Offshore companies recur among money laundering methods when the owner behind them stays out of view. In Case Study 70 of Concealment of Beneficial Ownership, published by the FATF and the Egmont Group in July 2018, a couple directed a Dutch holding company and a Dutch operating company, founded a foundation and were the beneficial owners of an "Offshore Investment Holding Company". Agreements for directorship and nominee shareholder services appear to have been drawn up, and an employee of a trust and company service provider held signing powers on the offshore company's bank account. The couple decided whether money moved from the companies to the offshore company and on to the foundation, so the report calls them "the de facto managers".
What does offshore mean?
In corporate and business use, offshore (sometimes written off shore) says where a structure is registered. It says nothing about what the structure is for, and the word invites three misreadings.
Offshore is not illegal. Complex ownership and control structures, the FATF and Egmont report says, "are not, in and of themselves, unlawful" and often "serve legitimate purposes". What the law forbids is hiding income or ownership from the authorities owed it, which is where tax fraud begins.
Offshore is not the same as the tax haven list either. The EU's list of non-cooperative jurisdictions for tax purposes, adopted on 9 October 2026, names eight: American Samoa, Anguilla, Guam, Palau, Russia, the Turks and Caicos Islands, the US Virgin Islands and Vanuatu (Council of the EU). The British Virgin Islands and the Cayman Islands, the usual examples, are not on it.
And offshoring is a different word. It means moving work such as customer service or software development to another country, an operations choice with no ownership question attached.
The famous cases of abuse came out of leaks. ICIJ's Offshore Leaks Database names the people behind more than 810,000 offshore companies, foundations and trusts from the Pandora, Paradise and Panama Papers and earlier leaks. The Troika Laundromat, one of the biggest money laundering scandals, ran through a network of offshore companies.
What is an offshore company, and why is one set up?
An offshore company is incorporated in one jurisdiction and owned or run from another. Its common types are the international business company, the trust and the foundation, usually set up through a registered agent or another trust and company service provider, which under the FATF's definition can also supply its registered office or business address.
The common uses are ordinary. The same report links such structures to "commercial activities, entrepreneurial ventures, and the management of personal finances":
- holding investments or property for owners who live in several countries;
- a joint venture between partners from different countries;
- estate and succession planning.
Of the benefits these structures offer, confidentiality is the one the report flags, since "strict confidentiality laws that can be applied to trust arrangements" help keep the beneficial owner out of sight.
In comparison, an onshore company is incorporated where its owners live and trade, under the tax and reporting rules they already follow.
Which jurisdictions are known as offshore financial centers?
An IMF staff paper of 23 June 2000 defines an offshore financial center at its broadest as "any financial center where offshore activity takes place", and more popularly as a center offering "low or zero taxation; moderate or light financial regulation; banking secrecy and anonymity" (IMF background paper). Its Table 1 lists the British Virgin Islands, the Cayman Islands, Bermuda, Jersey, Guernsey, the Isle of Man, Seychelles and Panama among them, with Hong Kong and Singapore at the developed end.
The list is a 2000 snapshot. It says nothing about a country's AML risk today, and no ranking is implied.
How does a bank onboard an offshore company?
Table 1. Onboarding an offshore company, stage by stage (a typical file, as of October 2026).
| Stage | Input | Output | Who decides |
|---|---|---|---|
| 1. Registry check | Certificate of incorporation, registry extract, registered agent | The company exists, is in good standing and has a named agent | Onboarding analyst |
| 2. Ownership chain | Shareholder register, ownership chart, any nominee agreements | Every layer traced to the natural person who owns or controls | Analyst, with enhanced due diligence where layers are opaque |
| 3. Purpose | Business plan, contracts, the reason for this jurisdiction | A stated purpose the account's activity can be tested against | Relationship manager and compliance |
| 4. Source of funds | Statements, sale contracts, accounts | Where the money comes from | Compliance |
| 5. Tax status | FATCA and CRS self certification | The reportable status on file | Operations |
| 6. Monitoring | Expected activity from stage 3 | Alerts when activity departs from the purpose | Monitoring team and analyst |
Case Study 70 shows the possible consequences of an untested purpose: a company whose named directors and shareholders are not the people deciding where its money goes. With registers and tax reporting reaching further (next section), the weak point in 2026 is often stage 3, a purpose nobody tests against what the account does.
