Treasure Islands: Tax Havens and the Men Who Stole the World by Nicholas Shaxon

This one gets to the very heart of the matter. As they used to say in The Wire, follow the money, and that is exactly what Shaxon has done, painstakingly and relentlessly. Even, I might add, to the possible detriment to his own and his family’s safety. The fact that large corporations and criminally wealthy individuals have been moving their wealth off-shore to avoid the tax man, and in some cases, the serious fraud squad, is nothing new. They’ve been at it for years. What is new in Shaxton’s book is the exposure of the sheer magnitude of, not only the sums involved, but the Byzantine methods employed to cover their criminal tracks.

What is also new in Shaxton’s book is the extent to which the City of London is shown to be at the very heart of a global network of secret tax havens and just how complicit successive British governments have been in this global scam. To put the matter bluntly, all the current talk of austerity budgets and structural deficits pale into total insignificance when compared to the mind-boggling enormity of the financial crime that is being committed right in front of our noses. So all-consuming is the practise of tax avoidance by the global conglomerates, and so well protected are their off shore financial movements, that even if national governments had a will to confront the practice, it is doubtful if they could summon the muscle to win the battle.

As for the tenure of Gordon Brown willing accomplice or hapless bystander, it is difficult to know, but either way, history will be sure to damn him.

Capitalism commits many atrocities in the pursuit of profit, including the legal and not so legal arms trade, the legal pharmaceutical and supposedly illegal drug trade, and the ever expanding people trafficking and associated sex trade, but nothing quite compares to the scale of fraud being committed daily by household corporate names. Vodaphone, Boots, Tescoes and Barclays have all recently been in the tax avoidance spotlight but rest assured, they’re all up to their necks in it, and they each employ an army of accountants and lawyers to keep them one step ahead of the law.

In a cleverly titled opening chapter, Welcome to Nowhere, Shaxton lays out the ground for what is to follow: The offshore world is all around us. 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 reported in 2008 that 83 of the USA’s biggest 100 corporations had subsidiaries in tax havens. The following year research by the Tax Justice Network, using a broader definition of offshore, discovered that ninety-nine of Europe’s hundred largest companies used offshore subsidiaries. In each country, the largest user by far was a bank. P8

If the scale of financial transactions passing through tax havens is jaw dropping, then the central role played by the USA and Britain in this global web of deceit is equally astonishing. As Shaxton explains: The world’s most important tax havens are not exotic palm-fringed islands, as many people suppose, but some of the world’s most powerful countries.

Shaxton cites the words of a Marshell Langer, a prominent supporter of tax havens, who puts the matter bluntly enough: It does not surprise anyone when I tell them that the most important tax haven in the world is an island. They are surprised, however, when I tell them that the name of the island is Manhattan. Moreover, the second most important tax haven in the world is located on an island. It is a city called London in the United Kingdom P21

Shaxton then goes on to outline how the London tax haven works. It is worth quoting Shaxton in some detail on this point so there can be no doubt as to the complicity of British political leaders in this culture of global criminality. The world contains about sixty secrecy jurisdictions, divided roughly into four groups. The second offshore group, accounting for about half the world’s secrecy jurisdictions, is the most important. It is a layered hub-and-spoke array of tax havens centred on the City of London. As we shall see, it is no coincidence that London, once the capital of the greatest empire the world has known, is the centre of the most important part of the global offshore system.

This revelation is likely to come as something of a surprise to many readers, given the popular perception that the British Empire is very much a thing of the past and that Britain at best is a middle ranking and declining nation, regularly punching above its weight by clinging to the imperial coat tails of Uncle Sam. It would seem this is something of a false perception. Shaxton proceeds to elaborate on Britain’s cleverly reconstructed imperial role: 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. P15

So far nothing startlingly new, but it’s when Shaxton connects it together one gets a true sense of the reach of the beast. It’s as the old adage goes, the whole is greater than the sum of the individual parts. Shaxton paints the picture well: This network of offshore satellites does several things. First, it gives the City a truly global reach. The British havens scattered all around the world’s time zones attract and catch mobile international capital flowing to and from nearby jurisdictions, just as a spider’s web catches passing insects. Much of the money attracted to these places, and the business of handling that money, is then funnelled through to London. Second, this British spider’s web lets the City get involved in business that might be forbidden in Britain, providing sufficient distance to allow financiers in London plausible deniability of wrongdoing. The outer rings of the spider’s web are often less hygienic than the inner ones. So this spider’s web is, in part, a laundering network. By the time the money gets to London, often via intermediary jurisdictions, it has been washed clean. P15

