One man has declared war on the world’s most powerful low-tax jurisdictions. Nicholas Shaxson tells Freddy Barker why his book has whipped up a storm in taxation circles
TAX HAVENS HAVE faced the treaty onslaught of the OECD and stared the leaders of the G20 in the eyes, but it is a new book, adopted by grass-roots tax-justice campaigners and the media alike, which is now causing them most aggravation.
Treasure Islands, a polemical yet erudite study by Chatham House associate fellow Nicholas Shaxson, argues that the most important tax havens are not the exotic, palm-fringed islands that we all imagine, but rather global financial centres. Headed by London and New York, the jurisdictions act as capitals of secret empires, exploiting their hand-in-glove relationships with former colonies to tap funds that would otherwise be deemed too dirty to handle. Considering the world’s 60 tax havens now process, at least on paper, more than half of world trade, one has to ask whether Shaxson’s sensationalist subtitle, Tax Havens and the Men Who Stole the World, might actually ring true.
Gathering the story was, according to Shaxson, an intriguing experience. In James Bond-like style, he was nearly honey-trapped on an island off Gabon by a bikini-clad woman whose modus operandi was absinthe. And, since publication he has been labelled by the establishment as an ‘imbecile’ with ‘no more than an eleven-year-old’s understanding of offshore finance’. But he feels that there is yet more to come, considering how politically explosive his exposé is. ‘For a while now I have been uneasy and had a “too damn quiet” feeling,’ he says. ‘There have been surface attacks that have been fairly easy to brush off, but I’m still waiting for something much meatier and nastier.’
So what propelled Shaxson into the fray? After all, he’s not the left-of-Marx figure many would have us believe; he lives in Switzerland, his favourite paper is the FT and he rates himself as six-and-a-half on a political scale of one to ten, ten being the revolution. ‘I hate being called left-wing but my primary motivation was a sense of injustice in the world,’ he says. ‘Tax havens offer escape routes for elites and they dump everything else on the working man — the system must change.’
The damage done already is, however, deep. Disciples of the doctrine ‘It’s not what you earn but what you keep’ have waged war on high-tax welfare states for close to a century. Their weapon of choice has been tax havens, proven by that fact that 99 of Europe’s 100 largest companies used offshore subsidiaries in 2009. By structuring their wealth in not one but many of these paradis fiscaux, HNWs have made it near impossible for domestic authorities to catch up with them.
Think of the poor HMRC bureaucrat confronted with a laddered trust — £10 million, for example, held in a Cayman trust and sitting in a Swiss bank account, meaning that the inspector must first overcome attorney-client privilege and then strong banking secrecy to gain access; even then, if he does, he might encounter a secretive Delaware aged-shelf company which would conceal the beneficiary’s identity and slow down his enquiry for months. When he eventually breaks through that, he’ll discover nothing at all, as the trust will have been layered with a Turks and Caicos flee clause, which would automatically have sent the £10 million elsewhere at the first whiff of an investigation.
The overarching incentive here, says Shaxson, is for the wealthy to take advantage of the low tax, impenetrable secrecy and light regulation — ‘In summary, to bypass the laws by which most of the world lives and to reap the benefits from society without paying for them.’
The argument isn’t a new one, though. The joke that income tax returns are the most imaginative fiction written today sums up the current consensus. High-profile entrepreneurs have been trying to lower their tax bills and escape regulation ever since the Twenties, when the UK government first started taxing companies on their worldwide income in order to pay for reconstruction after the First World War. Think of the Vesteys, the meat-packing billionaires of that era, whose grandson has since gone on record saying: ‘Nobody pays more tax than they have to. So we’re all tax dodgers, aren’t we?’
What is startling, however, is Shaxson’s assertion that the UK is at the heart of the offshore ruse. Britain, so the argument runs, was desperate after the Second World War to support sterling and bolster the City’s health. The quickest way to do that, argues Shaxson, was to attract dollars from New York which was suffering from the Great Depression’s regulatory hangover. By offering not so much low-regulation as no-regulation, Britain and its so-called Euromarkets fast became the world’s leading offshore financial centre. Fees rolled in and sterling was saved.
As the Fifties progressed, Britain exploited its overseas protectorates to catch money in a similar manner from major economies around the world: the Caymans attracted Americans, Cyprus hooked Russians and Hong Kong lured Chinese. The motive, says Shaxson, was to turn a crumbling empire into a network of offshore booking centres where the world’s wealthiest individuals and corporations, especially banks, could park their money, tax-free and in secrecy, at the same time as affording Britain plausible deniability. For an empire that shrank from 700 million overseas subjects to five million in twenty years, this was appealing.
‘The bookkeeping exercises involved one or two people sitting behind a desk on a palm-fringed island,’ explains Shaxson. ‘But the heavy-lifting work — the real business of hammering together big banking syndicates — was done in London. This umbilical, two-way relationship between London and its overseas satellites has remained a defining feature of the entire offshore system ever since.’
WHEN ONE QUANTIFIES the spoils of 21st-century colonialism, in which Britain went out the front door and came back in through the side door, a remarkable picture appears. In Q2 2009, the UK received net financing of $333 billion from the three Crown dependencies of Jersey, Guernsey and the Isle of Man. More amazingly still, the three Crown dependencies and six of the overseas territories accounted for more than 60 per cent of total financial flows within the offshore banking system in 2009.
So have we all sold our souls? Are we like Bono, who, while urging Western taxpayers to give to the poor in 2006, moved his band’s financial empire to Holland to cut its tax bill?
Shaxson thinks so. He sees the ‘Don’t tax us or we’ll leave’ argument as the reason that onshore looks increasingly like offshore. The result, he says, is large economies’ tax burdens are being shifted away from mobile corporations and on to the shoulders of ordinary folk. The evidence: the top 0.1 per cent of taxpayers saw their effective tax rate fall from 60 per cent in 1960 to 33 per cent in 2007 as their incomes soared.
The book concludes by saying that the status quo is unlikely to change. The havens are insulated from alternative viewpoints and potential uprisings are quashed by the authorities. The developed nations are protected, too, as the OECD blacklist — which has been empty since May 2009 — appears to be little more than a whitewash.
Rather than enforcing automatic information-exchange between jurisdictions, the organisation promotes a system whereby tax details are traded on request. When one learns that Jersey has handed over only ‘five or six cases’ to the US since signing the OECD agreement seven years ago, the scheme appears to allow the tax havens to claim transparency while continuing business as normal.
‘When the fox says it has done a good job repairing the henhouse, we should all be wary,’ says Shaxson.