Offshore Shell Companies: What Do Investigative Authorities Look At?
A summary of the points that investigative authorities actually examine in cases where offshore corporate structures become an issue.
Establishing a corporation overseas is not, in itself, illegal. However, once an investigation begins, what that corporation actually did immediately becomes the key issue.
The first thing investigative authorities look at is the direction of funds. They check how funds returned after being sent out, and whether there are transactions corresponding to that flow.
Next is where decisions were actually made. Records such as where board meetings were held and who reviewed the contracts become the basis for judging substance.
Without real employees, an office, or actual accounting practices, the structure is easily assessed as existing in form only.
As the collection of evidence through international cooperation increases, the old assumption that overseas records would not be verifiable no longer holds.
Therefore, building substance alongside the structure at the design stage is the only real defense.
If the transaction has already taken place, the work must begin with organizing the remaining records so that the substance can be explained.