How to unravel the dubious world of shell companies to achieve better UBO monitoring

  • Adam Holden, CEO at NorthRow

  • 24.06.2021 05:30 pm
  • security

A shell company is essentially a hollow structure, set up purely to perform the movement of funds, rather than having employees, assets, operations and transactions relating to the selling of goods and services.

Historically, hiding behind shell companies was something commonly used by larger tax evaders. The international and fraud landscape has changed dramatically over the last 20 years, but none more so than during the Covid global pandemic, opening up the use of shell companies to a much wider audience.

Some of the most corrupt, dangerous and ruthless individuals and entities use shell companies as their vehicle of choice, to hide their fraudulent gains, and act as a cover for morally nefarious and criminal activities. Think of terrorists, arms dealers, drug cartels, corrupt politicians, scammers and cybercriminals.

The directors of such companies crave anonymity and hide behind the opportunity of secrecy. The legal frameworks between countries can make ownership very difficult to unravel, as each territory is required to collect different information on the identity of the ultimate beneficial owner.

With the main purpose of using a shell company as concealment, tracing and tracking their owners isn't easy, but it's not impossible either. 

Many companies have focussed on using manual processes to help the anti-fraud process. This can include using the internet or various public records across different countries as well as mapping tools. As with any manual process, a huge amount of time, investment in resource and delay to conclusion is incurred.

Thankfully digital transformation offers the regulated business a much faster and efficient way to unravel the shell network. With the use of API’s and ‘Software as a Service’ solutions vast amounts of data can be brought into a single online, (digital), platform. 

By consolidating Know Your Customer (KYC) data sources into one central platform businesses can ‘run a verification’ task/rule against their customer data to receive information on whether they can proceed to do business with the customer or not. Continual monitoring is made far easier with the option of defining the rule to match the appetite for risk so ongoing KYC monitoring becomes far more instantaneous. 

Dashboards are key, with flags and alerts, providing the opportunity for a proactive approach to the identification of UBO. Only those cases that require further investigation are flagged. The result is a far more efficient and cost-effective process within the compliance team.

Shell companies and those associated with them can be very bad news for a company, not least in terms of regulatory fines but also in terms of reputational damage. The fraudster can come from within your organisation, and might use them as vehicles of corruption or asset diversion. Alternatively, external perpetrators can use them as money-laundering vehicles against your organisation.

Our advice is always to stay vigilant and not be complacent or put off by the previously hard task of identifying or monitoring UBO’s. International corruption, fraud and asset diversion, and money laundering are here to stay and the best way to meet it head on is to move to digital solutions to protect your business.

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