Illegal Shell Corporations

by Norris Law Group on August 5, 2014

Illegal Shell CorporationsThe previous edition of our blog introduced the idea of “shell corporations.” Large and small businesses may set up shell corporations for a variety of reasons. If these reasons are within the bounds of the law, shell corporations can be a great vehicle to help a business gain tax benefits, maintain the reputation of its brand, or simplify mergers and acquisitions.

Sometimes, however, businesses try to set up shell corporations for far more “nefarious” reasons. If you are considering setting up a shell corporation, you must know what you can and cannot do legally through a shell corporation. Author Joe Goldman explains the difference in a recent article for Equities.com.

Illegal Shell Corporations

Examples of illegal shell corporations may include (but are not limited to):

  • “Money laundering.” Shell corporations are often not required to submit a great deal of tax documentation, so some businesses use them to launder “ill-gotten gains” such as drug money or stolen money to avoid paying taxes on such funds.
  • “Bankruptcy fraud.” Shell corporations are also sometimes used to hide assets during a bankruptcy proceeding so that these assets won’t be sold or given away in order to fulfill obligations to creditors.
  • “Billing schemes.” For example, a consultant may set up a shell corporation and say that she has hired this shell corporation to provide services to a large company that hired the consultant. But then the consultant has the large company pay the shell corporation for these services (which are never actually rendered). In effect, the large company is actually paying the consultant directly without knowing about it. If the company is large enough and deals with a number of consultants, they may never figure it out.
  • “Market manipulation.” Shell corporations may be used to facilitate “pump and dump” schemes, or fraudulent stock offerings. In such a scheme, an existing public company might tout the value of a shell corporation in order to drive interest and increases in its stock prices. But once the stock price has risen and money has been made by those manipulating the stock price, then the shell corporation is revealed to be a fake.

All of these uses for a shell corporation are completely illegal and are not advised. Remember: the “feds” chased legendary Chicago mobster Al Capone for years, but they finally got him on tax evasion.

Attorney Graham Norris and his associates at the Norris Law Group serve the residents of Utah County, UT and throughout Utah, Wyoming and Idaho. Contact them today at 801-932-1238 or online for a free consultation.

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