excerpts from the book

Treasure Islands

Tax Havens and the Men Who Stole the World

by Nicholas Shaxson

The Bodley Head, London, 2011, paperback


Gabon became independent in 1960, just as it was starting to emerge as a promising new African oil frontier, and France paid it particular attention. The right president was needed: an authentic African leader who would be charismatic, strong, cunning and, when t mattered, utterly pro-French. Omar Bongo was the perfect candidate - he was from a tiny minority ethnic group and had no natural domestic support base, so he had to rely on France to protect him. In 1967, aged just thirty-two, Bongo became the world's youngest president, and France placed several hundred paratroopers in a barracks in Libreville, connected to one of his palaces by underground tunnels. This deterrent against coups proved so effective that by the time Bongo died in 2009 he was the world's longest-serving leader.

... In exchange for France's backing, [Gabon's president] Bongo gave French companies almost exclusive access to his country's minerals on highly preferential terms. He would also become the African linchpin of a vast, web of global corruption secretly connecting the oil industries of former French African colonies with mainstream politics in metropolitan France, via Switzerland, Luxembourg and other tax havens. Parts of Gabon's oil industry had been serving as a giant slush fund, making hundreds of millions of dollars available for the use of French elites.

... France's biggest corporations were able to make use of this west African oil pot as a source of money that enabled them to pay bribes from Venezuela to Germany to Jersey to Taiwan, while ensuring that the money trails did not lead to them. Elf's [Elf Aquitaine] dirty money also greased the wheels of French political and commercial diplomacy around the globe.

... This immensely powerful system helped France punch above its weight in global economic and political affairs, and flourished in the gaps between jurisdictions. It flourished offshore.

The first foreign leader President Nicolas Sarkozy of France telephoned after he came to power in 2007 was not the president of Germany, the United States or the European Commission, but
[Gabon's president Bongo.

Eva Jolly

The personal accounts of monarchs, elected presidents-for-life and dictators were being protected from the curiosity of the magistrates. I realised I was no longer confronted with a marginal thing but with a system of both French politics and the offshore world. I do not see this as a terrible, multi-faceted criminality which is besieging our [onshore] fortresses. I see a respectable, established system of power that has accepted grand corruption as a natural part of its daily business.

The US government needs foreign funds to flow in, and it attracts them by offering tax-free treatment and secrecy. This had become central to the US government's global strategy. Tides of financial capital flow around the world in response to small changes in incentives. Not only did almost nobody understand this but almost nobody wanted to know.

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. But nobody wanted to look beyond Africa at the system that mad this possible.

Offshore connects the criminal underworld with the financial elite, the diplomatic and intelligence establishments with multinational corporations. Offshore drives conflict, shapes our perceptions, creates financial instability and delivers staggering rewards to les grands -- to the people who matter. Offshore is how the world of power now works.

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.' Some 85 per cent of international banking and bond issuance takes place in the so-called Euromarket, a stateless offshore zone. 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. And that, it said, was probably an underestimate. The US Government Accountability Office (GAO) reported in 2008 that 83 of the USA's biggest 100 corporations had subsidiaries in tax havens... The Tax Justice Network discovered that ninety-nine of Europe's hundred largest companies used offshore subsidiaries. In each country, the largest user by far was a bank.

Tax haven['s] don't just offer an escape from tax; they also provide secrecy, an escape from financial regulation, and a chance Ito shrug off laws and rules of other jurisdictions, the countries where most of the world lives.

A loose definition of a tax haven is a 'place that seeks to attract business by offering politically stable facilities to help people or entities get around the rules, laws and regulations of jurisdictions elsewhere. The whole point is to offer escape routes from the duties that come with living in and obtaining benefits from society -- tax, responsible financial regulation, criminal laws, inheritance rules and so on. This is their core line of business. It is what they do.

[A] way to spot a secrecy jurisdiction is to look for whether its financial services industry is very large compared to the size of the local economy. The IMF used this tool in 2007 to finger Britain, correctly, as an offshore jurisdiction.

The most important feature of a secrecy jurisdiction ... is that local politics is captured by financial interests.

New York millionairess Leona Helmsley

Taxes are for the little people.

Offshore is a project of wealthy and powerful elites to help them take the benefits from society without paying for them.

Two-thirds of global cross-border world trade happens inside multinational corporations.

The British Virgin Islands, with fewer than 25,000 inhabitants, hosts over 800,000 companies.

The world contains about sixty secrecy jurisdictions, divided roughly into four groups. First are the European havens. Second, comes a British zone centred on the City of London, which spans the world and is loosely shaped around Britain's former empire. Third is a zone of influence focused on the United States. A fourth category holds a few unclassified oddities, like Somalia and Uruguay, which have not been greatly successful.

The City of London [is] the centre of the most important part of the global offshore system. The City's offshore network has three main layers. Two inner rings - Britain's Crown Dependencies of Jersey, Guernsey and the Isle of Man; and its Overseas Territories, such as the Cayman Islands - are substantially controlled by Britain, and combine futuristic offshore finance with medieval politics. The outer ring is a more diverse array of havens, like Hong Kong, which are outside Britain's direct control but nevertheless have strong historical and current links to the country and the City of London. One authoritative account estimates that this British grouping overall accounts for well over a third of all international bank assets; add the City of London and the total is almost a half.

Three [British] Crown Dependencies [Jersey, Guernsey and the Isle of Man] are substantially controlled and supported by Britain but have enough independence to allow Britain to say: 'There nothing we can do' when other countries complain of abuses run out of these havens. They channel very large amounts of finance up to the City of London.

Fourteen [British] Overseas Territories ... are the last surviving outposts of Britain's formal empire. With just a quarter of a million inhabitants between them they include some of world's top secrecy jurisdictions: the Cayman Islands, Bermuda, the British Virgin Islands, the Turks and Caicos islands and Gibraltar.

[The Cayman Islands] is the world's fifth largest financial centre, hosting 80,000 registered companies, over three-quarters of the world's hedge funds, and $1.9 trillion on deposit .

Hong Kong, Singapore, the Bahamas, Dubai and Ireland are fully independent though deeply connected to the City of London.

Eva Jolly

The expansion in the use of ... tax havens ... is a modern form of colonialism.

