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Why a Tax Haven is Not the Safest Place

By Edited Nov 21, 2015 2 1

Tax haven countries have a reputation for being places where wealth can be hidden, untraced. However, in real life, a tax haven is not necessarily how it appears in the movies.

Hiding your wealth on tax haven islands is not the best place for your money.

British writer, journalist, and investigator Nicholas Shaxson has lived in many different countries and seen the many different ways in which tax authorities work.  He is also the author of the book Treasure Islands, Tax Havens and Men who Stole the World

To find out what a tax haven is and why hiding your money in one of the various countries on the tax haven list, read the transcript below of an interview between Douglas Goldstein and Nicholas Shaxson on the Goldstein on Gelt show.  To watch a video of the interview, scroll further down the page.

Douglas Goldstein:    What is a tax haven?

Nicholas Shaxson:     There’s no general agreement as to what a tax haven is.  There are lots of official definitions out there by the IMF, and they focus on things like tax rates, secrecy, and things like that.  Basically, this includes a whole range of services and low zero-taxes loopholes, and so on that are one very big part of it.  Secrecy is another big part of it.  The escape from criminal laws of a jurisdiction is another part of it, but essentially if you put all of these factors together and boil them down to what is really the essence of it, you reach two things.

One is the concept of escape.  You’re escaping from the responsibilities of society.  You’re escaping from tax, from disclosure, and from inheritance laws, and criminal laws, whatever they are.  That’s one part of it and usually it is a wealthy list of people.  We are talking these days about 1% against the 99%, and it is usually the 1% that we’re talking about.  They are escaping from the constraints of society, leaving everybody else to pick up their tab.

The other part of it is the word ‘elsewhere.’  What tax havens do is offer services for citizens elsewhere.  The laws at the Cayman Island, for example, are not designed directly to affect the citizens of the Cayman Islands. They are targeting citizens and corporations from the United States, Latin America, or Africa, or wherever.  The word ‘tax haven’ is often associated with the word ‘offshore’ and that offshore thing really captures the elsewhere thing.  You take your money elsewhere to escape from what you don’t like. That’s really what tax havens are about.

Douglas Goldstein:    Is ‘secrecy’ these days a dirty word?

Nicholas Shaxson:     Yes, it is becoming a dirty word.  There’s a distinction to be made here between legitimate confidentiality and privacy and secrecy.  On the one hand, you have legitimate confidentiality, so you go to a doctor and you have some medical condition and the doctor is not going to hammer up the details onto his surgery door.  In the same way, with your bank details, they won’t plaster your bank details all over the internet.  They will keep this confidential, and that’s probably legitimate.

What happens with secrecy, though, is when you take your money elsewhere, governments have a need to tax their citizens, including their wealthy citizens and they have a legitimate right to know if their citizens have taken their money elsewhere and what’s happening to that money.  You absolutely have to have in this globalized world cooperation between governments.  You have to have transparency in that respect.  Governments will share information with each other in some cases, but they won’t publish those.  So that’s what’s happening, but secrecy is like Swiss Bank secrecy when the United States, Israel, or another country will come to Switzerland and say we know that we’ve got our citizens putting money in your banks and tell us about it, and Switzerland will say, “I’m sorry, but we can’t disclose that information.”

The culture of this is really changing now.  There was a real kind of lackadaisical attitude to this in the past and sort of nudge, nudge, wink, wink.

Douglas Goldstein:    Was it lackadaisical, or was it simply that people felt that every individual had the right to privacy?

Nicholas Shaxson:     That was part of the whole ideology, but behind it all was a kind of complacency.  The global economy was growing.  There’s a general acceptance that if the word economy is doing okay, if we cannot tax our citizens, it’s not great and we should do something about it, but we’ve got other things to worry about.  I think now we see people are much more interested as there are governments facing huge deficits, economic crisis, and where are we going to get money from while the elites have taken all the huge share of national income, leaving almost nothing for everybody else.  There’s this sudden huge interest in these issues and it’s really rising very fast indeed. 

I think what you’re saying is that this justification of secrecy was just part of the kind of ideology where people were accepting these arguments.  I don’t think people are accepting these arguments and nearly so readily these days.

Sometimes we prefer to play it safe, even if it means lower dividends

Douglas Goldstein:    You’ve talked about the fact that the U.K. and the U.S. are big tax havens.  How can that be if they are still onshore?

Nicholas Shaxson:     For various different reasons.  The United States is a tax haven according to any classical definition.  Huge volumes of money float the United States and they will be protected by secrecy.  The United States will not share that information with other governments and it has deliberately taken steps to avoid showing that information.  The details are quite complicated.

I remember one of the first ways that I got interested in this whole issue was when I was researching some corruption in oil-producing countries and Africa, and an attorney in New York contacted me. He said he wanted to talk to me, so the next time I was there I went and spoke to him.  He started talking to me about tax exemptions and things like that and I was thinking what has this got to do with anything?  What he was trying to tell me was that the United States had been offering secrecy facilities and had been offering tax exemptions to foreigners in order to attract money to the United States.  Not only that, but this was a central element of the U.S. efforts to fill its trade deficits and its physical deficits as well.  It was absolutely central to the whole game.  It was then that I realized how important this was.  This was about financing deficits.  This was not just some kind of marginal exotic thing on the fringes of the global economy.  This was right at the center of things, and that was when I began to realize just how important it was.

