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The Importance of Identifying Shell Companies

Financial institutions are required to put in place programs to detect and prevent money laundering. One of the most cited anti-money laundering (AML) red flags by government - over the last 18 months - to look for is the use of shell companies.  With this in mind, does your institution have a program in place to identify shell companies in transactions? What about shell companies with identifiable sanctions and watchlist connections?

What are some approaches to identifying shell companies?

Shell company detection is an area that the team at Sigma360 has been focused on for while. While imperfect, there are a number of steps that can be taken to auto identify likely shell companies that include, but not limited to:

i) Formation date - is the entity a newly formed company 

ii) Location - is the company located in a jurisdiction known for tax secrecy or sanction evasion

iii) Association with known shell companies - does it share other characteristics with known shell companies

iv) Line of business detection - can this be established and does it make sense alongside transactional records

v) Internet presence - is there self generated content and information on the entity

Financial institutions have a range of additional approaches at their disposal to identify shell companies, such as shared directors and recognition of known incorporation agents who have been linked to shell company operations in the past. These techniques can be employed by institutions to enhance their ability to detect and prevent money laundering activities and to identify potential sanction evasion or nexus.

Why is shell company detection critical?

Beyond regulatory obligations to detect money laundering, current geopolitical developments make identifying shell companies important from reputational perspective.  Take the case of Maxim Marchenko, who the U.S. Department of Justice recently charged for money laundering and sanction evasion.

Screenshot 2023-09-19 at 8.33.25 AM

According to filings, Marchenko and his accomplices used a number of shell companies in Hong Kong to evade detection and procure and supply military equipment to Russia. The shell companies named include:

- Alice Components Co. Ltd. (Hong Kong)
- Neway Technologies Limited (Hong Kong)
- RG Solutions Limited (Hong Kong)

These entities present real risk - using the rubric above - from the perspective of potential shell company activity.  Online reviews also support the nexus, via trade data, with Russia, which is tracks with the Department of Justice filings.  

How can Sigma360 help?

Persistent Updates to Sigma’s Core Risk Data 

  • > 60 always on global sanctions list
  • Global political exposed person coverage 
  • Global enforcement action coverage

Global Corporate Coverage 

  • Global corporate registry and related corporate intelligence data
  • Identification of ownership and control where available 
  • Where percentage ownership is not available, Sigma360 will also highlight high-risk associations including:
    • Direct and indirect entity ownership 
    • Entity linkages to news and other sources of information 
    • Related board members and related entities, including service providers 
    • Relevant directors

Associated Risk Screening & Monitoring

  • Screen and monitor for association with sanctioned individuals and entities 
  • Configure to screen and monitor against others Sigma risk indicators 

Real-Time Unstructured Data Coverage

  • Exhaustive coverage investigative sources, including ICIJ, OCCRP and others 
  • > 220,000 global sources covered for adverse media across > 50 languages

Proprietary Data Attributes

  • Global high risk addresses linking companies to sanctioned entities and individuals
  • Global high risk corporate service providers and associated directors 
  • Graphable unstructured data extraction from key reporting agencies 

Global Country Risk Coverage

  • 200+ countries and territories covered for financial crime risk 
  • Dynamically updated annually as covered risks change 

Configurable Risk Taxonomies

  • Fully configurable platform including scalable scoring, addresses, countries, entities, individuals or vessels
To see Sigma360 in action, book a demo.
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