The offshore option helped Wall Street get around strong US financial regulations, progressively regain its powers and its influence over the US political system, and then, mostly from the 1980s, turn the US itself into what is now the world's single most important tax haven in its own right.

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. Each network is deeply interconnected with the others. Wealthy US individuals and corporations use the British spider's web extensively.

Marshall Langer, a prominent supporter of secrecy jurisdictions

The most important tax haven in the world is an island... the name of the island is Manhattan. The second most-important tax haven in the world is located on an island. It is a city called London.

Instead of opening bank accounts in their own names, fraudsters and money launderers form anonymous companies, with which they can then open bank accounts and move assets.

In 2005, the Tax Justice Network estimated that wealthy individuals hold perhaps $11.5 trillion worth of wealth offshore. That is about a quarter of all global wealth, and equivalent to the entire gross national product of the United States.

the findings of a comprehensive study of illicit cross-border financial flows done by Raymond Baker's Global Financial Integrity (GFI) programme at the Center for International Policy in Washington

Criminal money - from drug smuggling, counterfeit goods, racketeering and so on - amounted to $330 -$550 billion, or a third of the total.

Corrupt money - local bribes remitted abroad or bribes paid abroad - added $30-50 billion, or three per cent.

The third component, making up two-thirds, was cross-border commercial transactions... The drugs smugglers, terrorists and other criminals use exactly the same offshore mechanisms and subterfuges - shell banks, trusts, dummy corporations - that corporations use.

Drugs smugglers, terrorists and other criminals use exactly the same offshore mechanisms and subterfuges - shell banks, trusts, dummy corporations - that corporations use.

Raymond Baker's Global Financial Integrity (GFI) programme at the Center for International Policy in Washington

Laundered proceeds of drug trafficking, racketeering, corruption, and terrorism tag along with other forms of dirty money to which the United States and Europe lend a welcoming hand.

The offshore world is the biggest force for shifting wealth and power from poor to rich in history, yet its effects have been almost invisible.

Big finance ... has deployed [the offshore system] in its battle to capture political power around the world.

William Vestey had bought himself a peerage. There was nothing particularly unusual about this. Plenty of people who had made fortunes in the Great War [WWI] desperately craved the respectability of a peerage to mask the taint of [war] profiteering, and [British] Prime Minister Lloyd George was only too happy to oblige, selling off official honours willy-nilly.

Secrecy jurisdictions constantly tailor their laws to let the wealthy perfect their deceits and to stay one step ahead of the tax collectors. Over the years, offshore trust subterfuges have proliferated and grown more sophisticated. Many offshore jurisdictions allow things called revocable trusts -- trusts that can be revoked and the money returned to the original owner. If the owner can do that, then they have not really separated themselves from the asset. Until it is revoked, though, it looks as if the asset has been passed on, and the authorities cannot tax it.

Amid the Great Depression, Swiss farmers' and workers' movements began in 1931 to clamour for more control over the banks. Bankers ... pressed fiercely for a new law, to make it a crime to violate Swiss bank secrecy... The Swiss law finally adopted in 1934 for the first time made it a criminal offence punishable by fines and prison to violate bank secrecy.

Switzerland remains one the world's biggest repositories for dirty money. In 2009 it hosted about $2.1 trillion in offshore accounts owned by non-residents, about half from Europe--this had been $3.1 trillion in 2007 before the global financial crisis.

industrial capitalists are subservient to financial capitalists, and their interests often conflict. Financiers, for instance, like high interest rates, from which they can derive considerable income; but industrialists want low interest rates, to curb their costs.

The Great Depression that had started in 1929 was the culmination of a long period of deregulation and economic freedom and a great bull market built on an orgy of debt and mind-bending economic inequality. In the late throes of the boom the richest 24,000 Americans, for example, received 630 times as much income on average as the poorest six million families, and the top 1 per cent of people received nearly a quarter of all the income - a proportion slightly greater than the inequalities at the onset of the global crisis in 2007.

from a report to the president by US Treasury secretary Henry Morgenthau (1957) about the systemic tax evasion by the wealthy

The ordinary salaried man and the small merchant does not resort to these or similar devices. Legalized avoidance or evasion by the so-called leaders of the business community... throws an additional burden upon other members of the community who are less able to bear it, and who are already cheerfully bearing their fair share.

When a company or government sells bonds or shares, investors hand over money in exchange for pieces of paper that give the holder title to a future stream of income. When bonds or shares are first issued, savings are mobilised, funds are raised, and they flow into productive investment. This is generally healthy. Next, however, a secondary market appears, where these shares and bonds are traded. These trades do not directly contribute to productive investment; they merely shuffle ownership. Well over 95 per cent of purchases in global markets today consist of this kind of secondary activity, rather than in real investment.

Rampant international capitalism had preceded and created the Great Depression, as private and central bankers, led by Wall Street and the City of London, had sought to restore the laissez-faire pre-1914 financial order in which they had been so prominent, an order that had involved freely floating currencies, balanced government budgets and free flows of capital around the world - a little like the modern global financial system.

The Great Depression had destroyed their dream and thoroughly discredited the liberal financial order.

There is a basic tension between democracy, on the one hand, and free capital movements, on the other. In a world of free capital flows, if you try to lower interest rates to boost struggling local industries, capital will drain overseas in search of higher returns. Investors hold veto power over national governments and the real lives of millions of people are determined by ... speculators... Freedom for financial capital means less freedom for countries to set their own economic policies: from this particular kind of freedom, a form of bondage emerges.

Investors hold veto power over national governments and the real lives of millions of people are determined by speculators.

Capital controls had first emerged in the First World War. Governments had sought to stop capital fleeing their countries in order to be able to tax capital income, and keep interest rates low, so as to finance their war efforts. [Capital] controls evaporated after the war then returned partially during the Great Depression, and finally swept the world after the Second World War and the Bretton Woods arrangements. They slowly became leaky, and then were progressively dismantled around the world from about the 1970s.

John Maynard Keynes

Control of capital movements should be a permanent feature of the post-war system [WWII].

