A new book shows how tax havens undermine the rules, systems and institutions that promote the public good…

The City: purveyor of tax havens to the world

WORKERS, SEPT 2011 ISSUE

Treasure Islands: Tax Havens and the Men Who Stole the World, by Nicholas Shaxson, paperback, 329 pages, ISBN 978-1-847-92110-9, Bodley Head, 2011, £14.99.

This interesting and important book comes from Nicholas Shaxson, a vastly experienced financial journalist. He explains how offshore finance is centred on Britain, the EU and the USA – but above all on Britain. The International Monetary Fund (IMF) has identified Britain itself as a tax haven. The City of London runs half the world’s tax havens and holds more than $3.2 trillion in offshore bank deposits, half the world total. The City’s web stretches to the Crown Dependencies on islands dotted around Britain, to Britain’s Caribbean islands (particularly the Cayman Islands), to Asia and to Pacific atolls.

Some 830,000 companies are registered in the British Virgin Islands alone. One small office building in the Caymans is the registered address for more than 18,000 companies. Successive British governments approved the changes in the Crown Dependencies’ laws that let them aid and abet criminal activities. When the Labour government signed the UN Convention against Corruption in 2000, it exempted all the Crown Dependencies and British Overseas Territories.

One of the biggest tax havens in the world: Grand Cayman, in the Caribbean.
Photo: Debra James/Shutterstock.com

Shaxson notes, “More than half of world trade passes, at least on paper, through tax havens. Over half of all banking assets and a third of foreign direct investment by multinational corporations are routed offshore. … The IMF estimated in 2010 that the balance sheets of small island financial centres alone added up to $18 trillion – a sum equivalent to about a third of the world’s GDP … 83 of the USA’s biggest 100 corporations had subsidiaries in tax havens … 99 of Europe’s hundred largest companies used offshore subsidiaries.”

Developing countries lose $1.6 trillion a year to illegal capital flight. As Shaxson writes, “Africa’s supposedly natural or inevitable disasters all had one thing in common: the movement of money out of Africa into Europe and the United States, assisted by tax havens and a pinstriped army of respectable bankers, lawyers and accountants.”

Tax havens’ secrecy provides the necessary cover for tax evasion, bribery, corruption, money-laundering and the receipt of stolen loot. US law allows US banks to profit from the proceeds of foreign crime, making the USA the world’s largest receiver of stolen goods. Terrorists, drug smugglers, the Mafia, arms dealers, the CIA, corporations and corrupt politicians all use the same offshore system. Crime is built into the system. The City of London and Wall Street are financial pimps for the world’s crooks.

Corruption

Banks, accountancy firms and law firms are all involved in the price-fixing, bribery, corruption, money laundering and tax evasion. Banks lend billions of dollars, and law firms provide legal services, to help to develop and sell potentially illegal tax shelters.

Shaxson points out that US postwar aid to Europe was less than Europe’s capital flight to the USA. Under the Marshall Plan, US taxpayers paid for policies benefiting Wall Street. London’s Euromarkets in the 1950s gave US banks an escape from regulation. From 1965, US corporations could keep their money offshore, untaxed, i.e. they got free loans from the government.

He observes, “US corporations paid about two-fifths of all US income taxes in the 1950s; that share has now fallen to a fifth. The top 0.1 per cent of US taxpayers saw their effective tax rate fall from 60 per cent in 1960 to 33 per cent in 2007, as their income soared. Had the top thousandth paid the 1960 rate, the Federal Government would have received over $281 billion more in 2007.”

British corporations do even better: a third of Britain’s 700 biggest businesses paid no tax at all in Britain in 2006. Barclays alone has 315 tax haven subsidiaries: it paid £113 million in corporation tax in 2009 on global profits of £12 billion, a rate just a shade over 1 per cent.

Capital no longer flows into the most productive investments, but to where it can best evade laws and taxes. As Shaxson urges, we must “confront the British spider’s web, the most important and most aggressive single element in the global offshore system”. But proposals for reform come up short against finance capital.

Offshore thrives at our expense. To rebuild Britain’s manufacturing industry, we must be able to invest the capital we create, so we must defeat the offshore system and retrieve our capital. ■