Shaxton goes on to provide a detailed examination of how the spider web works and concludes with these sobering Orwellian lines: Even if you can see parts of the structure, the laddering stops you seeing it all and if you can’t see the whole, you cannot understand it. The activity doesn’t happen in any jurisdiction it happens between jurisdictions. Elsewhere becomes nowhere: a world without rules. P26

These are not mere academic observations. The financial implications for both the developed world and more importantly the developing world are breathtaking in their magnitude. Shaxton offers the following statistics in an attempt to convey the scale of things: In 2005, the Tax Justice Network estimated that wealthy individuals hold perhaps $11 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 estimated , $250 billion in taxes lost on just the income that money earns each year is two or three times the size of the entire global aid budget to tackle poverty in developing countries. Add to that all the corporate trade mispricing, and you start to get a handle on the size of illicit financial flows across borders. P27

The bigger the figures, the harder it is for us mere mortals to grasp what is happening across the planet, but grasp it we must. It’s pointless complaining that this hospital ward, this library or this sports centre is being closed unless we can see the bigger picture. If this global tax black hole was sealed up, nations, rich and poor would have sufficient tax revenues to maintain and expand their social provision. Shaxton puts it this way: The most comprehensive study of illicit cross-border financial flows comes from Raymond Baker’s Global Financial Integrity programme at the Centre for International Policy in Washington. Developing countries, GFI estimated in 2009, lost $850-1000 billion in illicit financial flows in 2006 losses that have been growing at 18 per cent per year. Compare this to the $100 billion in total annual foreign aid, and it is easy to see why Baker concluded that 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. Remember that, the next time some bright economist wonders why aid to Africa is not working. P27

Having laid out the basic framework of the global tax avoidance network, Shaxton then proceeds to deconstruct it piece by piece. Every chapter is riveting, almost like a compelling work of fiction, until one reminds oneself that what we are dealing with here is the precise mechanisms of how our monstrously unequal world perpetuates itself. Any intelligent life looking down on our little planet would be both highly impressed at the sheer audacity of our economic and political elites, and horrified at the daily ramifications of their actions.

Chapter 12 is particularly absorbing as it throws a harsh spotlight on the City of London. In this chapter there are dozens of passages worthy of extensive airing, but I will limit myself to just one particularly poignant quote from a Jim Cousins, a member of the UK Treasury Select Committee, who has this to say about our much lauded British democracy: For thirty years this city 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. P278

It all starts to make sense. Run down British industry and replace it with global financial services. Thatcher invented the scam and Blair and Brown willingly took it to ever absurd levels. It all went swimmingly well until the financial bubble burst. Now Britain has virtually no industrial base worth talking about and no real idea of how to tame the deficit other than squeeze the guts out of the welfare state. Get everybody off benefits and back to work, says the Tories. There are only two slight flaws with this policy. Firstly, there are no jobs. All the work is being done in low cost Asia. Secondly the City of London has been allowed to become so powerful that national governments are too weak, too impotent to reign it in. The beast can no longer be tamed. So it’s bye-bye to a booming British Plc and welcome back to political and economic turmoil. But didn’t that nice Mr Gordon Brown tell us there would be no return to boom and bust?

We owe Shaxton a debt of gratitude for the job of research he has carried out exposure is the first step to nailing the criminals. But what of Shaxson’s conclusions? He, like Will Hutton, Ed Milliband, Ha- Joon Chang, Seamus Milne and all the other serious critics of unregulated capitalism, all believe that the beast can be tamed. This has yet to be confirmed by history. In fact, all the time that I was absorbed in Shaxson’s work, I had this strange sensation that what Shaxson was exposing had, in its own way, been exposed long before. And sure enough, after perusing the book case for a while, there it was, staring me in the face; Lenin’s little pamphlet, Imperialism, the Highest Stage of Capitalism, written in 1916, nearly one hundred years earlier than Shaxson’s own excellent work.

Dusting off the text that I had once regarded as the economic bible for the 20th century, I quickly discovered, after a careful but critical rereading, that much of what Lenin had to say all that time ago accorded closely with what we are witnessing at the early stages of the 21st century. In fact, in some chapters, one could argue that Lenin was spookily prophetic in his analysis. Just consider some of these excerpts and their relevance for today.

From the first section dealing with the concentration of production and monopolies Lenin writes: Here we no longer have competition between small and large, between technically developed and backward enterprises. We see here the monopolists throttling those who do not submit to them, to their yoke, to their dictation..Translated into ordinary human language this means that the development of capitalism has arrived at a stage when, although commodity production still reigns and continues to be regarded as the basis of economic life, it has in reality been undermined and the bulk of profits go to the geniuses of financial manipulation. At the basis of these manipulations and swindles lies socialised production; but the immense progress of mankind, which achieved this socialisation, goes to benefit the speculators.

