Category: Ever Wonder Written by Rebecca Smith
Shell companies or ghost companies are infamous for their role in the illicit financial flow in the legal financial system. The illicit financial flow being the money laundering is done to bury the original source of the illegally gained income so that it cannot be traced back to the actual criminal deed. Shell companies are a cover used by bad actors for the purpose of money laundering as these companies exist without an actual location. The address verification solution is a way that can assist business organizations to be safe from getting involved in such illicit companies. In this blog, let us get an insight into shell companies and the significance of address verification.
The Network of Shell Companies and How they Operate?
Shell companies are paper-based company only and do not have any location in the reality. They do not have any address or any location. They just pretend to provide services or products and then pay for them with their illicit cash. Then the cash becomes legal as it is received through providing a product or a service. This cash can also be deposited in the bank accounts and fake invoices are used to legitimize the funds. These companies not only bypass anti-money laundering regulations but also to avoid paying tax.
The Consequences of Shell Companies for Businesses
Shell companies are illegal and any company found being involved with such companies can face severe consequences. This is the reason why while building B2B relationships, a business must be extra cautious about with whom they are getting themselves involved. The businesses are obligated to verify the business entity that they plan on doing any business with. If they lack the measures or proper framework to identify these ghost organizations and are found working with them, they can face fines as well as the permanent closure of their companies. Sometimes it can even lead to a time in prison. This is why it comes to the business organizations to protect themselves by taking strong measures to comply with the transparency protocols.
The guidelines of the transparency act require the business entities to provide the regulatory authorities with the beneficial ownership of their companies. Even financial institutions are required to provide the regulatory authority with the information of the beneficial ownership of their clients. This law was developed in 2019 to prevent money laundering and other criminal actvities through the use of shell or ghost companies.
How Address Verification can Help to Identify the Shell Companies
Address verification is a process of verifying the address of the business entity to ensure that it is a valid company and not a shell company. Shell companies, existing only paperwork does no have a real location. By verifying the address of the company, the shell company can be easily spotted and authorities can be immediately alerted. The address verification does not only verify the address of the company but can also verify the identity of the beneficial owners.
Now the AI-powered software is available that can perform address checks in no time. This address validation service not only saves time but perform these checks more accurately. The business entity can take the service of an address verification service provider.
How the process works is that the business entities have to verify the identity verification of the owner of the companies that they are dealing with. Then they are to verify the authenticity of the business by verifying their registration of the company or licence. Then the owner is supposed to provide the address of the company, along with a secondary document that contains the address of the company. The secondary document could be the utility bills or bank statement that contains the address. Then these documents are cross-checked to ensure that the address provided is legit and the company exist in reality and not a shell company based on papers.
To Sum it up
In short, shell companies are illegal companies that are used for illicit actvities like money laundering. In order for businesses to protect themselves from such illegal entities, they must perform address verification on companies that they make business dealings. This way they can verify the address of the entity and ensure that it exists for real and no only on paper.
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