Category Archives: Tax havens

11.08.17
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Close down Gibraltar

This article was originally published in April 2017 on RT.com 

Image result for gibraltar tax haven

British sovereignty over Gibraltar stems from the same treaty that gave Britain a monopoly on the slave trade and granted Brazil to Portugal. It, like all these abominations, belongs in the dustbin of history.
The British ruling class have been frothing with belligerent outrage this week following EU President Donald Tusk’s comments on Gibraltar in his letter to Theresa May. Responding to the British Prime Minister’s letter formally requesting to leave the EU, Tusk noted that any agreement between the UK and the EU would not apply to Gibraltar without Spanish consent. The statement was hardly controversial in itself, given that all member states already have a veto over any agreement, such is the nature of the decision-making in the EU. As Stephen Bush commented in the New Statesman, by giving Spain a veto over the terms of a future trade deal, Tusk was giving it “a right which it already has an EU member”. Indeed, compared to Ms’ May’s thinly veiled threat to unleash terrorism against the EU should Britain not get the deal it wants, Tusk’s gentle reminder of the existing state of affairs was positively christlike.

 

Nonetheless, it was enough to provoke the full fury of British supremacism. The Sun newspaper devoted its entire front page to declaring “Hands off OUR rock” (helpfully translated into Spanish for the paper’s Iberian readers), whilst former Tory leader Michael Howard waded in with a threat to rerun the Falklands war. Current Tory defence minister Michael Fallon appeared to embrace this approach with a promise that Britain will “go all the way” to keep Gibraltar under British rule, a classic euphemism for the use of armed violence.  

 

All of this prompted a slightly bemused response from the Spanish, with Foreign Minister Alfonso Dastis commenting that his government was “surprised by the tone of comments coming out of a country traditionally characterised by its composure…it seems someone is losing their cool”, he added.

 

In fact, the longest rulers of Gibraltar were neither Spanish nor British, but North African Muslims. The word ‘Gibraltar’ itself comes from the Arabic name for the Rock – Jabat-at-Tariq, meaning “mountain of Tariq”. Tariq led the Ummayad conquest of Gibraltar in 711 and it remained, along with the rest of Spain, under Moorish control until 1462. Then, after two and half centuries of Spanish rule, Britain took the territory in 1704, its troops conducting mass burglary and rape, causing over 90% of the inhabitants to flee. In 1713, Britain forced Spain to cede the territory to Britain “in perpetuity” in the Treaty of Utrecht, turning it into another piece of Britain’s growing colonial jigsaw.

 

A glance at the map immediately reveals the strategic value of the tiny territory, especially to an Empire like Britain’s, based on control of the seas. The southernmost tip of Western Europe, Gibraltar lies just 8 miles from the North African coast, making the Strait of Gibraltar the narrowest ‘choke point’ on the Mediterranean. As a British naval base, it played a key role in the battle of Trafalgar, the Crimean war, and the World War Two campaign against German U boats. Following the misnamed ‘decolonial period’ in the 1950s and 60s, Britain took care to hang on to a series of such strategically placed territories to ensure it could continue to project military power against those of its former colonies that dared to challenge the new neocolonial dispensation. This covert empire included places like Diego Garcia, leased to the US as a crucial refuelling stop for its long-distance bombers following the ethnic cleansing of its native population; parts of Cyprus, regularly used to dispatch British fighter jets to the Middle East; Falklands, an air and naval base from which to intimidate Latin America; and Gibraltar.

 

Gibraltar’s strategic importance increased massively following the opening of the Suez canal in 1882, becoming a crucial point on the sea route between Britain and its empire in the East; today, fully one half of all world trade passes through the strait, including one third of oil and gas shipments.

