Explanation
The data points that the compliance team should include in its data analytics program to detect shell or front company red flags are entities whose principal place of business is a non-residential address and entities transacting with or having relation to tax haven or high-risk countries. These data points may indicate that the entities are not conducting legitimate business activities, but rather are used to conceal the identity or location of the true beneficiaries or owners, or to facilitate money laundering, tax evasion, or other illicit activities.
Some of the sources that support these data points as red flags are4567:
Entities whose principal place of business is a non-residential address may indicate that they have no physical presence, operations, assets, or employees. They may use addresses such as post office boxes, mail forwarding services, registered agents, or virtual offices to avoid detection or scrutiny.
Entities transacting with or having relation to tax haven or high-risk countries may indicate that they are involved in offshore financial activities that are designed to evade taxes, regulations, or sanctions. They may also be exposed to higher risks of money laundering, terrorist financing, corruption, or fraud.
References:
How to Identify a Shell Company and the Associated Red Flags
Difference between Shell, Shelf & Front Company | Sigma Ratings
Shell Companies and Money Laundering | ComplyAdvantage
General Comments Incorporation of shell companies - Singapore Police Force