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Treasure Islands: Tax Havens caused the Financial Crisis


(1) Britain’s Offshore Finance Empire

(2) Nicholas Shaxson summarizes his book Treasure Islands

(3) Amazon reviews of the US edition of Treasure Islands. Tax Havens

caused the Financial Crisis

(4) Treasure Islands reviewed for LRB: many tax havens are former

British imperial outposts

(5) Buy Treasure Islands from Amazon USA, Amazon UK, or Abebooks


(1) Britain’s Offshore Finance Empire


The third British Empire




POSTED: 30 MARCH 2012 15:06


London is considered the “capital of capitalism” allowing foreign

billionaires to stash tax free income offshore.


London, United Kingdom – Historians tell us that there were two quite

distinct British empires – the first an Atlantic empire built on North

American colonies and Caribbean possessions and the second an Asian

empire, built on control of India and coercive trade with China. These

two empires were deeply criminal projects, in the specific sense that

they relied heavily on profits from slavery and the sale of narcotics.

Empire on the British model was a moneymaking venture, where moral

considerations took second place to the lure of super profits.


“Having given up the appearance of empire, the British have sought to

reclaim its substance.”


The first British Empire came to an end when the Americans fought a

revolutionary war for independence in the 1770s. The second British

Empire began to fall apart with Indian independence in 1947. Arab and

African nationalism progressively undermined British influence in the

years that followed. At some point, perhaps with defeat in Suez in 1956,

or when Britain withdrew from its last significant overseas possession,

Hong Kong, in 1997, the game was finally up.


Nowadays, if you believe what you’re told by respectable historians and

broadcasters, Britain has turned its back on its imperial past and is

trying as best it can to make its way as an ordinary nation. The reality

is somewhat more complicated. One day, perhaps history will describe a

third British Empire, organised around the country’s offshore financial

infrastructure and its substantial diplomatic, intelligence and

communications resources. Having given up the appearance of empire, the

British have sought to reclaim its substance.


Banking on billionaries


Two news stories from last week help us sketch the outlines of this

third, offshore empire. On Tuesday, March 20, a Russian banker was shot

and seriously wounded outside his flat in Canary Wharf. On Sunday, March

25, the co-treasurer of the Conservative Party resigned after the Sunday

Times claimed that he had been soliciting donations to his party from

what he thought was a wealth fund based in Liechtenstein. These two

apparently unrelated events together tell us quite a lot about

contemporary Britain.


The United Kingdom allows foreign residents to hold their funds offshore

and only taxes them on money they bring into the country. This approach,

a relic from the days of openly declared empire, makes the country a

popular place of residence for billionaires from all over the world,

from Africa, mainland Europe and India.


Once in London, a sophisticated legal and financial apparatus arranges

for foreign funds to be deposited in a network of offshore

jurisdictions. In his groundbreaking book, Treasure Islands, Nicholas

Shaxson describes London as the centre of a spider web that links to the

Channel Islands, the Isle of Man and the Caribbean. With impressive

frugality, the British have reinvented the scattered remnants of formal

empire as instruments for serving the needs of global capital.


When the Soviet Union broke up, those who secured control of the

privatised Russian economy flocked to London. They had little in the way

of a social base in their own country and their position was chronically

insecure. They needed a way to channel profits overseas, and London

offered them access to a world-class financial centre and favourable tax



The city also gave some of them a public profile outside Russia. In

buying Chelsea Football Club and the Evening Standard, Roman Abramovich

and Alexander Lebedev respectively have made themselves international

figures. Moves against them by opponents back home are thereby made that

much more difficult.


The British state does more than provide a hospitable, low-tax

jurisdiction and the means to acquire a higher profile abroad. It puts

its diplomatic resources at the disposal of favoured foreign residents.


For example, in July 2001, Tony Blair wrote a letter to Romanian Prime

Minister Adrian Nastase to support Lakshmi Mittal’s efforts to buy up

the state-owned steel company, Sidex. Though Mittal had offices in

London, the company making the bid was registered offshore, in the Dutch

Antilles. But while Mittal did not employ many people in Britain, or pay

much tax there, he did make a significant contribution to the Labour Party.


In May 2001, two months before Blair wrote his letter, the Indian

magnate had given them £125,000 ($199,750). It is hardly surprising that

Peter Cruddas was happy to talk with financiers from Liechtenstein about

donations to the Conservative Party. Donations from foreigners are

illegal, but it is a relatively simple matter to set up a company

registered in the UK to handle the transaction. Offshore blurs the

distinction between domestic and foreign.