 

But Britain’s strategically located islands and peninsulas are not only military bases; they also make up what leading tax haven expert Nicholas Shaxson calls a global “spider’s web” of tax evasion and money laundering. Following the end of (most of) Britain’s formal empire, lawyers, bankers and criminals from the City of London, New York and elsewhere, helped to turn Britain’s overseas territories into jurisdictions offering absolute secrecy to those seeking to hide their wealth from both the tax authorities and the criminal justice system. Effectively, places like Gibraltar, alongside other UK-managed territories such as the Cayman Islands, Bermuda, Jersey, Guernsey, the Turks and Caicos islands, and the British Virgin islands, were transformed into a giant global money laundering service. Local branches of the major London banks were established in each territory, taking in vast amounts of criminal wealth, which could then be safely transferred to each bank’s parent branch in London. Today, the developing world is estimated to lose $1.25trillion per year in illicit wealth transfers to tax havens in this way, around ten times the rich world’s aid budget. As Shaxson puts it, “For every dollar that we have been generously handing out across the top of the table, we in the West have been taking back some $10 of illicit money under the table”. Eva Joly, a magistrate involved in investigating the criminal use of tax havens, commented that “It has taken me a long time to understand that the expansion in the use of these jurisdictions has a link to decolonisation. It is a modern form of colonialism”.

 

Gibraltar is a major part of this criminal network. John Christenson, former Economic Advisor to Jersey, itself a major UK-run tax haven, noted that “the instruction from senior partners in London was to direct the really, really dodgy business away from Jersey to Gibraltar…[we] regarded Gibraltar as totally subprime. This was where you put the real monkey business”. This was apparently confirmed in 2014, when OLAF, the European anti-fraud office, revealed that it had “a number of concerns” over “cigarette smuggling across the border” between Gibraltar and Spain, including “indications of the involvement of organised crime”. The following year, Spanish newspaper ABC reported that Gibraltar was home to no less than 15 organised crime gangs connected to drug smuggling, money laundering and the Russian mafia. In 2008, Expatica.com  reported that, according to Spain, “Gibraltar refuses to cooperate in investigations into money laundering, tax evasion and organised crime”, quoting a Spanish police official involved in anti-money laundering operations as saying that “we’ve reached a point where when we chance upon something related to Gibraltar in an investigation we prefer to leave it aside because we face a brick wall. It is useless trying to get information.”

 

Indeed, this is the whole point of a tax haven: it guarantees secrecy to its depositors, protecting them from the taxman and criminal investigators alike. This is precisely what enables them to soak up so much of the world’s stolen wealth and channel it into London.

 

The secrecy offered by Gibraltar is astonishing. The beneficial owners of any company incorporated in the territory – that is, the ones actually taking the revenues – are not only kept private, but are not even submitted to the registrar of companies. ‘Nominee’ shareholders and directors can be used – that is, people not genuinely connected to the company in any meaningful way – and only one of each needs to be named. Gibraltar has signed no information exchange treaties with any other country, meaning that, according to taxhavens.biz, “information regarding offshore clients is safe and will not get back to other country’s tax authorities”.

 

Ah yes, tax avoidance. Gibraltar has no sales tax, no capital gains tax, no inheritance tax, wealth taxes or estate taxes. Since 2010, it has had a corporate tax rate of 10%, although it is currently under investigation by the European Commission for, probably illegally, exempting at least 165 multinational corporations from even paying this.  As Richard Murphy has noted, Gibraltar is “deliberately run as a tax haven with the intention of undermining [Spain’s] tax revenues.”

What’s more, this is all likely to get a lot worse unless action is taken. At present, Gibraltar is – at least in theory – bound by EU regulations on financial transparency. Once it leaves the EU, however, none of those will apply. This is why Spain, in particular, is so worried about Gibraltar being used to destroy its tax base even further. As Richard Murphy of Tax Research UK has pointed out, Gibraltar “is funded by its activity as a tax haven and centre for offshore gambling. The first activity is intent on undermining the global economy and the legitimate tax revenues of democratically elected governments. The other is wedded to destroying individual lives. Quite emphatically, this is a place that is dedicated to undermining wellbeing”. It is time it was closed down.

11.07.17
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Britain is the heart and soul of tax evasion

This article was originally published in April 2016 on RT.com

Image result for panama papers cayman islands

The British government’s claim to be tackling tax avoidance is about as credible as Al Capone claiming to be leading the fight against organized crime. In fact, Britain is at the heart of the global tax haven network, and continues to lead the fight against its regulation.