[The] few years after the Second World War were the only time in several hundred years when politicians had any kind of control over the banking sector. Before the [British] bankers slammed the political shutters down, the politicians had sneaked in the National Health Service, which, for all its faults, has been one of the country's most popular institutions ever since.

[The] few years after the Second World War were the only time in several hundred years when politicians had any kind of control over the banking sector.

[John Maynard] Keynes had called the Bank of England "a private institution practically independent of any form of legal control".

The Euromarket [is] the offshore financial market.

As the head of the Bank of England's foreign exchange department, [George] Bolton was in the perfect position to midwife the new unregulated dollar market in London. The bank could easily have decided to regulate this market. In deciding not to do so, and in preventing other nations from trying to do so, it can only be concluded that the Bank of England actively created it... This was the birth of the Euromarket or the [London] offshore financial market.

Fourteen small [British] island states decided not to seek independence, becoming British Overseas Territories, with the Queen as their head of state. Exactly half of them--Anguila, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat and the Turks and Caicos islands, are secrecy jurisdictions, actively supported and managed from Britain and intimately linked with the City of London.

From these beginnings, the London offshore market exploded.

Countries had been relatively well insulated against financial calamities that happened elsewhere, but the Euromarket [Euromarket = London Offshore Market] connected up the world's financial sectors and economies. A shock rise in interest rates in one place would, as if transmitted by electricity almost instantly affect anywhere else plugged into the system. And, as it grew and grew, tides of hot money began to surge back and forth across the globe.

Eurobonds [are] unregulated offshore bearer bonds--whoever bears the pieces of paper in their hands, owns them. They are a bit like ultra-valuable dollar bills: no records are kept of who owns them, and so they are perfect for tax evasion.

Bank of England memo from 1963

However much we dislike hot money, we cannot be international bankers and refuse to accept money.

By 1975 [the Euromarket] was reckoned to have grown to exceed the size of the entire world's foreign exchange reserves. As the oil shocks hit in the 1970s, the [Euro]market was the route through which the oil-rich states' surpluses were routed to deficit-plagued consumer countries. As the Euromarket bonfire raged ever higher, capital began its assault on the citadels of power and the democratic nation state.

... By 1997, nearly 90 per cent of all international loans were made through this market [Euromarket]. It is now so all-enveloping that the Bank for international Settlements, which oversees global financial flows, has given up trying to measure its size.

[A] bank's offshore customers will almost always be the world's wealthier citizens and corporations. Free money for bankers and the representatives of the world's wealthy at the expense of everyone else is a basic leitmotif of the offshore system.

A bank can expand its balance sheet by extending credit to others. In the banking world, money can be created merely by the act of lending it.

In the unregulated London-based Euromarkets, a bank isn't required to hold any reserves.

The Euromarket had become a global transmission belt making short-term capital movements more sensitive, rippling interest-rate changes instantly around the globe and allowing enough money to pool together in one place to allow large speculative attacks against currencies that speculators decided were vulnerable.

The offshore Euromarkets are to a large degree the enabling environment for [a] shadow banking system.

The US dollar is the world's main reserve currency. While less privileged nations are periodically constrained by shortages of foreign exchange, the USA can borrow in its own currency - it can print money to acquire real resources, and live beyond its means for a long time.

... The ability to pay foreign debts in its own currency - which it can print - helped America fight and pay for the Vietnam war; it helped President George W. Bush cut taxes and rack up huge deficits. And when the time comes one day to pay for the mess, you can shift a lot of the burden of adjustment onto other states.

Countries use dollars for their reserves because dollar markets are large and liquid, and the dollar is trusted to be relatively stable. Oil is priced in dollars. People trade in dollars... Today two-thirds of the world's official foreign exchange reserve are held in dollars. Dollars make the world go round.

The Euromarkets, [a] huge new, unregulated and highly profitable dollar arena, whose liquidity was growing explosively, were perfect to support this imperial role for the US. currency... Eurodollars helped America cement its exorbitant privilege, finance its deficits, fight foreign wars and throw its weight around.

Eric Helleiner

With the creation of the Euromarket, bankers in both countries [United States and Britain] ambled on a solution to the problem of how to reconstruct the London-New York financial axis that had been prominent in the 1920s.

The Bank of England after 1945 set about re-establishing the hegemony of international financial capital. And all the time, Britain's offshore satellites, Jersey, Cayman, and their like, had their own special parts to play in this great financial game.

... From the 1960s, the island semi-colonies and other assorted satellites of London came into their own as offshore Euromarket booking centres ... where the world's wealthiest individuals and corporations, especially banks, could park their money, tax free and in secrecy, and where they could grow faster than their regulated onshore counterparts.

... The umbilical, two-way relation between London and its overseas satellites has remained a defining feature of the entire offshore system ever since.

... A new market had emerged, ushering in the rebirth of London as the world's largest financial centre... The financial establishment in London was piecing together the means by which London would restore its position as the capital of a world ruled in the interests of an elite of investors... the British empire began rise from the dead.

From the 1960s, [Euromarkets] grew hand in hand with a second, more deliberately constructed counterpart a London-centred web of half-British territories scattered around the world that would 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 minimise any stink.

... The British Crown Dependencies of Jersey, Guernsey and the Isle of Man would form the inner ring of the spider's web and would focus mostly on Europe, while the Caribbean members of its fourteen Overseas Territories, the last outposts of the formal empire, would focus mostly on the Americas. A scattering of other territories elsewhere would expand the network's global reach: British-controlled Hong Kong, as a gateway to China and the sub-region; and some ex-colonial oddities in the Pacific, the Middle East and elsewhere.

... Financial institutions from London, al' Street, Amsterdam, Frankfurt and Paris, would spread into these territories at high speed. An offshore explosion which began with the rise of the Euromarkets in London in the mid-1950s would spread first to the Crown Dependencies near the British mainland, then to the British-held Caribbean jurisdictions, then to Asia, and finally to British-held Pacific atolls.

veteran US crime-fighter Jack Blum

Hong Kong is where most of the corruption in China is accomplished.

When Britain handed it over to China in 1997 China preserved this offshore centre as a 'special administrative zone', and Hong Kong's Basic Law states that it shall 'enjoy a high degree of autonomy' from China in all matters except foreign relations and defence'... Chinese elites want their own offshore centre, complete with political control and judicial separation.

