Shell Companies/ Paper companies/ firms, often with nominee directors are free of any obligation to publish their accounts. That helps stop outsiders from working out what they do or own, where they operate, who controls them and whom they really belong to.

Positive Uses of Shell firms:

Shell companies are perfectly legal and have many above-board uses. Firms may use them during mergers, to park assets during complicated transactions, or to fend off lawsuits in countries with predatory governments or corrupt courts. They can usefully protect trade secrets or safeguard directors from kidnappers or busybodies. They offer flexibility for entrepreneurs needing to move quickly. “Every company starts out as a shell”!

Misused?
They can also be misused—for tax evasion, money laundering, sanctions-busting or terrorism. A World Bank report last year, “The Puppet Masters”, investigated 817 big cases of corruption between 1980 and 2010. Almost all used shells.

One reason for their ubiquity is an American-led push against money laundering. New rules make it all but impossible for someone to open a bank account anonymously. As a result, shell companies have become the easiest way for a malefactor to hide his identity. The recent indictment of Wegelin, a Swiss private bank being sued for helping Americans to evade tax, is peppered with references to “sham” companies and foundations, set up in places like Panama and Liechtenstein to conceal the identities of the bank’s clients. Several companies, including global giants such as BAE Systems, have been caught using shells to pay bribes to officials posing as consulting firms.

Who to Blame?
Much of the blame for this goes to small-island jurisdictions, often derided as “sunny places for shady people”. Yet the biggest offenders are countries that pride themselves on their financial integrity. Britain (unlike most offshore locations) does not regulate company-formation agents. It even lets firms be founded with bearer shares, which, like cash, belong to whoever happens to have them with him at the time. Most countries have abolished these securities, under pressure from international financial regulators, but one British website offers same-day incorporation of a UK bearer-owned shell for a mere £142 ($227), within four to six hours.

merica is even laxer, because company formation is a job for the states, not the federal government. Formation agents are neither covered under anti-money-laundering rules nor required to report suspicious activity by firms they have established or administer. Reuters, a news agency, has shown that agents with dire records can be barred from doing business—but even then can soon start up again.

Tracing the real owners of private firms is harder in America than almost anywhere else. Some formation agents there do not ask for identity documents, let alone verify them, as Mr Sharman discovered when he posed as a would-be money launderer, as described in his book, “The Money Laundry”. One-eighth of all the shells found by the World Bank were incorporated in America (see table). Attempts at reform have got nowhere.

Offshore formation agents seethe at this: they have tightened their standards under pressure from big countries that do not practise what they preach and (worse still) are now stealing their business. Raúl Castro of Morgan & Morgan in Panama speaks of a “great sense of injustice”. Big countries are increasingly demanding that offshore companies prove they have “substance”, such as real offices and employees, in order to qualify for benefits under bilateral tax treaties.

Banking the profits

Miscreants will find little use for a company unless it has a bank account. That in theory should be a tightly guarded gateway to the world of respectable business. Mass incorporators typically offer bank accounts too, creating a symbiotic relationship between the smithies of corporate identity and the money men. “The two can’t live without each other,” says a financial-transparency expert at a multilateral institution.

In many or most cases that may be perfectly legal. But the potential for abuse is huge. Banks with big offshore businesses have been known to offer their employees incentives to sell corporate vehicles. A former UBS employee who left in 2008 says that the member of his department who had sold the most shells the previous month received a gift and a bonus. All were expected to sell at least a dozen a year. Bankers kept incorporation forms for various offshore structures in their drawers. Once a week some of them would go to Liechtenstein to get the paperwork for the latest batch of foundations stamped. UBS declined to comment. Such practices may no longer be widespread. But the Wegelin case shows how easily they attract American prosecutors’ attention.

Having got offshore jurisdictions, at least, to find out more about their customers and keep better records, and with banks quivering in fear of American ire, the next push is towards regulating the booming company-formation industry. Hong Kong and the Netherlands are mulling the idea of introducing regulation within the next three years. Even Britain and America may impose a duty to report suspicious activity. By the murky standards of the past, even that would be a welcome change.

Link to the article: http://www.economist.com/node/21552197?fsrc=scn/tw/te/ar/theysellseashells

Kabhi kabhi mere dil mein khayaal aata hai
Ki ye badan ye nigaahein meri amaanat hain
Ki ye badan ye nigaahein meri amaanat hain
Ye gesuon ki ghani chhaon hain meri khatir
Ye honth aur ye baahein meri amaanat hain
Ye honth aur ye baahein meri amaanat hain

Kabhi kabhi mere dil mein khayaal aata hai
Ki jaise bajti hain shehnaaiyaan si raahon mein
Ki jaise bajti hain shehnaaiyaan si raahon mein
Suhaag raat hain ghoonghat utha raha hoon main
Suhaag raat hain ghoonghat utha raha hoon main
Simat rahi hai tu sharma ke apni baahon mein
Simat rahi hai tu sharma ke apni baahon mein

Kabhi kabhi mere dil mein khayaal aata hai
Ki jaise tu mujhe chaahegi umr bhar yoohin
Uthegi meri taraf pyaar ki nazar yoohin
Main jaanta hoon ki tu geir hai magar yoohin
Main jaanta hoon ki tu geir hai magar yoohin

Kabhi kabhi mere dil mein khayaal aata hai
Kabhi kabhi mere dil mein khayaal aata hai

Well, there is a remixed version of this song, which is pretty good to watch as well –

Information technology and services may have powered India to be one of the world’s fastest-growing major economies, but manufacturing accounts for just 16 percent of output, roughly half of the share in China and far behind India’s targeted 25 percent over the next decade.

“We have lost all of the electronics manufacturing base, whatever little we had,” said Sam Pitroda in an interview on the sidelines of a World Economic Forum event in Mumbai.