Practical Fraud Prevention

Chapter 20. Shell Payments: Criminal and Terrorist Screening

You’re just too good to be true, can’t take my eyes off of you…

Frankie Valli¹

Shell payments are payments carried out through a shell company or account—that is, one that exists only on paper, though it may own passive investments. There are plenty of legitimate use cases for shell companies, generally involving protecting individuals or parts of a company from liability. But there’s no doubt that in the public mind, there are also dubious associations with the term, notably tax evasion and money laundering.

How Shell Payments Work

From the anti–money laundering (AML) perspective, shell payments are similar in a sense to synthetic identity accounts (discussed in Chapter 15); they’re set up to carry out actions from which the criminals can benefit, by leveraging an entity that appears to be substantial but in reality is just, well, a shell.

The motivation for using shell payments from the criminal side is generally either to conceal the illegal source of the funds being transferred and ultimately laundered, or to assist in a tax evasion scheme. In either case, there may be some telltale signs hinting toward the fact that more investigation is required, but as with synthetic identities and some other kinds of fraud, it’s often difficult to catch the patterns on the first attempt. Once the operation is attempted at scale, though, the patterns start to emerge.

Organized crime organizations are often responsible for this ...