Correspondent Accounts and Shell Company Activity

As reported in the first SAR Activity Review, SAR filings continue to highlight suspicious activity involving suspected shell companies . i.e., corporations that engage in no apparent business activity and that only serve as a conduit for funds or securities. The SARs indicate that many of these shell companies appear to be incorporated or registered predominantly in Delaware and to a lesser extent in Nevada, Oregon, Utah, and Wyoming. As reported in SARs, this activity often highlights substantial wire transfer activity through correspondent accounts maintained by foreign banks at U.S.-based banks.12 In some instances, shell banks are referenced as parties to suspicious wire transfers through the correspondent accounts.

The SARs that report suspicious wire transfer activity through correspondent accounts and shell companies describe both basic and complex patterns of activity, including:

• complicated maze of unusual financial transactions;
• repetitive wire transfer patterns;
• lack of evidence of legitimate business activity;
• suspicion that shell companies are customers of a foreign bank that maintains a correspondent account at a U.S.-based bank; and,
• evidence of no business operations undertaken by the companies (as determined by due diligence exams conducted by the U.S.-based bank).

In several instances, the suspicious wire transfer activity involving shell entities and correspondent accounts has led the U.S.-based reporting bank to close its correspondent account(s) that it maintains with certain foreign-based banks.

Excerpted from SAR Activity Review Issue 2, page 18