Criminals' methods of using "paper companies (shell corporations)" are evolving. A shell corporation exists only on paper and has no real operations.
In the past, criminals often set up shell corporations in tax havens for tax evasion. Now, people involved in various crimes, including voice phishing, stock tip-room scams, and illegal remittances of virtual assets, are said to be using shell corporations to avoid investigations.
According to a compilation of ChosunBiz reporting on the 1st, the number of shell corporations that prosecutors judged to be linked to crimes and petitioned the court to dissolve totaled 1,217 from 2020 through last year. That averages 243 a year. From January to September this year, prosecutors also petitioned the court to dissolve 194 shell corporations. The court granted most of the dissolutions, with the exception of one or two.
Voice phishing is one of the crime types where shell corporations are used the most. A man in his 20s, identified as A, is said to have created nine shell corporations from March to October 2022 by obtaining resident registration certificates and abstracts from applicants on a Naver cafe after saying he would "provide loans."
A was found to have created a main phone number under the shell corporation's name, opened 574 internet phone lines, and handed them over to a voice phishing ring in the Philippines. The ring allegedly used those numbers to defraud 24 people of about 560 million won by offering low-interest loans. A was indicted on Jul. 24, 2023, and recently received a finalized sentence of three years in prison at the Supreme Court for fraud and other charges.
Shell corporations are also used in stock investment tip-room scams. A man in his 60s, identified as B, was indicted on Jul. 24 last year on charges of creating a shell corporation in June to August 2023 with a homeless person as its representative, then opening a bank account and mobile phone under the corporation's name and handing them over to a tip-room scam ring.
The ring was found to have solicited investments in unlisted stocks on social media (SNS) and received 2.47 billion won in investment funds from 68 people through the mule account. B received a finalized sentence at the Supreme Court of one year in prison, suspended for two years, for aiding and abetting fraud and other charges.
Recently, shell corporations are also said to be used in hawala-style crimes using virtual assets. The Daegu Main Customs of the Korea Customs Service sent five members of a hawala ring to prosecutors on charges of violating the Foreign Exchange Transactions Act on the 1st of last month, for illegally remitting about 920 billion won in virtual assets over three years from February 2022 to February this year by using shell corporations.
They use shell corporations to evade financial tracing by investigators. The criminal members are said to carry virtual assets such as Tether (USDT) in personal coin wallets when entering the country from overseas or to transfer them to domestic exchanges. They then reportedly convert the virtual assets into cash at exchanges or private currency exchangers. At that point, they are said to deposit the cash into mule accounts opened under shell corporations' names and send funds to others, thereby evading investigators' scrutiny.