With the U.K., I would describe it as a tax haven in a slightly different way.  Of course, you can get secrecy in the U.K .and you can avoid taxes using the U.K., but in Treasure Islands, I was talking about offering escape routes.  What the U.K. really offered from about the 1960s onwards was an escape from financial regulations, so you have this growth in the market in London.  It’s called the Euro-Dollar market, which was effectively a market that allowed you as banks to come to London and do in London what you were not allowed to do at home.  In those days, Wall Street was very much tied down with all sorts of New Deal-era financial regulations.  The American economy was growing very strong at the time, but they didn’t like those constraints so they came to London and they found this escape route.

In those terms, I’m describing U.K. in my very broad terms as a kind of escape route from whatever it is that they didn’t like and in this case, it was very much financial regulation.

Douglas Goldstein:    Let’s say you have a small bank in Israel or Switzerland.  Is the IRS using its strong arm to pressure these other institutions simply to become tax collectors for them to become the long arm of the IRS?


Nicholas Shaxson:     I think the U.S. is indeed doing that.  It is pressing other countries to not to be the tax collectors necessarily, but to help United States enforce its laws.  What has happened really is that you have financial globalization, money speeding all around the world, and this creates this enormous problem as a huge fault line in the whole globalization project.  If you have secrecy, markets don’t work as they are supposed to and governments can’t collect the taxes as they are supposed to from their citizens, and it is a real sort of breakdown.


You do have this if you don’t like taxes and tax collection, so then you’ll describe this as sort of U.S. bullying and strong arm tactics and things like that, but if you think societies have to pay for themselves and the government has to finance themselves and everybody has to make a contribution then you will see this as a kind of legitimate exercise of the United States trying to protect its own tax base from offshore erosion.  That leaves aside those aspects of hypocrisy.  The United States is hypocritical, of course, by being a tax haven in its own right. It’s sucking out huge amounts of money from other countries and secrecy to a wealthy tax evading and often criminal elite, but that’s another aspect of it. 


Douglas Goldstein:    Are there ways to police the tax havens, or are they really outside of international law?


Nicholas Shaxson:     Basically, there is no magic bullet.  There’s no single way to address this problem.  The United States has recently put in place some very strong legal actions that are just starting to come into place, which protect itself and protect its own physical base from offshore erosion and that focuses quite heavily on the intermediaries, the bankers and so on to police that tax system.  That is one aspect of it.  The United States is probably a leader in this respect.  It is very much doing this while other countries have taken much more sort of fatalistic, ‘we can’t do anything about this’ kind of attitude.


These individual countries can’t protect themselves up to a point.  The United States will never catch all of it, but it is a powerful country and can go quite a long way.  The other aspect if you want to really do something about this is to have international cooperation, and there is some sort of fairly feeble asset of international corporation - the OECD.  This group of top rich countries has put in place some facilities which have helped.  They haven’t done a very good job yet.  The European Union has an information-sharing mechanism going on within the EU, which is kind of working but it’s full of loopholes.  So international cooperation is happening, but it’s still pretty weak and because you have this great full of learning globalization, it does need to get stronger particularly these days when governments are trying to collect taxes from their citizens.  There is a real imperative to strengthen this whole thing, but with all the troubles in Europe and so on, it’s hard to see progress being made at a great pace at the moment.


Douglas Goldstein:    Other than the U.S. protecting its own interests, can we expect that to change or do you think that there will always be offshore tax haven use?


Nicholas Shaxson:     There have always been tax havens since the beginning of time.  It’s always been possible to take your money elsewhere and do with it what you’re not allowed to do at home.  It’s really since the 60s and 70s when you had changes in technology allowing you to transfer money in a click of a mouse.  You had a sudden acceleration in financial globalization and explosion in the use of offshore tax havens.


You have always had mafia OC, criminals, and drug smugglers, or  whatever using tax havens, but what’s been most striking about the era of globalization, is that it is now very much corporations that are the big users of tax havens, and particularly financial corporations.  So you will have a place like the British Virgin Islands, which is a very mucky little tax haven in the Caribbean.  You will have banks, drug smugglers, and criminals using the same jurisdiction, rubbing shoulders with each other, and the corporations will be using it for what are usually legal reasons.  They can use these tax havens to structure their businesses so that they can cut their tax bills without necessarily breaking the law, but then you have them rubbing shoulders with much more criminal elements, and it all happens in secrecy in these strange little offshore jurisdictions.  I think it’s profoundly dangerous, this process of always different interests meeting in libertarian places where anything goes, and it’s all covered in secrecy and you can do what you like.  I think it’s profoundly dangerous for global capitalism.


Douglas Goldstein:    Could you just tell people how they could follow your work?


Nicholas Shaxson:     I have a website, www.treasureislands.org.  You can read my book Treasure Islands, Tax Havens and Men who Stole the World.



Aug 10, 2012 8:55pm
Neat topic. But governments are beginning to crack down on tax havens so it's becoming more difficult in the short term to hide money away from the public's eye. Thanks for the info though, the movies makes this topic always so glamorous, it's great to read some real perspective on the issue.
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