Benjamin Franklin once wrote that nothing is certain in this world except death and taxes. That was in 1789. Mr. Franklin might be surprised to learn that today his axiom no longer holds, at least not for the rich and powerful among us. Truth be told -- as it is in British investigative journalist and author Nicholas Shaxson's meticulously researched and riveting book, Treasure Islands: Tax Havens and the Men Who Stole the World -- taxation is only certain for the ordinary law-abiding citizen, the non-rich. The wealthy and the ultra-wealthy can quite easily get by paying little or even no tax, thanks to the shadowy spider webs of tax havens and secrecy jurisdictions that span the globe.
Shaxson's aims in the book, he says, are to challenge the common idea that it is acceptable for a place to get rich by undermining the laws of other places and to offer a lens through which to view the history of the modern world. "Offshore business," he writes, "is, at heart, about artificially manipulating paper trails of money across borders." It is not a "colourful outgrowth of the global economy, but instead lies right at its centre." It's not about efficiency or any genuine production or real economic growth -- it's about people and corporations making vast amounts of money through tax evasion.
Hiding the world's wealth
This book is a jaw-dropper of an exposé of how the moneyed elites use offshore to hide and grow their wealth and of how this affects the rest of humanity. Shaxson travels the world and delves into archives and financial reports to offer up some mind-boggling facts and figures. More than half of world trade passes, at least on paper, through tax havens. The balance sheets of small island finance centres alone add up to 18 trillion dollars, about a third of the world's GDP -- and that is probably an underestimate. Wealthy individuals hold over 11.5 trillion dollars offshore. That's about one quarter of the world's wealth.
It seems that just about everyone who is anybody is in on the act. Media baron Rupert Murdoch's News Corporation (which owns Fox News, HarperCollins, MySpace and Sun newspapers), for example, uses 152 offshore subsidiaries and so pays an estimated rock bottom six per cent tax rate. Even Bono, writes Shaxson, who "browbeats western taxpayers to boost aid to Africa, shifted his band's financial empire to the Netherlands [an important European tax haven] in 2006 to cut its tax bill." Eighty-three of the U.S.'s 100 biggest corporations have subsidiaries in tax havens. The Tax Justice Network, an organization that works to research and raise awareness of the secretive world of offshore finance, discovered that 99 per cent of Europe's hundred largest companies used offshore subsidiaries, and the largest users of those were banks.
Shaxson takes an extremely complex issue, how vast amounts of money are shifted into tax havens or secrecy jurisdictions where no one can tell who really owns the shell banks and corporations, and renders it all comprehensible, with lively, precise and sometimes very witty prose. It can be agitating reading about how multinationals, banks and the global oligarchy (including not just despots who have robbed their own countries but also some of the world's most respected and prominent citizens) use the offshore system to hide their wealth to avoid paying their share of taxes, which our governments, our schools, our universities, our healthcare systems, our institutions and ordinary people, so sorely need. It can be an especially disturbing read for those of us struggling right now to fill out our tax forms.
The history of tax havens
He traces the fascinating history of how the tax havens have developed, multiplied and grown over the past half a century to hide untaxed wealth and launder dirty and sometimes blood money. He profiles some of the better-known secrecy jurisdictions such as Switzerland, the Cayman Islands, and the British Virgin Islands, a tiny British territory in the Caribbean that is home to 25,000 people and 800,000 companies. He also examines in depth the two largest tax havens in the world, the City of London Corporation and Manhattan, which in turn manage the networks of smaller satellite ones on islands around the globe.
Then there are individual U.S. states that operate as offshore tax havens onshore such as Nevada, Wyoming and the tiny state of Delaware. Delaware, for example, hosts half of U.S. publicly traded companies and nearly two-thirds of Fortune 500 are incorporated there. They don't have their headquarters there, of course, they are just incorporated in Delaware so that they can profit from its laws that guarantee them the secrecy needed to perform their financial gymnastics and avoid taxes.
Taking aim at the offshore tax haven in the Cayman Islands, where just one building, the Ugland House, hosts over 12,000 corporations, President Barack Obama once quipped, "That's either the biggest building or the biggest tax scam on record." The chair of the Cayman Islands' Financial Services shot back that Obama "would be better advised to focus his attention on Delaware, where an office at 1209 North Orange Street in Wilmington houses a grand total of 217,000 companies."
Way back in 1961, President John F. Kennedy asked Congress to drive the tax havens "out of existence" and more recently Barack Obama co-sponsored the Stop Tax Haven Abuse Act in 2008, before he came to power.
Shaxson writes that crucial reforms such as these are always blocked by lobbying from the rich and powerful. So the problem has only been getting worse, as globalization allows more and more shifting of wealth around the world in seconds from one secret place to another, out of sight of the public eye and out of reach of tax authorities. Hedge funds and private equity funds flourish in the secrecy afforded by the offshore, where tax authorities have few and sometimes no rights to tread. While the offshore financial industry didn't cause the financial crisis of 2007, Shaxson finds, it certainly enabled it.
A wealth of questions
This book answers a whole host of crucial questions. Why is Africa still so poor after billions of dollars of aid money have been allocated to it? The answer is: offshore. For every aid dollar that is handed across the table, we in the west -- or rather our banks through tax havens -- have been taking back 10 dollars under the table. Why are our governments so cash-strapped when ordinary people continue to pay their taxes? Again, the answer is offshore -- as the very wealthy pay ever-fewer taxes by hiding their holdings in tax havens, while our governments continue to offer them generous corporate tax cuts.
Why haven't governments closed the loopholes and cracked open the secret vaults of the tax havens? Because those same corporations, banks and prominent citizens are so powerful that governments don't dare to regulate them -- and sometimes because those in government are part of the whole system themselves.
Why is it that dictators like Egypt's Mubarak, Tunisia's Ben Ali and Libya's Qaddafi -- who were coddled and propped up for so long by the west -- were able to steal billions and billions of dollars from their own people? Because they could stash it in offshore tax havens, such as western banks and secrecy jurisdictions that keep the dirty secrets of stolen wealth truly secret.
Uncut: Citizen action to stop tax dodgers
Shaxson has written a shocker of a book, a powerful wake-up call to concerned citizens everywhere. "Whoever you are, wherever you live, and whatever you do, this affects you. Offshore is at work nearby," he writes. "It is undermining your elected government, hollowing out its tax base and corrupting politicians." The book is sure to strengthen the fledgling "Uncut" citizen movement that is growing around the world to try to stop tax dodgers.
Even if Canada is not treated specifically in the book, you can be sure that some prominent Canadians and business luminaries whose names are attached to university buildings and other "charitable" works have amassed the wealth to become such generous philanthropists thanks to offshore secrecy jurisdictions -- just look (if you can get past the shroud of secrecy) at where their corporations, or their subsidiaries, are incorporated.
Shaxson ends the book with a list of potential solutions and on a note of hope. "The veil of silence and ignorance can be lifted and the message spread," he writes. " If we all work together to "contain and control financial secrecy," we can avert a future in which "A tiny few will have their boots washed in champagne while the rest of us struggle for our lives in conditions of steepening inequality." This is one of those extremely rare books that doesn't just change the reader, but could also change the world -- for the better.—Joan Baxter
Joan Baxter is a Canadian journalist, award-winning author, and development researcher and writer who has lived and worked in Africa for more than 25 years. Her latest book, Dust from our eyes -- an unblinkered look at Africa, is forthcoming worldwide with Pambazuka Press/ Fahamu Books.