Imagine you lived in a country whose upper echelons are constantly plagued by accusations of corruption and wham! A bombshell drops potentially revealing a modus operandi of how your hard earned money has been slipping away from you without you even noticing. Much like a magician’s trick, there’s a distraction coupled with a slight of hand and bundles and bundles of cash just disappears, never to be taxed again. There’s no point looking under the magician’s hat or in his sleeves because you won’t find anything, so the question is, where does it all go? The International Consortium of Investigative Journalists makes the big reveal; offshore shell companies.

An offshore shell company for our purposes is a company outside of Pakistan that has no actual active business and exists only in name, mostly with no physical presence or employees. The worst (or best if you want to make one) part about it is that it can be made in no time at all and with barely any hassle with the record time being under 5 minutes for a lady in Delaware USA. Not only that you can make a subsidiary of that company and further subsidiaries of that subsidiary for barely any cost at all.

All you have to do is select your offshore haven (say panama), select an intermediary to do your dealings for you (or do them yourself), call a registered agent (usually a law firm that will set up the company for you), select a name for the company, name a few directors, pay the cash and viola you’re done. At times, to further shield you and save you hassle; you can have your entire correspondence via email or on the phone and never have to go in person. Additionally, the registered agents offer you the option of hiring your board of directors for you, so that the names of you or your associates never figure in any documentation. These directors, called nominee directors, sign separate agreements with you to do your bidding for you and to allow you to access the funds of the company bank account at your pleasure. If things get ugly and an organization like the Federal Board of Revenue come knocking down the company door, they will only ever find these nominees and won’t be able to trace anything back to you.

This is the setup that the magician will have in place before he does his trick, robbing you blind right in front of your eyes. That’s not to say that there aren’t legitimate uses for shell companies, just that for the purpose of this article our focus is on debunking the magician’s trick before it is too late and you realize you don’t even have enough spare change for the ride home after the show.

So let us start with the beginning of the show, where the magician asks for props from the audience for his disappearing act, most likely to be money from that hard earned income of yours. He calls this phase of the show taxation.

Then there’s the distraction phase, meant to divert your attention from the actual slight of hand, usually in the form of female aides but in this case it could be a bus project or a motorway or a pension fund. You look at the shiny roads and vehicles and don’t notice the money being skimmed from the top under the head of miscellaneous expenses or kickbacks where government approval is required.

For the actual disappearance, the magician encounters problems for the first time thanks to Pakistan’s strict laws and the State Bank of Pakistan’s watchful eye. He knows he can’t make all that money go away at once so he ships it out in turns, a (relatively) small amount at a time.

So if your magician happens to be a high ranking politician or business tycoon, he’s likely to have a lot of friends and many of these friends would be more than happy to take an extra bag full of cash along with them on their next family vacation to Panama, possibly with the incentive of keeping some of the greens. All they have to do is not to forget to deposit the money in the shell company’s bank account before they come back.

Alternatively, he could use an underground money transfer system called the Hawala, where you give the cash you want sent out to the Hawala agent in Pakistan and he calls his colleague in Panama who would then transfer an equivalent of the amount you paid minus commission into your shell company’s bank account.

This money is now untraceable, given that the haven where your shell company resides has no obligation to disclose whose money that is and where it came from. Pakistan could knock on Panama’s doors forever and would never receive any information given that there are no international information exchange laws in place. In fact, the bank that holds the money would be sanctioned heavy fines for breaking the law if they decide to disclose any financial information about that money. And once the shell company starts buying assets with that money or transferring it to subsidiaries, the money becomes even harder to follow. The magician has succeeded in taking your money and even if you find out where it is, given the complete anonymity of the beneficial owner of a shell company, you won’t ever be able to pin it to him.

Bear in mind that the props don’t always have to be tax collected by the government but can also just be income that a person has made. Now normally, the said income is taxed when made but there’s also a tax on you on the basis of the total assets you possess at the end of the year. This means that the more wealth you collect, the more taxes you end up having to pay to the state, because it deems that to be your share of the required contribution. That sounds kind of unfair doesn’t it, given how hard you’ve worked to earn that money but despair not, for there are ways to save your taxes.

The first way would be to transfer a substantial chunk of your total income and assets into the shell company and claim that you have invested that money into the running costs of that company. Since that money is now in assets outside Pakistan, the state has no authority to tax it and it doesn’t form a part of your taxable assets here at the end of the year. That money is basically just sitting in the bank account in Panama, doing nothing but saving you valuable tax money that you would otherwise have paid had it been kept in a bank in Pakistan. In this way, you cheat the government out of taxes you ought to have given whilst keeping everything above board.

The other way is to send the money out in small shipments in ways already discussed, so that the said money never has to show up when you declare your taxable assets and income. If the Federal Board of Revenue come calling to your door asking where all that income went, you can simply say there was a sale in galleria and you went overboard.

Shell companies are also pretty useful if you’re a business enthusiast but some kill joy doesn’t let you do what you want with your money. So suppose you’re a member of parliament and you see ample scope in the textile mill industry but Article 63 of the Constitution of Pakistan won’t let you run a business for profit. Yes! The answer is a shell company. See, you’ve already come so far in the space of a thousand words and I’m quite proud of you. The anonymity of ownership means that you can direct the running of the business and pocket the profits without anyone ever finding out about your involvements. All you need is a subsidiary here, with a few nominees from Panama and some from Pakistan, which, given the dollars lining your pocket, shouldn’t be the hardest thing to manage.

I’m not saying all of this does happen for sure in Pakistan but I’d still be willing to bet my house that it takes place, which makes it our problem. If it isn’t our tax money being laundered, it’s taxes being evaded that could fund healthcare, education and employment. Awareness of the issue has already been achieved if you’re still reading at this point, which leaves only the next step. Action!