Capital of capitalism


All this is part of a much larger imperial project, whose full scale and

significance is difficult to appreciate. This is not an empire that

advertises itself widely. Indeed, it tries to hide the very fact of its

existence. But there is no doubting the ambition. For decades now,

Britain’s rulers have sought to make London the capital of global



“The third British empire is not an industrial or military superpower.

Indeed, it is intensely vulnerable.”


The state has reorganised itself to this end. Privatisation was tested

in the UK and then exported around the world. Deregulation brought

foreign banks to London. The financial sector, the intelligence

establishment and the political parties are committed to a project that

the major media can scarcely bring themselves to discuss. Elections

become ever more hallucinatory exercises, in which shallow differences

in tone and detail obscure a far deeper complicity.


Occasionally, the dynamics of the offshore empire become visible as

scandals or sensational crimes. Power struggles cause ripples that can’t

be missed. A foreign businessman is shot in the street. The sheer

strangeness jolts us for a moment out of our obliviousness. A politician

is caught soliciting donations and resigns.


Rupert Murdoch, a significant figure in Britain’s revived imperialism,

owns the Sunday Times, the paper that broke the Peter Cruddas story. One

faction in the empire is sending a message to another. For a moment what

cannot be discussed is mentioned, obliquely, as is the way of empire.


The third British Empire is not an industrial or military superpower.

Indeed, it is intensely vulnerable. The United States and the great

powers of Europe could do a great deal to hamper it, if they chose to do so.


The empire is a standing temptation to betray the local or the national

for the sake of membership of a far more exclusive and elusive entity –

an entity whose allure is intimately linked to its tact, its capacity to

avoid straightforward description. Empire prospers to the extent that it

can exploit, and where possible foster, corruption elsewhere.


Much of the old bombast is gone. There are fewer flags and trumpets. But

in other respects, the third empire closely resembles its predecessors.

Like them, it must do all it can to prevent effective democracy from

breaking out at home, as it profits from tyranny abroad.


The dedication to the needs of global capitalism benefits only a tiny

minority of the population. The rest face a future of steepening

inequality and shrinking prospects. Besides, as in previous centuries

the people at home must pay up when adventures abroad turn expensive.


And like the first two British empires, the current one is a criminal

enterprise. But having specialised in slavery and drug trafficking,

perhaps the empire’s current, signature crime is tax evasion.


By Dan Hind


28 March 2012


@ Al Jazeera


Dan Hind is a journalist and publisher. He is the author of The Threat

to Reason and The Return of the Public. His new ebook on the Occupy

movement and deliberative politics, Common Sense: Occupation, Assembly

and the Future of Liberty, was published online on March 20.


(2) Nicholas Shaxson summarizes his book Treasure Islands


The Book


Millions of people have a queasy feeling that something is not right in

the global economy – but they struggle to put their fingers on what

exactly the problem is. Treasure Islands at last tells the real story of

where it all went wrong. This is the great untold story of globalisation.


Tax havens are not exotic, murky sideshows at the fringes of the world

economy: they lie at its centre. Half of world trade flows, at least on

paper, through tax havens. Every multinational corporation uses them

routinely. The biggest users of tax havens by far are not terrorists,

spivs, celebrities or Mafiosi – but banks.


Tax havens are the ultimate source of strength for our global elites.

Just as European nobles once consolidated their unaccountable powers in

fortified castles, to better subjugate and extract tribute from the

surrounding peasantry, so financial capital has coalesced in their

modern equivalent today: the tax havens. In these fortified nodes of

secret, unaccountable political and economic power, financial and

criminal interests have come together to capture local political systems

and turn the havens into their own private law-making factories,

protected against outside interference by the world’s most powerful

countries – most especially Britain. Treasure Islands will, for the

first time, show the blood and guts of just how they do it.


Tax havens aren’t just about tax. They are about escape – escape from

criminal laws, escape from creditors, escape from tax, escape from

prudent financial regulation – above all, escape from democratic

scrutiny and accountability. Tax havens get rich by taking fees for

providing these escape routes. This is their core line of business. It

is what they do.


These escape routes transform the merely powerful into the untouchable.

“Don’t tax or regulate us or we will flee offshore!” the financiers cry,

and elected politicians around the world crawl on their bellies and

capitulate. And so tax havens lead a global race to the bottom to offer

deeper secrecy, ever laxer financial regulations, and ever more

sophisticated tax loopholes. They have become the silent battering rams

of financial deregulation, forcing countries to remove financial

regulations, to cut taxes and restraints on the wealthy, and to shift

all the risks, costs and taxes onto the backs of the rest of us. In the

process democracy unravels and the offshore system pushes ever further

onshore. The world’s two most important tax havens today are United

States and Britain.


Without understanding offshore, we will never understand the history of

the modern world.