The case's own indicators are the red flags to read against stages 2 and 3:
- No business rationale for the structure. Complexity without a commercial reason is how a hidden beneficial owner stays hidden.
- Agreements for nominee directors or shareholders. The named people are not the ones in control.
- A service provider's employee with signing powers. Someone outside the ownership chain moves the money.
- No real business activity. A company that trades nothing may be an empty vehicle.
- An intermediary without apparent justification. The extra party adds distance, not function.
complead, formerly Sanction Scanner, follows owners, parents and controlling entities up the ownership chain to natural persons across jurisdictions and reports unresolved layers as gaps, which is the output stage 2 needs.
Which rules make offshore structures visible?
- FATF Recommendations 24 and 25. Countries must have adequate, accurate and up to date information on who owns and controls companies and trusts, in a register or another mechanism; R.24 was revised in March 2022 and R.25 in February 2023 (FATF Recommendations). The owner becomes findable by the authorities.
- Beneficial ownership registers. In the EU, obliged entities read them for due diligence and report discrepancies they find. The register is the first check of several.
- CRS. The OECD's Common Reporting Standard is the international standard for automatic exchange of financial account information, which more than 120 jurisdictions had committed to by March 2024 (European Commission). An offshore account no longer stays inside one country's files.
- FATCA. Passed with the HIRE Act, it has foreign financial institutions report on the assets of US account holders, and US persons report foreign assets (IRS). The US sees accounts held abroad by its taxpayers.
- DAC8. EU tax reporting reached crypto assets on 1 January 2026, with first reports due by 30 September 2027 (DAC8 page). Crypto held through an offshore company is reported too.
- The US beneficial ownership reporting rule. Since 14 August 2026 FinCEN takes owner reports from certain foreign companies registered to do business in the US alone, and US companies are exempt (FinCEN). The rule now looks outward.
None of these makes an offshore structure unlawful. Each one makes it easier to see.
What is new for offshore structures in 2026?
- 1 January. DAC8 took effect; data on crypto transactions of EU residents is collected from that date.
- 14 August. FinCEN's final rule narrowed beneficial ownership reporting to certain foreign companies.
- 9 October. The Council adopted the EU tax list of eight jurisdictions; the next revision is due in February 2027.
Related terms
- Front company. A real business used to mix illicit money with legitimate income.
- Trust and company service providers. The firms that form companies and act as agents, directors or nominees.
- Tax fraud. Deliberately evading tax owed, offshore or not.
- Ultimate beneficial owner. The person at the end of an ownership chain who holds the control.
- FATCA. The US law that makes foreign institutions report US account holders.
- Layering. The laundering stage that moves money through accounts and companies to hide its source.
How this entry was checked. Case Study 70 is quoted from the FATF and Egmont Group's July 2018 report on concealing beneficial ownership (printed p. 149), which also gives the indicators in H2 3. The other lines rest on pages opened on 29 October 2026: FATF Recommendations 24 and 25 and their revision table, the IMF's background paper of 23 June 2000, ICIJ's Offshore Leaks Database, the Council of the EU's list adopted on 9 October 2026, the European Commission's DAC2 and DAC8 pages, FinCEN's beneficial ownership page (updated 11 August 2026) and the IRS FATCA page (reviewed 24 September 2026). The onboarding table describes a typical file and is not a template. Melis Alparslan, Regional Sales Manager at complead, drafted this entry; Javid Khasayev, Senior Anti Fraud Specialist at GoldenPay, rereads every rule and date in H2 4 before it is published. Last reviewed: 30 October 2026.