Every time I read and then re-read this passage I had to remind myself that Lenin was referring to Britain, Germany and the USA at the turn of the 20th century and not the world at turn of the 21st. From the second section dealing with, Banks and Their New Role, Lenin appears equally prophetic. These few lines could have easily been penned for today’s bleak reality.

As banking develops and becomes concentrated in a small number of establishments, the banks grow from modest middlemen into powerful monopolies having at their command almost the whole of the money capital of all the capitalists and small businessmen and also the larger part of the means of production and sources of raw materials in any one country and in a number of countries. This transformation into a handful of monopolists is one of the fundamental processes in the growth of capitalism into capitalist imperialism; for this reason we must first of all examine the concentration of banking.

Lenin then proceeds to detail the respective monopolisation of the banking sector in Germany, France, Britain and the USA. Having carefully detailed this process of concentration Lenin then concludes: When this operation grows to enormous dimensions we find that a handful of monopolists subordinate to their will all the operations, both commercial and industrial, of the whole capitalist society; for they are enabled by means of their banking connections, their current accounts and other financial operations first, to ascertain exactly the financial position of the various capitalists, then to control them, to influence them by restricting or enlarging, facilitating or hindering credits, and finally to entirely determine their fate, determine their income, deprive them of capital, or permit them to increase their capital rapidly and to enormous dimensions.

If this was true at the turn of the 20th century it is triply true at the turn of the 21st! Lenin’s thesis continues to have pressing relevance in all its aspects. Under the section, Finance Capital and the Financial Oligarchy, Lenin has this to say: It is characteristic of capitalism in general that the ownership of capital is separated from the application of capital to production, that money capital, and that the rentier who lives entirely on income obtained from money capital, is separated from the entrepreneur and from all who are directly concerned in the management of capital. Imperialism, or the domination of finance capital, is the highest stage of capitalism in which this separation reaches vast proportions. The supremacy of finance capital over all other forms of capital means the predominance of the rentier and of the financial oligarchy; it means that a small number of financially powerful states stand out among all the rest.

Could there be any more accurate a description of our modern world than that offered by Lenin all those decades ago? In the final section of Lenin’s pamphlet under the heading, The Place of Imperialism in History, Lenin makes a summation every bit as telling today as it was in 1916. I’m sure he will forgive me if I quote him at length.

Monopolies, oligarchy, the striving for domination and not for freedom, the exploitation of an increasing number of small or weak nations by a handful of the richest or most powerful nations all these have given birth to those distinctive characteristics of imperialism which compel us to define it as parasitic or decaying capitalism.

Lenin, now in full flow, continues his polemic: More and more prominently there emerges, as one of the tendencies of imperialism, the creation of the rentier state, the usurer state, in which the bourgeoisie to an ever increasing degree lives on the proceeds of capital exports and by clipping coupons. It would be a mistake to believe that this tendency to decay precludes the rapid growth of capitalism. It does not. In the epoch of imperialism, certain branches of industry, certain strata of the bourgeoisie and certain countries betray, to a greater or lesser degree, now one and now another of these tendencies. On the whole, capitalism is growing far more rapidly than before; but this growth is not only becoming more and more uneven in general, its unevenness also manifests itself, in particular, in the decay of the countries which are richest in capital.

Lenin had Britain in mind in this closing sentence. Today we are witnessing the steady decline of the USA in the face of a rampant Asian capitalism.

For those that have not read Lenin’s defining work I urge an immediate reading. For those who, like me, grew up with this text, I urge a refresher course. It puts the current economic and political debates into a sharp historical context. But I must hasten to warn that Lenin takes an almost teleological stance, like so many Marxists that have followed him, in that a proletarian revolution will sweep aside the capitalist class in all its forms, and reconcile once and for all the contradiction between socialised labour and private ownership. While I am certain that this contradiction must be reconciled before humanity can move much further ahead, I regard a proletarian revolutionary as only one of a number of possibilities. Humans may yet find the will and means to socialise the revolutionary force of capital by a combination of revolts, popular revolutions and state regulations and reforms. The industrial proletariat may well have a significant contribution to make in this matter but not necessarily the defining one.

Such a sentiment would no doubt receive Lenin’s fierce displeasure, accusing me of every manner of opportunism. But as the one hundred year anniversary of the Russian revolution approaches, I believe history has yet to definitively decree on these matters. A teleological approach can become dangerously close to a religious one. The dialectic between reform and revolution is never ending. Keep an open mind.

In any event, thanks to Shaxson and Lenin, we are in no doubt as to where all the money has gone. By what ever means necessary we need to re-appropriate that money, and quickly. See the UK Uncut website for a useful place to start.

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