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Shell Companies Helping Criminals Launder Money: Report

  • Shell companies make it difficult for authorities to track illicit money

    Shell companies make it difficult for authorities to track illicit money | Photo: Reuters

Published 5 August 2016

Shell companies helped criminals to hide their money in real estate, luxury cars and even racehorses, the report found.

A report released Monday by the the Fair Share Education Fund has highlighted how shell companies help to launder vast amounts of money for organized criminal groups involved in drug trafficking. 

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The report investigated ten case studies from around the world that demonstrate the use of shell companies hiding illegally obtained money from the opium trade through a number of methods.

The term shell companies was popularised following the Panama Papers leak, exposing thousands of corrupt and illegal business practices often held in offshore accounts.

Shell companies are set up by organizations to exist only on paper, they are particularly hard for investigating authorities to find and prove that illegal activities are taking place.

Mexican organized crime group Los Zetas used shell companies to launder its dirty profits by purchasing racehorses. Money obtained from the drug trade was much harder for authorities to track when it was moved from cash to other assets.

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Jailed Peruvian drug trafficker, Fernando Zevallos, used shell companies based in the U.S. to disguise his illegal earnings. Even whilst in jail, he was able to move US$ 1.4 million from the U.S.

Two men from Ohio, Addonnise Wells and Mario Freeman, were able to use shell companies to hide heroin profits in luxury cars and by buying real estate for family members.

However, Drug Enforcement Administration, DEA, figures suggested that less than one percent of illegal cash was caught across the southwest border between Mexico and the U.S.

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The researchers suggest that more tools needed to be given to law enforcement agencies to be able to follow illegal money trials. The report said that one of the most effective measures to stop laundering money from the drug trade would be a requirement for all U.S.-formed companies to disclose their beneficial owners.

The report explained that in the laundering process, illegal money is first transformed into money such as cards and cheques. The money is then layered through different accounts and shell companies, making it harder to track. Then when the money has moved around enough it becomes “clean” enough to be used for legal and other illegal purposes.

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