Cryptoasset Anti-Financial Crime Specialist (CCAS) Certification Practice Test

What does the term "shell company" refer to in terms of financial crime?

1. A legitimate business entity

2. A company with no significant assets or operations

3. A nonprofit organization

4. A publicly traded corporation

The correct answer is: A company with no significant assets or operations

The term "shell company" specifically refers to a company that has no significant assets or operations beyond its incorporation. Such entities are often created for various reasons, including facilitating financial transactions while obscuring the true nature of those transactions. Shell companies can serve as vehicles for money laundering, tax evasion, and other forms of financial crime because they can be used to disguise the identity of the parties involved and the origin of funds. Unlike legitimate business entities, which engage in typical commerce, or nonprofits that pursue charitable goals, shell companies typically exist on paper with minimal to no physical presence or legitimate business activities. While publicly traded corporations might have substantial operational capabilities, shell companies do not fit this description and often lack meaningful engagement in business activities, which is why they are viewed with suspicion in the context of financial crime prevention.