A shell company is a business that exists primarily on paper. It may have minimal to no employees, physical office space, or ongoing business activities. While not inherently illegal, shell companies can be used for illegitimate purposes. Shell companies can be used to:

• Mask ownership: Someone hiding their involvement in a company or transaction could use a shell company. This can make it difficult to identify who is truly responsible for wrongdoing, making it harder for whistleblowers to expose them.
• Launder money: Shell companies can be used to funnel illegal funds through a series of transactions, making it difficult to trace the source of the money. This can be used to hide bribes or other forms of corruption that a whistleblower might try to expose.
• Move assets: Someone trying to avoid legal repercussions might transfer assets to a shell company to hide them from authorities. This could include assets gained through illegal activity that a whistleblower might be trying to bring to light.
• Evade taxation: Shell companies can set up in a tax haven and funneling income there through fake transactions, reducing taxable income reported in the high-tax country. Hiding assets in a shell company also makes it harder for authorities to determine a company’s true value and tax burden. Companies can manipulate transfer pricing between themselves and shell companies, shifting profits to low-tax jurisdictions and lowering their overall tax bill. Fake invoices for services provided by shell companies can be used to inflate expenses and further reduce taxable profits.

Whistleblowers can report this form of money laundering through the IRS whistleblower program.