The 11 and a half million leaked documents from Panamanian law firm Mossack Fonseca have proven, once again, what we have already known for some time – that the ‘offshore world’ of tax havens is a den of money laundering and tax evasion right at the heart of the global financial system.

Despite attempts by Western media to twist the revelations into a story about the ‘corruption’ of official enemies – North Korea, Syria, China and, of course, Putin, who is not even mentioned in the documents – the real story is the British government’s assiduous cultivation of the offshore world. For whilst corruption exists in every country, what enables that corruption to flourish and become institutionalized is the network of secretive financial regimes that allow the world’s biggest criminals and fraudsters to escape taxation, regulation and oversight of their activities. And this network is a conscious creation of the British state.

You wouldn’t know this, of course, listening to the words of the British Prime Minister, who always casts himself on the side of the angels. In 2013, David Cameron hosted a G8 Summit claiming that he would lead a push for an end to the use of tax havens as a means for what he called “shady secretive companies” to hide their cash and activities. In the event, nothing of any substance was agreed, largely due to Cameron’s failure to conduct the necessary behind-the-scenes lobbying: the posturing, it seems, was designed solely for public consumption.

Even today, in response to the Panama Papers, Number Ten continue to claim that Cameron put tax evasion “front and centre” of Britain’s G8 presidency and is now “ahead of the pack” on tax transparency.” Keen to hype up what will no doubt be another round of empty rhetoric and BRICS-bashing, Foreign Secretary Philip Hammond has also chimed in: “We’ve got an anti-corruption summit here in May. This is a key agenda for the Prime Minister”.

What the Panama Papers demonstrate, however, is that the real, and hidden, key agenda for the British government is maintaining the offshore netherworld’s role as a conduit through which global funds, largely plundered from the global South, can escape democratic control to enter the City of London’s private banks.