When Britain handed it over to China in 1997 China preserved this offshore centre as a 'special administrative zone', and Hong Kong's Basic Law states that it shall 'enjoy a high degree of autonomy' from China in all matters except foreign relations and defence'.

Despite Chinese control [of Hong Kong], City of London interests remain closely engaged, not least through Britain's largest bank HSBC - the Hong Kong & Shanghai Banking Corporation... HSBC moved its CEO from London to Hong Kong in March 2010 to reflect its shifting focus.

Hong Kong ... is still a fairly small player in the offshore world: its $149 billion in non-resident deposits in 2007 were just one-eleventh as big as the Cayman Islands' $1.7 trillion.

Singapore set up its financial centre in 1968, while it was still part of the British Sterling currency zone. Singapore's success came mainly from being the money-laundering centre for corrupt Indonesian businessmen and government officials.

Andy Xie, Morgan Stanley's Asia economist, in an internal email in 2006

To sustain its economy, Singapore is building casinos to attract corruption money from China.

By the early 1980s the Caribbean was the world's main offshore drugs turntable, as Colombian Medellin cartel kingpin Carlos Lehder smuggled industrial quantities of cocaine from Norman's Cay in the Bahamas... As cocaine flooded into America, money flew back out in shrink-wrapped bills loaded on wooden pallets and the Cayman islands would then return it to the Federal Reserve.

By 2005 US banks were free to receive the proceeds from a long list of crimes committed outside the country, including alien smuggling, racketeering, peonage and slavery. Profiting from crime is legal, so long as the crime itself happens offshore.

A US bank can knowingly receive the proceeds of a wide range of foreign crimes.

The US had some tax haven characteristics - from 1921, the United States has let foreigners deposit money with American banks and receive interest tax-free, as long as the deposit isn't connected with a US business.

From the 1950s and 1960s Florida became a pivot for the French Connection heroin route, for Kuomintang drugs flowing into the US via Hong Kong, which [was] laundered through Florida real estate, for Latin American flight money, and for Colombian drug money, often routed via the Bahamas, Panama and the Netherlands Antilles.

By the 1980s, 40 per cent of the money on deposit in Miami banks was reckoned to originate overseas, particularly in Latin America... Half the property in Miami is owned by offshore shell companies, and the largest yachts on the Intracoastal waterway are registered offshore. Miami is the facility of choice for Latin ex-heads of state, generals and former friends of the CIA.

Corporations hold their profits offshore, indefinitely, and only when they bring it back home to pay out as dividends to shareholders does it get taxed [deferred tax]... This sharply reduces multinationals' cost of capital ... and this in turn gives them a huge competitive advantage against smaller, locally based firms. US corporations alone were believed to hold a trillion dollars' worth of untaxed foreign profits offshore in 2009.

In 2004 George W Bush's administration offered his corporate friends a chance to repatriate tax and pay just five per cent tax rate instead of the normal 35 per cent. Over $360 billion whooshed back to the US, much of which went into share buybacks, boosting executive bonuses.

The second smallest state in the USA, Delaware is the home to many of the world's corporations... Over half of US publicly traded companies and nearly two-thirds of the Fortune 500 are incorporated here.

Corporations were once explicitly regarded as vehicles to serve the public good. Delaware, however, cast that notion aside and adopted what one official Delaware account calls 'a decidedly freewheeling, private enterprise mode' in which corporations and individuals pursue their own goals, and government is kept out of the way under the assumption that the public good will advance automatically.

Delaware ... [grants] corporate bosses extraordinary freedoms from bothersome stockholders, judicial review and even public opinion.

After the brutal Nigerian president Sani Abacha died in 1998, it was revealed that he had skimmed off billions of dollars of oil money. Two countries in particular soaked up his embezzled wealth - Britain and Switzerland.

Transparency International's ranking suggests that Britain and Switzerland - not to mention the United States - are among the world's 'cleanest' jurisdictions. In fact, about half the top twenty in the index are major secrecy jurisdictions, while the nations of Africa - the victims of the gargantuan illicit flows - are ranked 'dirtiest'.

In November 2009 the Tax Justice Network published a new index... The Financial Secrecy Index ranked countries according to how important they are in providing financial secrecy in global finance.

...in fifth place in the Financial Secrecy Index was the United Kingdom. Although it has by far the most important historical role in the emergence of offshore and is the centre of the British offshore spider's web, its domestic secrecy structures are relatively transparent. Third and fourth most important were, respectively, Switzerland and the Cayman Islands. Luxembourg, a gigantic but hardly noticed haven of financial secrecy, came second. And which country was ranked - by a mile the world's most important secrecy jurisdiction? -- the United States of America.

By the early 1980s the main elements of the modern offshore system were in place, and growing explosively. An older cluster of European havens, nurtured by European aristocracies and led by Switzerland, was now being outpaced by a network of more flexible, aggressive havens in the former outposts of the British empire, which were themselves linked intimately to the City of London. A state within the British state, the City had been transformed from an gentlemen's club operating the financial machinery of empire ... into a deregulated global financial centre dominated by American banks... A less complex yet still enormously important offshore zone of influence had also grown up, centred on the United States and also constructed by American banks.

A state within the British state, the City [of London] had been transformed from an gentlemen's club operating the financial machinery of empire ... into a deregulated global financial centre dominated by American banks... A less complex yet still enormously important offshore zone of influence had also grown up, centred on the United States and also constructed by American banks.

By the early 1980s the main elements of the modern offshore system were in place, and growing explosively. An older cluster of European havens, nurtured by European aristocracies and led by Switzerland, was now being outpaced by a network of more flexible, aggressive havens in the former outposts of the British empire, which were themselves linked intimately to the City of London.

The London-based Euromarket, then the wider offshore world, provided the platform for US banks to escape tight domestic constraints and grow explosively setting the stage for the political capture of Washington by the financial services industry, and the emergence of too-big-to-fail banking giants, fed by the implicit subsidies of taxpayer guarantees and the explicit subsidies of offshore tax avoidance.
The emergence of the US as an offshore jurisdiction in its own right attracted vast financial flows into the country boosting bankers' power even further. The old alliance between Wall Street and the City of London, which had collapsed after the Great Depression and the Second World War, had been resurrected.

