and more.

Shell companies and money laundering

Imagine a criminal operation is receiving “dirty” money through drug sales or other unlawful activity. This money needs to be “laundered.” In other words, the source of the money needs to be obscured through the appearance of legitimate business operations. Money laundering has three stages: (1) the illegal process that gets the money; (2) a complicated sequence of transactions performed by the money launderer that often involve shell corporations; and (3) the indirect return of the “laundered” money to the criminal enterprise that owns it.

Tax evasion is another common criminal use of shell companies. Shell companies are used to fabricate claims they performed business services — and that the clients paid for the services in cash. The cash component makes the transaction more anonymous. However, the shell company, perhaps it’s a fake beauty salon or plumbing operation, will fabricate invoices to make it look like it performed the services.

Next, the shell company withdraws its money and gives it back to the original person or organization, perhaps by depositing it in an offshore account. By keeping the money offshore, shell company owners can avoid taxes but not lawfully. Failing to report the bank account interest earned by offshore accounts represents tax evasion.

Serious offenses with consequences of jail time

Money laundering and tax evasion, of course, are white collar crimes and a violation of federal law. Those accused of the offense could find themselves spending a long time in jail. As such, if you’re facing these kinds of charges in federal court, you may want to educate yourself on your legal rights and options as they pertain to your criminal defense proceedings.

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