Of the 215,000 companies identified in the Mossack Fonseca documents, over half were incorporated in the British Virgin Islands, one single territory in what tax haven expert Nicholas Shaxson calls a “spider’s web” of well over a dozen separate UK-controlled dens of financial chicanery. In addition, the UK was ranked number two of those jurisdictions where the banks, law firms and other middlemen associated with the Panama Papers operate, only topped by Hong Kong, whose institutional environment is itself a creation of the UK. And of the ten banks who most frequently asked Mossack Fonseca to set up paper companies to hide their client’s finances, four were British: HSBC, Coutts, Rothschild and UBS. HSBC, recently fined $1.9bn for laundering the money of Mexico’s most violent drug cartels, used the Panamanian firm to create 2300 offshore companies, whilst Coutts – the family bank of the Windsors – set up just under 500. And, of course, David Cameron’s own father was named in the papers, having “helped create and develop” Blairmore Holdings, worth $20million, from its inception in 1982 til his death in 2010. Blairmore, in which Cameron junior was also a shareholder, was registered in the Bahamas, and was specifically advertised to investors as a means of avoiding UK tax. The Daily Mail noted that: “Even though he lived in London, the Prime Minister’s father would leave the country and fly to Switzerland or the Bahamas for board meetings of Blairmore Holdings – to ensure it would not have to pay UK income tax or corporation tax. He hired a small army of Bahamas residents, including a part-time bishop, to sign its paperwork – as part of another bid to show his firm was not British-based.”
That Britain should emerge as central to this scandal is no surprise. For as Nicholas Shaxson, a leading authority on tax havens, put it when I interviewed him in 2011, “The City of London is effectively the grand-daddy of the global offshore system”. Whilst there are various different lists of tax havens in existence, depending on how exactly they are defined, on any one of them explains Shaxson, “you will see that about half of the tax havens on there, of the ones that matter, are in some way British or partly British.” These are essentially of three types. Firstly, are “Jersey, Guernsey and the Isle of Man: the crown dependencies. They’re very fundamentally controlled by Britain.” Next are the Overseas Territories, such as the Caymans, Bermuda, the Virgin Islands, Gibraltar and the Turks and Caicos Islands, in which “all the things that matter are effectively controlled by Great Britain”. Of course, it suits the British government to portray all these territories as ‘autonomous’ or ‘self-governing’ in order to provide itself with plausible deniability about what they are doing. But the reality is that the overseas territories are run by a governor appointed by the Queen on the British government’s advice. The governor, not the elected council, Shaxson notes in his book Treasure Islands, “is responsible for defence, internal security and foreign relations; he appoints the police commissioner, the complaints commissioner, auditor general, attorney general, the judiciary and a number of other senior public officials. The final appeal court is the Privy Council in London”. Casey Gill, one of the earliest lawyers specializing in offshore operations explained how legislation was devised in the Caymans: tax experts and accountants would fly in from all over the world “and say ‘these are the loopholes in our system’. And Caymans legislation would be designed accordingly”, often by a conglomerate run by Gill, before being sent to the British Foreign Office for approval. Shaxson asked Gill if Britain, who had the power to veto such legislation, ever raised any objections. “No,” he said, “Not ever. Never”.
Finally, “there are other countries that are either in the British Commonwealth or they have very long and deep historical links with Britain. All of these different networks feed money and feed the business of handling money into the City of London. And so the City is the biggest protector – the City of London Corporation but also the banks located in the City – huge defenders of the tax havens around the world.” Recently, the City of London Corporation has been negotiating with the Kenyan government on plans<http://africanarguments.org/2015/12/01/campaigners-warn-of-kenyas-secretive-plan-to-set-up-international-financial-centre/> to create an ‘International Financial Centre’ in Kenya, which will effectively turn Kenya into the first tax haven in mainland Africa.
The entire UK-controlled web is home to offshore deposits estimated in 2009 to be worth $3.2trillion, 55% of the global total: equivalent to roughly $500 for every man, woman and child on the planet.
In his book ‘Treasure Islands: Tax Havens and the Men Who Stole the World’. Shaxson describes how, in the 1960s, a “London-centred web of half-British territories” was “deliberately created” in order to “catch financial business from nearby jurisdictions by offering lightly taxed, lightly regulated and secretive bolt holes for money. Criminal and other money could be handled by the City of London, yet far enough from London to minimize any stink”.
