Trade-Based Money Laundering, Capital Flight, and Tax Evasion through a Shell Company

Introduction:

This case demonstrates how a fictitious company exploited the banking system to launder large sums of money abroad under the guise of import transactions. The scheme involved the use of multiple bank accounts, fabricated documentation, and deliberate misrepresentation of commercial activity. The typology highlights vulnerabilities in trade finance, customer due diligence, and tax compliance mechanisms.

Background:

FinTRACA received multiple suspicious transaction reports (STRs) relating to significant outward remittances conducted by Company A. Following analysis of STRs, banking records, and supporting documents, it is identified that Company A had no verifiable physical presence and had provided inconsistent addresses to reporting entities. The company was established and operated by two young individuals, aged 25–26, raising further concerns about the legitimacy of the substantial financial activities conducted.

Way of working:

Between 2020 and 2023, Company A opened numerous bank accounts across different domestic banks.
Large amounts of cash were regularly deposited into these accounts by the company’s director and deputy director.
Immediately following deposits, the funds were transferred abroad via SWIFT under the declared purpose of importing solar glass and textiles.
Total outward transfers exceeded USD 11 million during the review period.
Despite these transfers, import records indicated that the company brought in only USD 2.33 million worth of goods during 2020, creating a discrepancy of more than USD 8.69 million.
Examination of invoices and documentation submitted by Company A revealed probable forgeries: several foreign counterparties listed on invoices did not exist as registered companies.
No corporate tax payments were recorded for Company A during 2020–2023, despite the large-scale financial activity.
The overall pattern suggested the company was a front used to channel funds offshore, possibly representing the proceeds of informal money service businesses (hawaladars) disguised as legitimate trade payments.

Red Flags / Indicators:

Company had no genuine physical presence and used multiple inconsistent addresses.
Young, inexperienced individuals acting as company directors despite handling multi-million-dollar transactions.
Multiple bank accounts opened across different institutions within a short timeframe.
Significant cash deposits inconsistent with declared business profile.
Immediate outward transfers abroad following cash deposits, without evidence of genuine trade activity.
Large discrepancy between value of outward remittances and actual imports.
Submission of suspicious or possibly forged invoices from non-existent companies.
Complete lack of tax compliance despite substantial financial flows.

Outcome:

The case was disseminated to law enforcement authorities on suspicion of money laundering, capital flight, tax evasion, and document forgery. According to reporting entity confirmations, the main suspects had left Afghanistan and remain under investigation by law enforcement agencies.

Updated On: May 2023