The London-based Euromarket, then the wider offshore world, provided the platform for US banks to escape tight domestic constraints and grow explosively setting the stage for the political capture of Washington by the financial services industry, and the emergence of too-big-to-fail banking giants, fed by the implicit subsidies of taxpayer guarantees and the explicit subsidies of offshore tax avoidance.

US crime-fighting lawyer John Moscow

Money is power, and we are transferring this power to corporate bank accounts run by people who are in the purest sense of the word unaccountable and therefore irresponsible.

The narcotics industry alone generates some $500 billion in annual sales worldwide, twice the value of Saudi Arabia's oil exports.

The bank [BCCI - Bank of Credit and Commerce International] was set up in 1972 by an Indian-born banker, Agha Hassan Abedi, who got backing for his venture from members of the Saudi royal family and from Sheikh Zayed Bin Sultan Al-Nahayan, the ruler of Abu Dhabi. BCCI grew super-fast under a simple business model: create the appearance of a reputable business, make powerful friends, then agree to do anything, anywhere, on behalf of anyone, for any reason. BCCI loaded politicians with bribes and served some of the twentieth century's greatest villains: Saddam Hussein, terrorist leader Abu Nidal, the Colombian MedellIn drug cartel and Asian heroin warlord Khun Sa. It got involved in trafficking nuclear materials via sales of Chinese Silkworm missiles to Saudi Arabia and in peddling North Korean Scud-B missiles to Syria. Its branches in the Caribbean and Panama serviced the Latin American drug trade; its divisions in the United Arab Emirates, then enjoying an oil boom and an offshore banking bonanza, serviced the heroin trades in Pakistan, Iran and Afghanistan; and it used Hong Kong to cater to drug traffickers in Laos, Thailand and Burma.

BCCI also penetrated the US banking system, getting around the concerns of American regulators by using offshore secrecy structures to make its ownership invisible. It paid off Washington insiders and built up a solid partnership with the CIA.

In 1972, BCCI [Bank of Credit and Commerce International] set up its headquarters in luxury offices in the heart of the London... Many of its 80,000 depositors were relatively poor people from the developing world who had no idea that this apparently London-based bank, backed by wealthy Arab sheikhs, was a fiction built on a fiction.

[a Russian-born Jew named Arkady Gaydamak became Angola's trusted man in Moskow. He told me:]

In the so-called market economies, with all the regulations, the taxation, the legislation about working conditions, there is no way to make money. It is only in countries like Russia, during the period of redistribution of wealth - and it is not yet finished - when you can get a result. So that is Russian money. Russian money is clean money, explainable money. How can you make $50 million in France today? How? Explain to me!


Some have compared the vast upward redistribution of wealth in Russia after the fall of the Soviet Union to the era of the robber barons in the United States in the nineteenth century. But there is a crucial difference. The Americans didn't have a huge offshore network in which to hide their money. In spite of their many abuses, the barons concentrated on domestic investment. While they fleeced unwary investors and subverted the political process, they also built the country's industrial prosperity. They left America stronger and in time the state was able to rein in their worst excesses. But in late twentieth-century Angola and Russia the money simply disappeared offshore forever.

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. For many of these countries, independence really meant independence for their elites from bothersome rules. The colonial powers left, but quietly left the mechanisms for exploitation in place.

Global Financial Integrity (GFI) in Washington authored a study on illicit financial flows out of Africa (March 2010). Between 1970 and 2008, it concluded:

Total illicit financial outflows from Africa, conservatively estimated, were approximately $854 billion. total illicit outflows may be as high as $1.8 trillion... The GFI estimate - equivalent to just over 9 per cent of its $51 billion in oil and diamond exports during that time - simply has to be a gross underestimate of the looting. Many billions have disappeared offshore through opaque oil-backed loans channeled outside normal state budgets, many of them routed through two special trusts operating out of London.

... GFI's shocking estimates complement the figures I mentioned - ten dollars out for every dollar of foreign aid flowing in.

... Another study emerged in April 2008 from the University of Massachusetts, Amherst ... to examine capital flight from forty African countries from 1970 to 2004. Its conclusions are striking.

Real capital flight over the 35-year period amounted to about $420 billion (in 2004 dollars) for the 40 countries as a whole. Including imputed interest earnings, the accumulated stock of capital flight was about $607 billion as of end-2004.

Yet at the same time, the total external debt of these countries was 'only' $227 billion. So, the authors note, Africa is a net creditor to the rest of the world, with its net external assets vastly exceeding its debts. Yet there is a crucial difference between the assets and the liabilities: The subcontinent's private external assets belong to a narrow, relatively wealthy stratum of its population, while public external debts are borne by he people through their governments.

Africa's people 'bear' their public debts, in the forms of poverty, war, a hopeless lack of real opportunities, and the regular physical and economic violence perpetrated against them by corrupt and predatory elites.

Playing all three corners of the triangle - source countries being drained of wealth, increasingly offshore-like economies receiving the wealth, the offshore conduits handling its passage turned global private banking into one of the most profitable businesses in history.

economist Jim Henry, in his 2003 book "Blood Bankers"

The rise of Third World lending in the 1970s and 1980s laid the foundations for a global [tax] haven network that now shelters the world's most venal citizens.

[In the 1970s and 1980s] at least half of the money borrowed by the largest [Third World] debtor countries flowed right out again under the table, usually in less than a year, and typically in just weeks. Third World public debts were matched almost exactly by the stock of private wealth their elites had accumulated in the US and other havens.

The top 1 per cent of households in developing countries own an estimated 70-90 per cent of all private financial and real estate wealth.

The Boston Consulting Group reckoned in 2003 that over half of all the wealth owned by Latin America's wealthiest citizens lay offshore.

The OECD [Organization for Economic Cooperation and Development], a club of rich nations -- works hard to ensure that its treaty models, which tilt the playing field in favour of rich countries at the expense of poor ones, is dominant.

$18 trillion [in tax revenues from developing nations] flowed in 2008 through the Netherlands, just one of many conduit havens.

South Africa's finance minister Trevor Manuel

It is a contradiction to support increased development assistance, yet turn a blind eye to actions by multinationals and others that undermine the tax base of a developing country.'

