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 far, and who has been involved by watching this video. Thanks for watching TestTube News,

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