The Pandora Papers — named after the Greek myth of Pandora’s box — has laid bare the financial activities and dealings of several heads of state and government as well as notable politicians and businessmen across the world.

The investigation, involving some 600 journalists from media organisations including The Washington Post, the BBC and The Guardian, is based on the leak of around 11.9 million documents from 14 financial services companies around the world.

Some 35 current and former leaders from across the world are featured in the documents analysed by the International Consortium of Investigative Journalists (ICIJ) — facing allegations ranging from corruption to money laundering and global tax avoidance.

From Pakistan, Finance Minister Shaukat Tarin, Senator Faisal Vawda, PML-Q leader Chaudhry Moonis Elahi, Ishaq Dar’s son, PPP’s Sharjeel Memon, the family of Minister for Industries and Production Khusro Bakhtiar, PTI leader Abdul Aleem Khan and Axact CEO Shoaib Sheikh have been named among those with alleged links to offshore companies.

Revealed: List of all Pakistanis named in Pandora Papers so far

However, like the Panama Papers, those of us who are not so well-versed about the intricacies of finance and global regulations have all asked the same question: what exactly does it mean?

Here we attempt to answer some of the more common questions about offshore companies.

What are tax havens and offshore accounts?

According to the ICIJ, tax havens or offshore financial centres are typically countries or places with low or no corporate taxes that allow outsiders to easily set up businesses there.

"Tax havens also typically limit public disclosure about companies and their owners. Because information can be hard to extract, tax havens are sometimes also called secrecy jurisdictions," it says.

Offshore bank accounts and other financial dealings in another country can be used to evade regulatory oversight or tax obligations.

Companies or individuals often use shell companies, initially incorporated without significant assets or operations, to disguise ownership or other information about the funds involved.

Where are offshore accounts held?

Those looking to hide assets establish accounts in countries like Panama, the Cayman Islands, the British Virgin Islands and Bermuda, where the banking laws are designed to vigorously protect account owners’ identities.

There also are havens like the Isle of Man off Britain, Macau off China and the Cook Islands in the South Pacific

Some European countries like Switzerland, Luxembourg and Monaco have also served as havens for those trying to avoid taxes, though many nations have tightened banking laws to combat tax cheating.

Is it illegal to set up an offshore company?

Under the law, setting up an offshore company is not an offence or crime if the company is not involved in any illegal activity. However, those who have not declared these companies in their returns as assets can face legal action.

The News International's Umar Cheema, who was part of the research, writes that in Pakistan, the law requires the owners of such companies to declare them to tax authorities and the Security and Exchange Commission of Pakistan (SECP).

"Once that is done, there should be no legal implications unless a misrepresentation of facts is spotted in the declaration," he says, noting that for businesspeople, the offshore structure is helpful in expediting international projects.

For example, Finance Minister Shaukat Tarin said that the companies he was associated with were opened with the approval of the central bank at a time when he was trying to attract the investment of a foreign group for Silkbank.

According to the finance ministry's website, Tarin has been the main sponsor for the bank since March 2008.

However, the minister said that the deal fell through due to a law and order situation in the country and the companies were closed down. No accounts were created and not a single cent went in or came out, he said.

Legitimate uses for offshore accounts

Companies or trusts can be set up in offshore locations for legitimate uses such as business finance, mergers and acquisitions and estate or tax planning, according to the global money laundering watchdog, the Financial Action Task Force.

Further, wealthy people who live in countries with unstable political situations, high levels of corruption, or high levels of criminal activity such as kidnapping or extortion could use offshore accounts and the secrecy they provide for protection, and not necessarily to avoid taxes.

Cheema writes that Pakistani businessmen also opt for offshore companies as the country's economy is undocumented and "red-tape is pervasive".

"There is an incentive in evading taxes instead of paying them. Things are made difficult for those who want to comply with the laws. Consequently, many people opt for such structures where ease of doing business is promised," he noted.

Illicit uses of offshore accounts

Shell companies and other entities can be misused by terrorists and others involved in international and financial crimes to conceal sources of funds and ownership.

They’re an ideal vehicle for people “who want to keep their transactions secret to escape law enforcement or civil liability,” said Jack Blum, a Washington attorney who’s an expert on financial crime and international tax evasion.

Efforts to crack down on financial havens

The Financial Action Task Force and other regulatory agencies publish assessments identifying weaknesses in enforcement of anti-money laundering and counter-terrorism financing efforts of specific countries and territories.

Financial and legal professionals get training on how to spot potential violations, since in some cases lawyers and bankers are unaware they are handling illicit transactions.

The EU has stepped up efforts to crack down on tax avoidance by multinational corporations.