The two biggest sources of foreign investment into China in 2007 were not Japan or the US or South Korea, but Hong Kong and the British Virgin Islands.

The biggest source of foreign investment into India, at over 43 per cent of the total, was not the US or Britain or China, but the treaty haven of Mauritius, a rising star of the offshore system.

Delaware's legislature is for hire.

Paul Tucker of the Bank of England in a 2010 paper on financial stability

Money [market] funds began their life in the US, as a response to now long abolished caps on interest rates that the banks could pay on deposits. They have become a gigantic part of the US financial system; at about $3 trillion, being roughly the same size as the transactions deposits of commercial banks.

A tax haven is a state [country] captured by financial interests from elsewhere.

[The island of Jersey] is a state whose leadership has essentially been captured by global finance, and whose members will threaten and intimidate anyone who dissents.

What we have in [the British island of] Jersey and [the US state of] Delaware is rampant uncontrolled deregulation, harnessed to the interests of a few insiders and large corporate players. Just as European nobles used to consolidate their unaccountable powers in castles, to better subjugate and extract tribute from the surrounding peasantry; so financial capital has coalesced in these fortified nodes of unaccountable political and economic power, capturing local politics and turning these jurisdictions into fast and flexible private law-making machines, defended against outside interference and protected by establishment consensus and the suppression of dissent.

Offshore [the offshore financial system] is not just a place, an idea, a way of doing things, or even a weapon for the finance industries. It is also a process: a race to the bottom where the regulations, laws and trappings of democracy are steadily degraded, as one arrangement ricochets from one fortified redoubt of finance to the next jurisdiction, and the offshore system pushes steadily, further, deeper, onshore. The tax havens have become the battering rams of deregulation.

Secrecy jurisdictions [offshore financial centers] are places that seek to attract business by offering politically stable facilities to help people or entities get around the rules, laws and regulations of jurisdictions elsewhere.

The future that the offshore system promises has a distinctly medieval quality: in a world still nominally run by democratic nation states, the offshore system is more like a network of guilds in the service of unaccountable and often criminal elites.

a 2008 Swiss-based Bank for International Settlements (BIS) study on derivatives stated:

The most common jurisdictions for US securitisations are the Cayman Islands and the state of Delaware.

The most common jurisdictions for European securitisations are Ireland, Luxembourg, Jersey, and the UK. Every last one is a major secrecy jurisdiction that uses a simple business model: ask the financial institutions exactly what they need, then shape the laws accordingly and without democratic debate.

Among the only academic experts to have seriously examined offshore's role in the [2007 Wall Street] financial crisis is Jim Stewart, senior lecturer in finance at Trinity College, Dublin. In reports in July 2008, Stewart investigated the Dublin International Financial Services Centre (IFSC), a secrecy jurisdiction setup in 1987 under corrupt Irish politician Charles Haughey with help primarily from City of London interests. A showcase for high-risk wild-west financial capitalism, the Dublin IFSC emerged the year after London's giant deregulatory Big Bang and currently hosts over half the world's top fifty financial institutions. It became a big player in the shadow banking system, and now hosts 8,000 funds with $1.5 trillion in assets.

The business model of private equity companies [is to] buy a company that someone has sweated for years to create, then load it up with debt, cutting the tax bill and magnifying the returns.

... Sometimes private equity companies do create real value, but the core feature of their business model is not value creation, but value skimming. A big tax bill is slashed, the company's shares or value rise, managers' remunerations become fatter, wealth is shifted away from taxpayers to wealthy managers and stockholders. Nowhere in any of this does anyone produce a better or cheaper product.

Banks have been particularly adept at going offshore to grow fast: by using tax havens to escape tax, to avoid reserves requirements and other financial regulation and to gear up their borrowings. Banks achieved a staggering 16 per cent annual return on equity between 1986 and 2006, according to Bank of England data, and this offshore-enhanced growth means the banks are now big enough to hold us all to ransom. Unless taxpayers give them what they want, financial calamity ensues. This is the too-big-to-fail problem - courtesy of offshore.

Banks achieved a staggering 16 per cent annual return on equity between 1986 and 2006, according to Bank of England data, and this offshore-enhanced growth means the banks are now big enough to hold us all to ransom.

Offshore attitudes are characterised by amazing similarities of argument, of approach and of method, and some striking psychological affinities in a geographically diverse but like-minded global cultural community. A peculiar mixture of characters populates this world: castle-owning members of ancient continental European aristocracies, fanatical supporters of American libertarian writer Ayn Rand, members of the world's intelligence services, global criminals, British public schoolboys, assorted lords and ladies and bankers galore. Its bugbears are government, laws and taxes, and its slogan is freedom.

... While it is in secrecy jurisdictions where these attitudes flourish so vigorously, they mainly originate among the onshore ruling classes.

Unaccountable elites are always irresponsible.

Island of Jersey Senator Stuart Syvret in his blog

Come to Sunny Jersey. The North Korea of the English Channel.

Island of Jersey Senator Stuart Syvret after his arrest at the island's airport

This is a society with no checks and balances, run by an oligarchy. It is a one-party state, and it has been for centuries.

an Island of Jersey politician

The [Jersey] finance industry is like an amoeba. You attack it , and it absorbs that, and attacks back. It is the parasite in the island, It has taken it over. It controls us and decides on everything that happens here.

Economists talk of the 'Dutch disease' that afflicts mineral-rich countries: when revenues flood in, price levels rise and locally made goods, notably manufactures and agricultural products, cannot compete with cheaper imports. These sectors wither. Meanwhile, talent leaches into the dominant sectors, and politicians lose interest in the thorny challenge of keeping other areas afloat, because it is far simpler and more lucrative to latch on to the sources of easy cash.

Right-wing ideologies that for years have been beyond the pale in the larger democracies have been allowed to grow without restraint offshore. As offshore finance has become increasingly influential in the global economy, re-engineering onshore economies in ever more significant ways, so such attitudes have flourished, gaining strength and confidence within the larger economies. This is evident in the intransigent arrogance of bankers, who, having nearly brought the world economy to its knees, still ask for more and threaten to relocate elsewhere if they are regulated or taxed too much. It is visible in the demands of the super-rich, who have come to expect and demand tax rates below those of their office cleaners.

