In 2020, Richard Gaffey, a U.S. accountant, was convicted for conspiracy to commit tax evasion, wire fraud and money laundering among others.
Why?
He advised his clients on the following:
establish shell companies with his assistance.
falsified ownership records. In one case, he claimed that the mother of his client, an elderly Guatemalan citizen (not liable for U.S. taxes) was the owner of a company, while his client (a U.S. taxpayer) actually controlled the company.
These shell companies were used to hold clients' assets and investments, effectively hiding them from the Internal Revenue Service (IRS) the body responsible to enforce and collect taxes in the U.S.
For one client, Gaffey created a fictitious company sale to explain the repatriation of funds to the U.S., avoiding proper tax reporting.
The use of shell companies was prevalent in this scheme, indicating how they can be abused for illegal purposes.
What is a Shell Company
According to Transparency International “A shell company is a legally registered business entity that lacks significant operations. It typically has no employees, minimal physical presence, and limited to no business activity.
They are often referred to as "mailbox companies" – they only have a registered address for official purposes.”
As the word states, they are like empty “shells” – they only exist from the outside!
Are Shell Companies Always Illegal?
The answer is No! Although shell companies are often used for illicit activities, they can also serve some legitimate purposes such as:
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