Whilst ostensibly involved in a process of ‘decolonisation’, in fact the UK hung on to a large global network of small, sparsely-populated islands; “the British empire”, Shaxson wrote, “had faked its own death”. These islands were to serve the same imperial purpose the empire had always had: the projection of British power and the channeling of African, Asian and Latin American wealth into Britain. But whilst some of the islands, such as Diego Garcia and the Falklands, were to serve as crucial military outposts, many of the others were developed as a means of facilitating the financial plunder of the former colonial world. In Shaxson’s words, the role of these tax havens is to “capture passing foreign business and channel it to London just as a spider’s web catches insects” whilst also acting as a “money laundering filter that lets the City get involved in dirty business while providing it with enough distance to maintain plausible deniability”. Whilst the vast majority of critical media reporting on tax havens tends to portray the UK as a ‘victim’ of tax havens, the reality is that, just like the empire they replaced, these ‘treasure islands’ provide a massive cash injection into the ‘motherland’: “in the second quarter of 2009”, Shaxson writes, “the UK received net financing of US$332.5billion just from its three Crown Dependencies Jersey, Guernsey and the Isle of Man”. And where does this money come from? Obviously, it comes from all over the world; but wealthy European and North American nations have been much better equipped to prevent ‘capital flight’ from their territories than have developing countries. Indeed, the Bank of England took special care, when it was establishing the global tax haven network, to protect the UK from potential ill effects; a letter from the Bank of England quoted by Shaxson, written in 1969 and marked ‘secret’, writes of the new tax havens that “there is of course no objection to their providing bolt holes for non-residents but we need to be sure that in so doing opportunities are not created for the transfer of UK capital to the non-Sterling area outside UK rules”. As Shaxson comments, “No objection to the looting of other countries – so long as Britain was protected”. Of course, it is the poorest countries which are in the worst equipped to defend themselves against this looting.
In 2008, Global Financial Integrity estimated that flows of illicit money out of developing countries into tax havens were running at about $1.25 trillion per year, roughly ten times the total value of aid given to developing countries by the rich world. Shaxson himself originally came to be interested in tax havens whilst investigating the illegal West African oil trade. As he explains: “I began to see how the terrible human cost of poverty and inequality in Africa connected with the apparently impersonal world of accounting regulations and tax exemptions. Africa’s supposedly natural or inevitable disasters all had one thing in common: the movement of money out of Africa and into Europe and the United States, assisted by tax havens and a pinstriped army of respectable bankers, lawyers and accountants. But almost nobody wanted to look beyond Africa at the system that made this possible”. People, like Cameron, were more interested in handwringing about ‘corrupt African governments’ than in examining the system that enabled and promoted this corruption. Tax havens are facilitating the plunder, by the London banks, of African wealth. And they are doing so because this is what they were designed to do – to continue the extortion of colonialism, just at the moment Britain was forced to give up the bulk of its formal empire.
It is this system that Cameron’s government – in diametric opposition to its rhetorical flourishes – is working to perpetuate.  Indeed, much of Cameron’s battling with Europe has been driven precisely by the desire to maintain the impunity of the City and its web of tax havens in the face of attempts by the EU to regulate the banking sector. As the FT reported this week, “David Cameron personally intervened in 2013 to weaken an EU drive to reveal the beneficiaries of trusts, creating a possible loophole that other European nations warned could be exploited by tax evaders”. Britain has also led opposition to EU attempts to reforms that would make corporations register for tax in the places where they actually do business. And one of the key concessions Cameron managed to wring out of the EU Summit in February this year was that Britain, in the words of the Telegraph, “can now pull an emergency lever over eurozone laws they have “reasoned opposition” to, forcing leaders to hold back from implementation until their concerns are addressed”. The Telegraph then gives some revealing detail on exactly what kinds of laws might trigger Britain’s ‘reasoned opposition’: “The protections will address real concerns in the Treasury that the EU will develop a sprawling framework which will clamp down on the reckless “Anglo-Saxon” lenders which many on the continent still blame for bringing crisis to European shores back in 2009…In the aftermath of the last financial crisis, the UK had its fingers burnt over the EU’s decision to press ahead with a controversial banker bonus cap in 2012. …Other British battlegrounds include the much-resented Financial Transactions Tax, a radical attempt to impose a single levy on Europe’s financial sector. This was initially vetoed by the UK at the EU level, but is still being pursued by a group of euro states.” In other words, far from being hamstrung from taking action by the non-cooperation of other countries, the UK is the leading saboteur of any attempts to make the financial sector more accountable.
But of course, this is only natural. For accountability would bring the whole criminal enterprise crashing down.

