In April 2016, the release of information about an 11 and a half million document leak,
known as the Panama Papers, shook the world.
These documents detail how a law firm based in Panama, Mossack Fonseca, established shell
corporations on behalf of some of the most powerful people in the world.
These companies were used to avoid taxation, circumvent sanctions, and launder money.
So, how do they do that?
What exactly is a shell company?
Well, as it turns out, these companies are not actually illegal.
A shell company is simply an organization that doesn’t produce anything or employ
anyone, and exists solely on paper.
Most of the time, shell companies don’t even have an office or phone number, and often
the owner of the company is kept hidden or made anonymous.
Their purpose is to serve as a front for another business or individual, which can then be
used for legal or illegal purposes.
Legal uses can include creating a shell company to serve as the basis for a start-up, which
doesn’t have any assets or business yet, but still has to exist as a legal entity.
Alternately, shell companies can be used to mask business deals on behalf of companies
that may not want to be seen doing business together in public.
This is legal, although arguably dishonest.
But shell companies are much more renowned for operating illegally.
One such use is for money laundering.
Since shell companies do not trace back to their owners, those who need their money laundered
can wire it into accounts held by their shell company.
This money is then claimed as business income, often in countries like Panama, with low or
nonexistent tax rates.
This laundered money ends up back in the owner’s pocket, without it being taxed, or anyone
knowing where it came from or where it went.
And even legally obtained funds can be funneled through a shell corporation to avoid taxes.
The way this works is that companies invest a portion of their profit into offshore shell
companies, thus claiming it as an investment, and not profit.
Since only profitable income is taxed, corporations are able to keep their money overseas, tax-free.
It is estimated that more than 2 trillion dollars of profit is kept in offshore accounts
like these.
One of the most egregious offenders is Apple, which reportedly holds $180 billion dollars
overseas.
These secretive accounts can also be used to spend money illegally, especially to avoid
international sanctions.
The Panama Papers have thus far revealed that the Syrian government was able to use shell
companies to bypass sanctions, and to purchase fuel for military purposes in the Syrian Civil
War.
So while shell companies are not necessarily illegal, what many do with them, is illegal.
Within just days of the Panama Papers’ release, the Icelandic Prime Minister was forced to
step down after evidence of his impropriety surfaced.
It is doubtless that other world leaders who tried to use shell companies to hide their
actions will soon face a similar fate.
So what exactly is in the Panama Papers?
Find out by watching a quick recap of what we know so far, and who has been involved
by watching this video.
Thanks for watching TestTube News, don’t forget to like and subscribe for new videos
every day.