The City of London! the collective term for Britain's global financial services industry.

Maurice GIasman a north London jewish academic and a young Anglican priest named Father William Taylor directly confronted the City of London Corporation, the municipal authority for the City of London. The social silence they found hides what may be the most astonishing story in the history of global finance.

The City of London Corporation [is] the world's oldest continuous municipal government.

The term 'City of London' refers to the financial services industry located in and around the British capital [London].

The City [of London], or the Square Mile, is a 1.22-square-mile slab of prime central London real estate.

When the City [of London's] 350,000-odd workforce - four-fifths employed in financial services -- has left, fewer than 9,000 resident souls. plus security guards, remain.

London has more foreign banks than any other financial centre: by 2008 it accounted for half of all international trade in equities, nearly 45 per cent of over-the-counter derivatives turnover, 70 per cent of Eurobond turnover, 35 per cent of global currency trading and 55 per cent of all international public offerings. New York is bigger in areas like securitisation, insurance, mergers and acquisitions, and asset management, but much of its business is domestic, making London the world's biggest international - and offshore - financial hub.

It was the creation of the unregulated offshore Euromarkets in London from the late 1950s onwards, which emerged exactly as Britain's formal empire collapsed, that created an escape route for US banks, and others, seeking to get around the burdens of New Deal regulation.

Three-quarters of US Fortune 500 companies, and all of its big banks, have London offices.

Having gone out of its way to welcome wealthy Arabs in the 1980s and rich Japanese and oil-rich Africans in the 1990s, the City [of London] has more recently aggressively courted Russian oligarchs, providing them with bolt-holes beyond the reach of Russian law enforcement... Some 300,000 Russians live in London.

The British bank Lloyds TSB ... secretly channeled Iranian and Sudanese money into the American banking system.

political writer Robin Ramsay

In this country [UK] bankers don't go to jail.

In 1914 the tax rules were twisted to let those resident but not domiciled in England escape tax on their worldwide income - they would only be taxed on what was actually earned in Britain... And that is essentially the situation today.

60 percent of world trade happens inside multinational corporations.

The International Accounting Standards Board (IASB), sets the rules for how companies around the world publish their financial data. Over one hundred countries use its standards... The IASB is not a public rule-setting body, accountable to democratic parliaments; it is a private company registered in Delaware, financed by the big four accountancy firms and some of the world's biggest multinationals... Through the IASB, hosted by the City of London Corporation, these giant businesses write their own disclosure rules.

The City [of London's] biggest role in the global offshore system is in its relationship with running Britain's spider's web. In the second quarter of 2009 the UK received net financing of US $332.5 billion just from its three Crown Dependencies Jersey, Guernsey and the Isle of Man. In 2009 the web as a whole held an estimated US $3.2 trillion in offshore bank deposits, about 55 per cent of the global total according to data from the Bank for International Settlements, and that is just bank deposits.

The British offshore web provides the City [of London] with three things. First, the tax havens scattered across the world capture passing foreign business and channel it to London just as a spider's web catches insects; second, it is a storage mechanism for assets; and third, it is a money-laundering filter that lets the City get involved in dirty business while providing it with enough distance to maintain plausible deniability

The head of the [City of London] Corporation is the Lord Mayor of London, not to be confused with the mayor of London, who is head of the much larger Greater London municipality which contains the tiny City [of London] but has no jurisdiction at all over it. The Lord Mayor's principal role today is ambassador for all UK-based financial and professional services.

The [City of London] Corporation is one of the most powerful players, if not the most powerful, in global financial regulation. Through myriad subtle levers and influences, it exerts an invisible influence on Britain's financial regulators and politicians.

As Britain's mainstream political system has evolved over the centuries, the City [of London] has been a fortress withstanding the tides of history that have transformed the rest of the British nation state. Its special privileges stem ultimately from the power of financial capital. Britain's rulers have needed the City's money and given the City what it wants in exchange.

... Britain's entire political system derives, in a sense, from the City of London Corporation.

Modern Britain has no written constitution but some historians talk of an ancient constitution involving old rights, privileges and liberties... [There are] four pillars of the ancient constitution: the King as its head, the Church as its soul, the parliament as the country and the City as the money - not so much subordinate to the Crown or parliament but intertwined with them in complex political relationship.

London is two cities: a large, vibrant and troubled population centre plus a supremely wealthy offshore island in its midst.

British Prime Minister Clement Attlee (1945-1951)

Over and over again we have seen that there is in this country another power than that which has its seat at Westminster. The City of London, a convenient term for a collection of financial interests, is able to assert itself against the Government of the country. Those who control money can pursue a policy at home and abroad contrary to that which has been decided by the people.

The Bank of England was set up in 1694 as a private institution capitalised by wealthy Protestant City interests, in large part to provide credit for building the navy.

The Bank of England was finally nationalised in 1946... In the end, nationalisation was a mirage. The bank continued to be run by essentially the same court of Old Etonian merchant bankers... The government got powers to issue 'directions' to the bank, but admitted in 2010 that 'thus far, the power has not been used.

The Economist magazine said soon after the Bank of England was nationalized

The nationalized bank 1946 will not differ in any fundamental way from the privately owned bank of 1945.

Margaret Thatcher was prime minister [1981], and almost the entire political class was losing faith in manufacturing and genuflecting towards the City [of London]. Everything was for sale: school playing fields, telephone companies, railways and marketplaces. The City was at the forefront of a global trend of financialisation: the re-engineering of manufacturing firms as highly leveraged investment vehicles and, soon, the packaging of mortgages into asset-backed securities for trading on global markets.

The Bank of England is accountable to parliament, not to the [City of London] Corporation, but its physical location at the geographical centre of the City reflects were its heart lies. It shares the City's view, established over centuries, that the path to progress lies in deregulation and with the City at the forefront.

In 1991 the [Bank of England] directors decided to work out more explicitly what the bank is for, and they came up with three main aims. Two were the usual central bankers' goals: to protect the currency and to keep the financial system stable. The third - as [City of London] governor Eddie George put it - is to ensure the effectiveness of the United Kingdom's financial services and advance a financial system which enhances the international competitive position of the City of London and other UK financial centres. In other words, to protect and promote the City as an offshore centre.