11.06.17
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The ‘spider’s web’: Britain’s global money laundering network

This article was originally published in Counterpunch magazine in June 2016

Kwame Nkrumah was the leader of the Ghanaian independence movement in the 1950s, eventually leading the country to become the first black African nation to break free from British rule in 1957. But Nkrumah knew that the country he led remained tied into a colonial world economy, and would require much more than formal political independence to become truly liberated. He analysed the condition of political independence combined with economic dependence as ‘neocolonialism’ which, he argued, aimed “to keep [living] standards depressed” in the formerly colonized countries “in the interest of the developed countries” and to preserve “the colonial pattern of commerce and industry”. Specifically he noted “the financial power of the developed countries being used in such a way as to impoverish the less developed.” This short sentence describes precisely the main role of today’s global network of tax havens.
Whilst there is no single, internationally-agreed, definition of exactly what constitutes a tax haven, there is little disagreement on the broad contours of their appeal: the chance for capital to escape the regulation, scrutiny and tax laws of the society in which it was generated. Their scale and significance to the global economy is hard to overstate: according to Ronen Palan, one of the leading academic authorities on ‘offshore’ finance, tax havens hold an estimated 20% of all private wealth, process almost half the world’s stock of money, conduct 80% of international financial transactions and account for almost 100% of foreign exchange transactions (worth $2 trillion per day). It is not surprising, then, that 99 of Europe’s top 100 companies have subsidiaries in tax havens. As the investigative journalist Nicholas Shaxson has commented, “the offshore system is not just a colourful outgrowth of the global economy, but instead lies right at its centre”. But this has not always been the case. Whilst early tax havens began to take shape in the 1930s, their emergence as the world’s major financial centres coincided precisely with the end of (most) formal colonialism.
Whilst most of the British Empire had gained independence by the end of the 1960s, Britain retained control of a significant number of island outposts scattered around the globe. Some of these, such as the Chagos and Falkland islands, became outposts for the projection of military power. The Chagos islands, for example, were emptied of their indigenous populations and turned into a US base which has played a crucial role in the refueling of bomber jets on their way to the Middle East, as well as a staging post in the CIA’s notorious rendition programme. But most of the islands were destined for another, although linked, purpose: to act as financial vehicles for the continued looting of the former colonial regions, channeling their resources back to the imperial heartlands. Closest to home were the three Crown Dependencies of Jersey, Guernsey and the Isle of Man; then the fourteen Overseas Territories, mostly in the Caribbean; and finally a range of other jurisdictions such as Gibraltar and Hong Kong. Virtually all of these islands had become tax havens within years of the formal decolonization of the rest of the empire, and collectively represent around one half of all the world’s tax havens (however defined) today. With the exception of Hong Kong, all remain under the control of the British crown, with governor-generals appointed by London, and legislation subject to approval or veto by the British Foreign Office.
Once established, Britain’s network of tax havens created the competitive pressures that led other global powers to create their own offshore centres in response. As noted by Palan, Murphy and Chavagneux, “the British state and the British Empire emerged as the second [after Switzerland] and soon the dominant hub of the offshore economy…A City of London-centred economy emerged, closely linked to a satellite system of British dependencies. The British Empire economy combined tax avoidance and evasion with regulatory avoidance in a new synthesis known as OFCs [Offshore Financial Centres]. The powerful attraction of this London-centred offshore economy forced both the United States and Japan to develop their own limited version of OFCs, adopting a model originally designed in Singapore”. As Shaxson has noted, “It was Africa’s curse that its countries gained independence at precisely the same time as purpose-built offshore warehouses for loot properly started to emerge…The colonial powers left, but quietly left the mechanisms for exploitation in place”.
The main way in which tax havens drain the resources of the developing world is through their facilitation of illicit capital flight. Whilst this affects all countries, as Palan et al explain, “unlike illicit flows of money between developed countries, which tend to be multilateral (eg Swiss firms transfer illicit money to the United States, and US firms transfer money to Switzerland)…flows [from developing countries] tend to be one-directional, from the developing to the developed, from the poor to the rich”, with an estimated “80-90% of all illicit money transfers from the developing countries” thought to be “permanent outward transfers”. The result is illicit flows of $1.25 trillion per year out of developing countries, according to a 2008 report by Global Financial Integrity, ten times the total aid sent to the developing world. Palan and his colleagues note that “these sums are much larger than all other deleterious effects of development, including the transfers identified by traditional dependency theory”. 
 
