Fraudsters and money launderers often rely on shell companies—entities with no real operations, staff, or assets—to mask illicit financial flows. These ghost firms serve as conduits for fraudulent transactions, enabling criminals to obscure the origin and destination of “dirty” money. The use of such companies spans global investment scams, government relief fraud, and large-scale laundering operations. When law and accountancy firms inadvertently act for these entities, they risk regulatory breaches, reputational damage, and legal sanctions.
 
Real-World Shell Company Schemes – UK and US

COVID-19 Relief Fraud in the U.S.

In 2020, three individuals in Florida and Massachusetts deployed shell companies to siphon nearly $2 million in U.S. COVID-19 relief funds. After compromising a business email account, they tricked victims into wiring $900,000 into accounts they controlled. They then laundered the proceeds through a web of shell entities before applying for forgivable loans under the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) schemes【^15】.

UK Invoice Factoring Fraud

In early 2024, five people—led by convicted fraudster Neale Rothera—used four sham companies claiming to sell furniture and carpets to defraud banks of £562,901. The firms exploited invoice factoring agreements with false customer invoices. Once funds were released, the conspirators withdrew cash or transferred it offshore, leaving banks unable to recover the money【^18】.

$3 Million Construction Invoice Scam

Between 2016 and 2017, a group in California set up six shell companies to submit fake construction invoices to The Beck Group for a Houston hotel project. Charles Williams, who pleaded guilty to wire fraud and money laundering, and his co-conspirators inflated invoices for non-existent services, embezzling over $3 million. Despite internal controls, the scheme persisted with help from an insider who approved the fraudulent bills【^16】.

Global Money Laundering Hotspots

High-profile scandals have highlighted how layered shell entities facilitate cross-border laundering:

  • Danske Bank: Its Estonian branch processed roughly €200 billion in suspicious transactions via shell firms, prompting executive resignations in 2018【^17】.
  • 1MDB: Billions of dollars were diverted from Malaysia’s sovereign wealth fund through a maze of offshore entities in a scandal exposed in 2015【^17】.
  • Panama Papers: Leaked 2016 documents revealed over a million shell companies used by the ultra-rich to evade taxes and launder money【^17】.
  • Pandora Papers: In 2021, 12 million files uncovered fresh networks of shell firms tied to global elites and illicit finance【^17】.

Companies House Crackdown

In July 2025, UK authorities struck off 11,500 companies from the register after finding no real business activity at key addresses. Many shell entities failed to meet Registered Office requirements, with one London address hosting up to 5,000 suspect firms. The National Economic Crime Centre led a multilateral blitz involving the NCA, HMRC, and regional police forces, highlighting how corporate registration abuse underpins an estimated £100 billion in annual money laundering【^19】.
 
Risks for Law and Accountancy Firms

Advising or providing services to shell companies exposes firms to significant dangers:

  • Regulatory sanctions if firms fail to carry out adequate due diligence.
  • Reputational harm when associated with high-profile fraud cases.
  • Potential civil or criminal liability under anti-money laundering (AML) laws.
  • Disqualification or fines under the upcoming failure-to-prevent-fraud offence.

Accountancy practices and law firms must therefore rigorously apply “know your client” (KYC) protocols to avoid unwittingly becoming facilitators of crime.
 
Countermeasures: Due Diligence and Red Flags

Effective defences against shell-company abuse hinge on robust client onboarding and continuous monitoring. Key steps include:

  • Performing enhanced due diligence (EDD) for high-risk clients, including politically exposed persons (PEPs) and overseas entities.
  • Scrutinizing beneficial ownership to pinpoint ultimate beneficial owners (UBOs).
  • Verifying identities against independent sources (e.g., government databases, credit bureaus).
  • Screening all parties for sanctions, adverse media, and regulatory watchlists.
  • Screening all parties for the signs – or the absence of – genuine business activity.

Recognising common red flags can help intercept fraudulent entities:

  • Addresses that are PO boxes, virtual offices, or in high-risk jurisdictions.
  • Unusual ownership structures with multiple intermediary companies.
  • Frequent changes of directors or registered office without clear business rationale.
  • Invoices for goods or services that lack verifiable counterparties.
  • The absence of verifiable market outreach activity involving e.g. media, social media, marketing, sponsorship, charitable activities and customer reviews.
  • Large or unusual transactions inconsistent with the client’s stated business.

 
ECCTA Reforms at Companies House

The Economic Crime and Corporate Transparency Act (ECCTA) of 2023 ushers in the most significant Companies House overhaul since 1844, strengthening the register against abuse【^10】. Key measures include:

  • Mandatory identity verification for directors, people with significant control (PSCs), and anyone filing on behalf of a company. Transitional arrangements begin in March 2025 for new incorporations, with a 12-month window for existing entities to comply【^10】.
  • A new “failure to prevent fraud” offence effective 1 September 2025, holding companies liable for fraud by employees or agents unless “reasonable procedures” were in place【^2】.
  • Enhanced powers for Companies House to query, reject, or remove filings suspected of being fraudulent, and to pursue civil or criminal referrals.
  • Requirement for all companies to maintain a registered email address, confirm lawful purpose on incorporation and annual confirmation statements, and use “appropriate” registered office addresses (no PO boxes)【^10】.
  • Introduction of Authorised Corporate Service Providers (ACSPs) who must be AML-regulated to perform identity verification on behalf of clients, with registration opening from March 2025【^13】.

Despite these reforms, surveys show just 2.86% of the estimated 7 million directors have completed ID verification, and only 28% of company directors feel ready for the changes【^1】. Firms must therefore accelerate compliance efforts now.
 
Preparing Your Firm for Compliance

To navigate the new landscape, law and accountancy firms should:

  • Update client engagement protocols to include ECCTA compliance and ID verification.
  • Train staff on recognising shell-company red flags and conducting EDD.
  • Invest in technology for automated KYC/AML screening and beneficial-ownership tracking.
  • Register as an ACSP or partner with an authorised provider to manage Companies House filings.
  • Review internal fraud-prevention procedures to meet the “reasonable procedures” defence.

By embedding these practices, firms can safeguard their credentials and play an active role in combating corporate abuse.
 
Conclusion

Shell companies remain a potent tool for fraudsters and money launderers worldwide. Recent high-profile cases underscore the need for vigilance by professional service providers. With ECCTA reforms reshaping Companies House and intensifying due-diligence demands, law and accountancy firms must act now to fortify their defences, ensure compliance, and protect the integrity of the business environment.
 
[^1]: Exclusive: 1 in 5 firms shift addresses ahead of Companies House reforms
[^2]: UK firms unprepared for Companies House crackdown; failure to prevent fraud offence from 1 Sept 2025
[^10]: Economic Crime and Corporate Transparency Act: outline transition plan for Companies House
[^13]: Authorised Corporate Service Provider (ACSP) registration opens 24 March 2025
[^15]: Three Men Who Allegedly Used Shell Companies to Exploit COVID-19 Relief Programs
[^16]: Man behind shell companies sentenced in $3M fraud scheme
[^17]: Top 4 Money Laundering Cases Involving Shell Companies
[^18]: Five Convicted for £500,000 Shell Company Money Laundering in Leicestershire
[^19]: UK Strikes Off 11,500 Companies in Crackdown on Fraud and Shell Entities