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Shelf Corporations and Trade Rings

Shelf Corporations | Business Identity Theft

Shelf Corporations and Trade Rings

Paper companies used for real fraud

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Shelf Corporations

Shelf corporations used for fraud

Stock certificate

A shelf corporation is a paper or shell corporation that is administratively formed and then "put on a shelf" for several years to age. A shelf corporation doesn't engage in any real business, but during the aging period some efforts may be undertaken to establish a credit history, file basic tax returns, open a business bank account, and other simple actions to demonstrate some activity.

Shelf corporations are legal and do have legitimate purposes. They are frequently used for holding personal or business assets. Another common purpose for the creation of a shelf corporation is as a turn-key business package that can later be sold to someone who wants to start and operate a company without going through the effort to form a new one; or, sold to and used by someone who may not otherwise qualify for a bank loan, line of credit, or government contract because they or their existing company do not have the required credit scores or a two to five year established business history. By purchasing a shelf corporation, an entrepreneur now instantly owns an established company that has been "in business" for several years without debts or liabilities.

Criminals can also create, purchase, and use shelf corporations. In some cases, they may use one with a name similar to a targeted legitimate company in order to specifically impersonate that company and deceive creditors or suppliers. In other cases, they may use a shelf corporation, or a series of shelf corporations, to appear to be a well established, legitimate business in order to defraud other businesses, lenders, or financial institutions.

"Shell and shelf companies typically have no physical presence other than a mailing address, have no employees and produce little, if anything, with independent economic value. They can be created domestically or in a foreign country. Shell and shelf companies are often formed by individuals and businesses to conduct legitimate transactions. However, they can be and have been used as vehicles for common financial crime schemes such as money laundering, fraudulent loans and fraudulent purchasing. By virtue of the ease of formation and the absence of ownership disclosure requirements, shell and shelf companies are an attractive vehicle for those seeking to conduct illicit activity."

FDIC Special Alert, April 24, 2009

Trade Rings

Patient criminals can manipulate business credit reporting systems by using multiple shelf corporations to report fictitious or inflated credit transactions between them over the course of a year or more.

By self reporting positive business credit transactions in this manner, the thieves are able to successfully build up a paper company into a seemingly well-established, creditworthy business.

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The thieves then use this business to target other unsuspecting businesses, creditors, and lenders and deceive them into extending credit. If a business credit report is obtained, the target company sees a mature business that has been operating successfully for several years with sterling credit - when in fact it is nothing more than an aged shelf corporation with a bogus, self reported credit history. The additional use of technology and virtual services helps to perpetuate the scam and further adds to the appearance of legitimacy.

Once the scam is complete, the thieves simply walk away and disappear, leaving defrauded businesses, creditors, and lenders to attempt to go after an empty company with no money or assets.

Trade Rings


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