According to Raymond Baker of Global Financial Integrity, fraudulent transfer pricing accounts for around two thirds of these illicit flows. This occurs when subsidiaries of multinational corporations either over-charge or under-charge another of their subsidiaries to avoid tax. An Exxon copper mine in Chile, for example, raised eyebrows in 2002 when it was sold for $1.8billion, despite being lumbered with $500 million debt and having been, at least on paper, consistently loss-making for the previous 23 years. What emerged is that the entire profits of the mine had been swallowed up in interest payments on a loan that had been taken out with Exxon’s Bermuda subsidiary. Thus the Bermuda subsidiary was making all the profit – tax free – whilst the mine itself was officially loss making, and did not pay a penny of tax to the Chilean government for the entirety of its existence. With one exception, this practice was being used by every single mining enterprise in the country. Given that 60% of all global trade is composed of such ‘intra-firm’ trade, and such deliberate mispricing appears to be the industry standard, this constitutes a massive drain of wealth: research by Christian Aid suggests that developing countries lose $160 billion per year to such practices. If these revenues were collected as tax and spent on healthcare in the same proportions as they have been since 2000, they note, this money would save the lives of 1000 under-fives per day. These practices are facilitated primarily by tax havens. 
The second largest form of illicit money flows from developing countries, constituting 30-35% of the total, is money from criminal enterprises. The secrecy provided by tax havens – which makes it nearly impossible to trace the owners of companies – along with the willful disinterest in how funds were acquired – makes tax havens a magnet for criminal funds seeking a ‘laundering’ service to clean dirty money.
Finally, an estimated 3% of the illicit money flows comes from government officials involved in theft and bribery. Whilst small as an overall proportion, however, such flows have had major consequences, as much of the money was stolen from international loans, leaving the public on the hook for ever-growing, and ultimately unpayable, debts. A major study of 30 African countries by Boyce and Ndikumana in 2003 found that for every $1 lent to Africa between 1970 and 1996, up to 80 cents flowed out of the country as capital flight within a year, often stashed away in the private bank accounts of corrupt leaders in tax havens. A further study of 33 African countries revealed that over $700 billion had fled the continent between 1970 and 2008, amounting to $944 billion including imputed interest. This dwarfs the total African foreign debt of $177bn, making Africa a net creditor to the rest of the world, by a huge margin (of $767billion). But whereas the wealth is held in private offshore bank accounts, the debt is owed by the population, with interest payments reaching $20 billion per year in 2006. Boyce and Ndikumana argue that such payments “represent the third and final act in the tragedy of debt-fuelled capital flight. In the first two acts – foreign borrowing in the name of the public, and diversion of part or all of the money into private assets abroad – there is no net loss of capital from Africa. What comes in simply goes back out again. It is when African countries start to repay these debts that the resource drain begins”. The authors have calculated that, by diverting public funds away from healthcare and towards debt repayments, “debt fuelled capital flight resulted in an extra 77,000 infant deaths per year”, not to mention deaths amongst other age groups, and losses to every other part of the public sector. Tax havens, by providing the facilities by which stolen money could be hidden and stored, have played a major role in facilitating debt-fuelled capital flight.
Not even the tax havens themselves appear to benefit. Despite the hundreds of billions passing through the Pacific tax havens each year, for example, they “remain among the poorest nations in the world” (Palan, Murphy and Chavagneux). And the Cayman islands – the world’s fifth largest financial centre, hosting 80,000 registered companies and holding $1.9 trillion in deposits, does not even provide subsistence to its population; the island’s budget for 2004-5 had as an objective that all residents should achieve at least subsistence levels of income – an astonishing admission for what is, on paper, one of the world’s richest countries per capita, with a population smaller than a typical English village. 
So, through transfer mispricing, money laundering, debt-fuelled capital flight and straightforward tax evasion, tax havens are facilitating the draining of over $1 trillion per year from developing countries. But once that money arrives in the tax havens, it doesn’t typically stay there. As Martyn Scriven, secretary of the Jersey Banker’s Association, explained to Nicholas Shaxson: “We gather deposits from wealthy folk all around the world, and the bulk of those deposits are sent to London. The banks consolidate their balances every day, and surplus funds won’t sit here – they either go to another bank or on and through to the City. If I have money to spare, I pass it to the father. Great dollops of money go into London from here”. Indeed, according to a recent UK Treasury report, “the UK has consistently been the net recipient of funds flowing through the banking system from the nine jurisdictions” covered in the report (six of the UK’s overseas territories plus its three crown dependencies, all of them tax havens). In particular, “The Crown Dependencies make a significant contribution to the liquidity of the UK market. Together, they provided net financing to UK banks of $332.5 billion in the second quarter of calendar year 2009, largely accounted for by the ’up-streaming’ to the UK head office of deposits collected by UK banks in the Crown Dependencies.” The report explains that “‘Up-streaming’ allows deposits to be gathered by subsidiaries or branches in a number of
different jurisdictions and then concentrated in one centre, in this case the UK, where the bank
has the necessary infrastructure to manage and invest these funds. This model is followed by
many large banks around the world and is not confined to ‘British’ jurisdictions”. 
 
