Money Laundering, Terrorism and Financial Institutions - USA Patriot Act Monitor

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11/28/2006 FinCEN Describes Risks of Corporate Shells, Shelf Companies Make Detecting Shell Status Difficult

The Financial Crimes Enforcement Network has released an Advisory regarding shell companies, noting that when such entities are involved in suspicious activity, the narrative portion of the Suspicious Activity Report should use the term “shell” and should, when wire transfers are involved, give the names and locations of shell entities involved in the transfers, as well as the names of and information regarding any registered agents or other third parties.  Telling when an entity is a shell can be difficult.  Sometimes launderers use “shelf companies,” i.e., companies that had some period of actual operation before being put on the shelf.  Shelf companies have actual histories, and may come with a tax ID, a history of tax returns, a bank account, etc.  Some service providers advertise that such companies are useful for the appearance of longevity, making it hard for a financial institution providing services to detect that the company is merely a shell.  The FinCEN Advisory, along with an FATF release in the same area, will be analyzed in the January 2007 Monitor.  Red flags from the releases have been added to the 40-page tabular summary of red flags that now posted on the CRI website.

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