Shell Company

A huge cache of 11.5 million documents from a little known firm in Panama, Mossack Fonseca, has shown to the world how the rich and powerful have hidden their wealth from the public eye. While some of it could be legitimate, the bulk of these activities are either criminal money or to hide them from their tax authorities.

Nothing else explains why the people concerned should create shell companies in Panama, whose purpose is to hide the income and the real owners of these companies. Investopedia explains that a shell corporation is a corporation without active business operations or significant assets.

Shell corporations are not necessarily illegal or illegitimate, as they often serve an important for potential startups. Additionally, shell corporations can act as a tax avoidance for legitimate businesses. Shell corporations are often formed before commencing operations to obtainfinancing.

Sometimes, they may be used as a front in tax evasion. Shell corporations however are legal entities in most countries, although they have been known to be used in black or gray market activities. They should not be confused with dummy corporations however, as those are created specifically for the purposes of illegal activity.

Banks in Panama, Isle of Man, Virgin Islands, Cayman Islands, Luxembourg, Mauritius etc provide little or no financial information to foreign tax authorities. Money can be moved anytime into accounts of companies whose real owners are hidden. Some 2,14,000 of such companies had registered with Mossack Fonseca to hide their deals in Panama.

Open Society Foundations writes that terrorists, drug traffickers, corrupt politicians and criminals easily move money around the globe every single day. They use shell corporations, which have no assets or operations and exist simply to conduct business transactions. Shell corporations serve no legitimate business purpose other than to hide their true owners and officers.

Transparency International opines that governments should establish mandatory, public registers that disclose the beneficial ownership of trust funds and companies. Public registers of beneficial ownership would allow ill-gotten gains to be more easily traced and make it more difficult and less attractive for people to benefit from the proceeds of corruption and crime. After the "Panama Papers" leak, the US is mulling forcing banks to seek the identities of people behind shell-company account holders, which India can follow.