In other words, the US and British banks use tax havens to gather wealth from all over the world using unregulated subsidiaries in tax havens, and then channel that money to their parent companies in London and New York. The UK report concludes that “in aggregate, the UK was a net recipient of funds from the nine jurisdictions of $257 billion at end-June 2009”, conforming to “the long-standing pattern that the UK has consistently been a net recipient of funds.” As Shaxson put it, the British-controlled tax havens “scattered across the world capture passing foreign business and channel it to London just as a spider’s web catches insects”. But this web also acts as “a money-laundering filter that lets the City get involved in dirty business whilst providing it with enough distance to maintain plausible deniability… By the time the money gets to London, often via intermediary jurisdictions, it has been washed clean”.
And once it gets to London or New York, it is pretty safe – the US success rate in catching criminal money, for example, is estimated by Global Financial Integrity to be around 0.1%. No wonder that Baker calls this system, ‘the ugliest chapter in global economic affairs since slavery’. For Shaxson, “the offshore world is not a bunch of independent states exercising their sovereign rights to set their laws and tax systems as they see fit. It is a set of networks of influence controlled by the world’s major powers, notably Britain and the United States”; and even the UK Treasury admits “the UK’s responsibility for representing their [the Overseas Territories and Crown Dependencies] interests in international fora”. 
Just as under formal colonialism, of course – and as Western media loves to point out – there are certainly also beneficiaries of tax havens in the global South. The ruling elites who have plundered their own countries and stashed the money abroad, from Mobutu in the Congo, to Marcos in the Philippines, Abacha in Nigeria and countless others, have become some of the world’s wealthiest people thanks to the ‘no-questions’ storage and laundering services provided by tax havens. Neocolonialism, as colonialism before it, has always relied on its indigenous collaborators. 
 
Likewise, there are also big losers from the tax haven system in the global North. Richard Murphy has estimated that £25 billion per year in tax revenues are lost to tax havens from the UK alone, and Shaxson notes that one third of Britain’s largest companies pay no tax at all. Furthermore, all countries, including the richest, have been forced to compete with tax havens by emulating some of their deregulated and low tax features in order to avoid capital flight offshore, with the result that, in Shaxson’s words, “in the large economies tax burdens are being shifted away from mobile capital and corporations and onto the shoulders of ordinary folk”. He adds that “overall, taxes have not generally declined [in the US]. What has happened instead is that the rich have been paying less, and everyone else has had to take up the slack”.
Nevertheless, what is beyond doubt is that the damage inflicted on developing countries by tax havens, in terms of world historic levels of capital flight, and measured in the deaths of literally hundreds of thousands of men, women and children is simply incomparable with the side effects suffered by the developed world. Equally incontrovertible is that it is the predominantly Western banks and multinational corporations that are the biggest winners from the explosion of offshore, as demonstrated by the net flows into US and UK-based institutions – institutions, that is, on which a massive and increasing proportion of Western citizens depend for their pensions.
This short essay has, by its nature, many omissions, barely scratching the surface of the mechanisms used by tax havens to drain the resources of the developing world. Neglected, for example, were the issue of double (non)-taxation; the role of offshore in creating financial crises in which developing countries suffer disproportionately (and following which Western corporations buy up bankrupted companies at far below their real value); and the crucial role of under-development itself in boosting Western profits, firstly by keeping third world wages low, and secondly by maintaining the West’s monopoly of hi-tech industry. Nevertheless, it has shown that whilst all countries are impacted by the tax losses, capital flight and illicit transfers facilitated by tax havens, it is the developing world which suffers the most inhuman consequences by a large margin; and at the same time, the net flows into London from its string of tax havens dwarf overall UK tax losses by a factor of around ten. Whilst I have not seen comparative figures for New York, I have no reason to disbelieve the UK Treasury’s claim that a similar pattern is at work. What is clear is that the US and UK, the world’s foremost neocolonial powers, are net (and huge) beneficiaries of the offshore system, relying on a string of ‘offshore’ territories over which they have effective control (places such as Panama in the case of the US) to provide ‘arms length’ banking services it would be politically difficult to provide at home. Nkrumah claims that “Neo-colonialism is…the worst form of imperialism. For those who practice it, it means power without responsibility and for those who suffer from it, it means exploitation without redress”. It would be hard to find a more precise example of this than in today’s empire of tax havens.