Case study 4: Using shell businesses as a front for drug supply network
Case Study Series:
Over the coming weeks we will bring you a number of case studies. These are a reminder that money launderers will go to extraordinary lengths to make their funds look legitimate.
Case Study 1 - Accountant received funds on behalf of criminal - Read more
Case Study 2 - Using an accountant as an intermediary in the legal structure of a business - Read more
Case Study 3 - Accountant facilitated a round- robin tax evasion scheme - Read more
Case Study 4 - Using shell businesses as a front for drug supply network - Read more
Case Study 5 - Transnational drug dealing - Read more
In 2013 the High Court restrained around NZ$1.8 million worth of assets related to a drug supply network connected to a roading contractor.
The Crown alleges that the principal offender and a number of associates were involved in a national drug supply network that used the roading contractor’s roading and forestry businesses as a front to facilitate offending. The businesses provided ideal fronts for drug distribution and/or manufacture, providing the principal offender with a reason for local and domestic travel required for drug related transactions.
The offenders also appear to have used these companies to commingle the proceeds of the offending. Such businesses provide an opportunity to explain the illicit earnings from drug supply. The principal offender ensured that his businesses maintained good records of apparent earnings by using professional accountants. In addition to facilitation of predicate offending, the nationally dispersed business interests also would have provided an opportunity to select professional service providers which may have allowed the offenders to select professionals who would be unable to detect illicit activity. These types of arrangements could also allow criminals to seek remote professional services and/or to change professional service providers so as to prevent professionals gaining a full appreciation of any unusual business activity.
In this case, maintaining professionally facilitated business records and declaring earnings for tax helped the offenders to maintain an air of legitimacy.
Using such businesses as fronts for criminal activity may also make law enforcement investigation to establish illicit earnings more complex. However, despite the extensive and well documented earnings, corresponding legitimate business had not been established, giving a strong indication that the illegitimate earnings from drug supply were commingled with whatever legitimate earnings the businesses made. It was concluded that in this case, the offenders’ accountants were unwittingly involved in commingling the proceeds of the drug supply business with the legitimate business activity earnings.