An asset search covering a number of countries is sometimes necessary if monies the subject of a divorce, bankruptcy, or debt collection proceeding are hidden in a money laundering circuit. This can be true because [l]arge-scale money laundering schemes invariably contain cross-border elements,” as mentioned by the Financial Action Task Force’s webpage.

Domestic companies without active business or significant assets, (“shell companies”), should also be considered part of the money laundering landscape. According to a Financial Action Task Force June 23, 2006 summary, the beneficial ownership of these kinds of companies in Nevada and Delaware “…may not, in most instances, be adequate, accurate or available on a timely basis.  This is a vulnerability for the U.S. AML/CFT [anti-money laundering/counter-terrorist financing] system.”

The Internal Revenue Service also recognizes in its 2007 Dirty Dozen Tax Scams, that: “[d]omestic shell corporations and other entities are being formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity.”  Meanwhile, a Financial Crimes Enforcement Network November 9, 2006 advisory demonstrates that it too is aware of the misuse of shell companies to hide assets/launder money. Besides its November advisory, the Financial Crimes Enforcement Network issued a November 2006 report explaining that Delaware, Nevada, Oregon, and Wyoming may be “…attractive to those persons seeking to hide illicit activity within the framework of shell corporations.

That same report also mentions that only Alabama, Alaska, Arizona, and Kansas require a limited liability company to supply ownership information while, (depending on the structure of a limited liability company), 47 other U.S. jurisdictions do not. The misuse of shell companies is not just confined to money laundering. To cite just one example, in Dempster v. Overview Equities, Inc., 2004 slip op. 01149 ; 4 A.D.3d 495; 773 N.Y.S.2d 71 (2d Dept 2004) a divorcing husband fraudulently transferred the title of a residence to his newly created company in Delaware, which was most likely a shell corporation.  The husband made the property transfer to his Delaware corporation without valid consideration within weeks of the equitable distribution hearing in his divorce.

Copyright 2007-2019 Fred L. Abrams