Jan 06 2011

Tax havens: the great rhymes of history

Posted by: Nicholas Shaxson in: Tax Havens

Mark Twain said that history doesn’t repeat itself – but it does rhyme. Treasure Islands is filled with these historical rhymes – I find the same patterns repeating themselves in tax haven after tax haven. Caroline Doggart, one of the world’s first big-time investigators of tax havens, recently said that during her investigations, the offshore world

“formed nothing less than a single, unifed jurisdiction that was subject to its own political and economic rules.”

The biggest rhyme in the book comes in Chapter 9 (“Ratchet”) where I look at two episodes – one in Delaware in 1981 on the eve of Ronald Reagan’s inauguration, and one in Jersey in 1996. Each involved an entirely different set of players, working in a completely unrelated area, fifteen years and an ocean apart. Yet if you read the two side by side, it becomes clear that we are looking at exactly the same thing here: the very same mechanisms by which financial capital turns jurisdictions into private law-making machines, eliminating meaningful local opposition to what the financiers are doing, then turning the haven into a crowbar for opening up jurisdictions elsewhere and forcing their politicians to change their laws and accept their schemes. I call tax havens “the battering rams of deregulation,” and these two episodes show just how this happens.

I am reminded of this because I have just been contacted by a stranger on Facebook pointing me towards a new page called Occupy Monaco! It’s an intriguing plan:

“Instead of Newcastle to London like the Jarrow Workers, we go from every nation state of Europe towards this 2.2 km sq. principality and show that the people of Europe mean business.

Capital is highly mobile in a global economy, but so are people, why shouldn’t protest be the same? Thousands of us from across Europe meeting in Monaco would be an intriguing prospect.

Bear in mind that while tax exiles love tax havens for their obvious merits – these places don’t actually have standing armies . … There are around 500 police officers in Monaco – external security is provided by France. The only real standing army of which to speak are the 100 bodyguards provided for the royal household..”

(As an aside, the comedian Mark Thomas has something similar:

“If we can attack Iraq, why can’t we invade – sorry, liberate – this 21st century pirate cove?”

Read the article – it’s a good one.)

This Monaco plan, in turn, reminded me of an article by Simon Kuper of the Financial Times, one of my favourite writers, who wrote a superb piece after visiting Monaco recently. He notes that:

“Monaco is a facsimile of a “community”, because only the rich belong. The principality resembles the global future because it has two classes: jet-owners and bus passengers. The 35,000 residents are rich. About 39,000 people commute daily from France and Italy to serve them.

Anyone who belongs to neither class is suspect here, and liable to get stopped by the police. Monaco supposedly has one cop per 62 inhabitants, plus copious CCTV cameras. I met a millionaire’s son who had been hauled off for questioning after he was spotted hanging around outside unshaven in jeans.”

This is one of the great themes of Treasure Islands: while they serve as outposts of untrammeled financial freedom, they are ultimately repressive places divided between rich and poor. The freedom they espouse is, as the recent French bestseller Indignez-Vous! puts it, the uncontrolled freedom of the fox in the henhouse. Nicely free for the fox – but not quite so free for the chickens.

I found myself nodding vigorously at everything Kuper found in Monaco: the repression, the incandescent property prices, the extreme deference to privilege and wealth, and the willingness to tax the poor and middle classes to pay those taxes that the wealthy residents won’t. This is a journalist I haven’t had any kind of contact with, and I presume he hasn’t read my book yet – but here we are, reaching exactly the same conclusions, about very different places. There is something fundamentally similar – and sinister – going on in the secrecy jurisdictions. Read the Life Offshore chapter to get a full sense of what I mean about the repression.

Compare the last words of Kuper’s article, with the last main paragraph of Treasure Islands. Kuper:

“Swimming on the roof in Monaco, some past December swims came back to me: in my grandparents’ pool in white Johannesburg in the 1980s. I’d never then seen anything like the wealth gap of South Africa under apartheid. We ate chocolate cake on the lawn; the maids lived behind the kitchen. It turned out that this was the future.”

Read the last full paragraph of my book, and be amazed at the similarities.

History does indeed rhyme – nowhere more than offshore.

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