Corporations get their licence to operate from the state - they are creatures of state power. The City of London Corporation is something else.

Maurice Glasman

[The City of London] is an ancient and very small intimate relational institution -- a medieval commune representing capital.

Tony Blair transformed the Labour Party into an institution that the City [of London] could learn to love... In 1996 Blair quietly dropped Labour's eighty-year-old pledge to abolish the Corporation of London, replacing it with a vague promise to 'reform' the City. Few people in Britain even noticed the capture of Britain's last major bastion of real opposition to the financial sector. When Blair was elected the following year by a landslide, the Corporation could rest assured that its position was safe.

Labour MP John McDonnell

[Tony] Blair and [[Gordon] Brown made a Faustian pact to give the City [of London] its head. The idea was to let them do their profiteering and just take the tax benefit. It was not a relationship on our terms; it was simply 'Give them what they want'.

British MP Tony Benn

The City of London is an offshore island moored in the Thames, with a freedom that many other offshore islands would be glad to have.

a 2009 OECD [Organization for Economic Co-operation and Development] study examining regulatory capture, where government regulators are taken over by sectional interests like banks - David Miller led the research

We found there was a huge number of connections of people who had gone through the revolving door to the banks and back again, with alarming speed. The biggest banks had the most concentrated connections, and the countries that had the biggest connections were the UK, the US and Switzerland.

Richard Brooks, a high-profile tax writer

All the tax breaks end up with the banks, or they lever the tax breaks to get a huge competitive advantage. Tax avoidance played a key part in generating the financial crisis. To put it simply, the securitisation vehicles, which were so profitable that banks couldn't generate enough of them, were often such good deals because of the tax avoidance central to them. It was a key part of cranking up the engine.

There is no constitutional protection [in Britain] for free speech, like the First Amendment in the US; there is no defence in cases of high public interest; and unlike nearly everywhere else the burden of proof is deposited squarely on the shoulders of the defendant.


An Oxford University study in 2008 revealed that libel litigation in England and Wales costs 140 times the European average. Of 154 libel proceedings identified in an official review in 2008, defendants won precisely zero.

Robin Ramsey

Manufacturing, mining, fishing [in Britain] are ... irrelevant. The interests of a minority [financial industry] have come to dominate society.

Manufacturing's share of UK GDP, having fallen to 20 per cent by the time Tony Blair came to power in 1997, slipped to under 12 per cent by 2009.

Britain and the US, the two leaders of modern global finance, are now among the most unequal societies in the developed world. In Britain 0.3 per cent of the population owns two-thirds of the land... In a UNICEF league of twenty-one industrialised nations measuring child well-being, the UK came last, marginally behind the USA.

Britain's pensioners have Europe's fourth highest level of poverty and are worse off than their counterparts in Romania and Poland.

The 1,000 richest Britons had wealth of £335 billion by the end of Labour's term in 2010, up from £99 billion when Labour came to power in 1997. And that's just what we know about.

Jim Cousins, a member of the UK Treasury Select Committee

For thirty years this city [of London] has been engaged in a second empire project. We have run huge trade deficits for over thirty years ... they dealt with that trade deficit by sucking in money from wholesale markets on the basis of better returns than could be got elsewhere. This was invented by Margaret Thatcher: the idea was that we would become financial dealers for oligarchs and oil people from around the world.

About 60 per cent of world trade happens inside multinational corporations, which cut taxes by shuffling money between jurisdictions to create artificial paper trails that shift their profits into zero-tax havens and their costs into high-tax countries.

The City of London Corporation - this offshore island floating partly free from Britain's people and its democratic system - must be abolished and submerged into a unified and fully democratic London. The City's international offshore web, a mechanism for harvesting and profiting from financial capital from around the globe, however dirty it may be, must be dismantled.

When a kieptocrat loots his country and shifts the plunder offshore, the banks, accountants and law firms that assist him are just as guilty as the kieptocrat. When a client gets caught and goes to jail, so should his relationship manager, accountant, trustee, lawyer and corporate nominee.

Tax havens have become the fortified refuges of financial capital, protecting it from tax and regulation and in the process contributing to the latest crisis in many and varied ways.

The Jersey-Delaware [the British Island of Jersey and the US State of Delaware] notion of the captured state [is]: a place that seeks to attract business by offering politically stable facilities to help people or entities get around the rules, laws and regulations of jurisdictions elsewhere.

Corruption involves insiders abusing the common good in secrecy and with impunity, undermining the rules and systems that promote the public interest, and undermining our faith in those rules and systems. In the process it worsens poverty and inequality and entrenches vested interests and unaccountable power.

Bribery does all these things, but many of the services tax havens provide do the same. The parallels between bribery and the business of secrecy jurisdictions are no coincidence: we are talking about the same underlying thing... Bribery may benefit the payer, but it damages the system as a whole. Similarly, defenders of secrecy jurisdictions may argue that their services help private actors get around 'inefficiencies' in mainstream economies, smoothing the way for business to proceed. And they do. But what are those inefficiencies? They are, most importantly, tax, financial regulations, criminal laws and transparency, which exist for good reason. To help someone get around an obstacle is to corrode both the system and trust in the system. Bribery rots and corrupts governments, and tax havens rot and corrupt the global financial system.

Bribery rots and corrupts governments, and tax havens rot and corrupt the global financial system.

When pundits, journalists and politicians fawn over people who get rich by abusing the system - getting around tax and regulation and forcing everyone else to shoulder the associated risks and taxes - then we have lost our way.

Mervyn King, governor of the Bank of England, following the 2007 economic meltdown

Never in the field of financial endeavour has so much money been owed by so few to so many.

Offshore is undermining your elected government, hollowing out its tax base and corrupting its politicians. It is sustaining a vast criminal economy and creating a new, unaccountable aristocracy of corporate and financial power. If we do not act together to contain and control financial secrecy then ... a world of suave insiders, impunity, international criminal complicity and desperate poverty, will become the world we leave to our children. A tiny few will have their boots washed in champagne while the rest of us struggle for our lives in conditions of deepening inequality.

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