Poverty in Africa? Offshore is at the heart of the matter.

Industrial-scale corruption and the wholesale subversion of governments

by criminalised interests, across the developing world? Offshore is

central to the story, every time. The systematic looting of the former

Soviet Union and the merging of the nuclear-armed country’s intelligence

apparatus with organized crime, is a story that unfolds substantially in

London and its offshore satellites. Saddam Hussein used tax havens to

buttress his power, as does North Korea’s Kim Jong-Il today. Prime

Minister Silvio Berlusconi’s strange hold over Italian politics is very

much an offshore tale. The Elf Affair, Europe’s biggest ever corruption

scandal, had secrecy jurisdictions at its core. Arms smuggling to

terrorist organisations? The growth of mafia empires? Offshore. You can

only fit about $1 million into a briefcase: without offshore, the

illegal drugs trade would be a fraction of its size.


Private equity and hedge funds? Goldman Sachs? Citigroup? These are all

creatures of offshore. The scandals of Enron, Parmalat, Long Term

Capital Management, Lehman Brothers, AIG — and many more? Tax havens lay

behind them all. The rise of multinationals, the explosion of debt in

advanced economies since the 1970s is substantially an offshore tale.

Complex monopolies, frauds, insider trading rings — these corruptions of

free markets always have tax havens at their heart. As Treasure Islands

explains in vivid, thrilling, horrifying detail, every big financial

crisis since the 1970s – including the great global crisis that erupted

in 2007 – has been a creature of the tax havens.


These problems all have other explanations too. Tax havens are never the

only story, because offshore exists only in relation to elsewhere. That

is why it is called offshore.

Without understanding the tax havens, or the secrecy jurisdictions as I

often prefer to call them, we cannot understand the world. Treasure

Islands at last starts to fill this gigantic hole in modern history.


In short, it is the most important exposé of tax havens ever published.


(3) Amazon reviews of the US edition of Treasure Islands. Tax Havens

caused the Financial Crisis


Publication Date: April 12, 2011


A thrilling ride inside the world of tax havens and corporate masterminds


While the United States experiences recession and economic stagnation

and European countries face bankruptcy, experts struggle to make sense

of the crisis. Nicholas Shaxson, a former correspondent for the

Financial Times and The Economist, argues that tax havens are a central

cause of all these disasters.


In this hard hitting investigation he uncovers how offshore tax evasion,

which has cost the U.S. 100 billion dollars in lost revenue each year,

is just one item on a long rap sheet outlining the damage that

offshoring wreaks on our societies. In a riveting journey from Moscow to

London to Switzerland to Delaware, Shaxson dives deep into a vast and

secret playground where bankers and multinational corporations operate

side by side with nefarious tax evaders, organized criminals and the

world’s wealthiest citizens. Tax havens are where all these players get

to maximize their own rewards and leave the middle class to pick up the



With eye opening revelations, Treasure Islands exposes the culprits and

its victims, and shows how:


*Over half of world trade is routed through tax havens


*The rampant practices that precipitated the latest financial crisis can

be traced back to Wall Street’s offshoring practices


*For every dollar of aid we send to developing countries, ten dollars

leave again by the backdoor


The offshore system sits much closer to home than the pristine tropical

islands of the popular imagination. In fact, it all starts on a tiny

island called Manhattan. In this fast paced narrative, Treasure Islands

at last explains how the system works and how it’s contributing to our

ever deepening economic divide.


Editorial Reviews


“This book is a vigorous and well researched polemic against financial

deregulation…”—Richard Cooper, Foreign Affairs


“Shaxson’s story of offshore banking is nothing short of Shakespearean,

a drama full of secrecy, treachery and corruption in which wealthy

countries, companies and individuals collude to horde wealth in a

complex global network of largely unregulated tax havens. To realize

this end, they install corrupt leaders, exploit indigenous populations

and, ultimately, deny both developed and developing nations of vital tax

dollars. There is much here that should generate outrage…An admirable

job of both arguing the consequences of offshore banking and providing a

succinct history of the practice.”–Kirkus


“A blistering account of the role that tax havens play in international

finance. . . brilliant.”—London Review of Books


“Perhaps the most important book published in the UK so far this

year.”–George Monbiot, The Guardian …


“Treasure Islands shines the light on some very dark places. It reads

like a thriller. The shocking thing is its all true.”–Richard Murphy,

co-author of Tax Havens: How Globalization Really Works


“At last, a readable – indeed gripping – book which explains the nuts

and bolts of tax havens. More importantly, it lays bare the mechanism

that financial capital has been using to stay in charge: capturing

government policy-making around the world, shaking off such irritants as

democracy and the rule of law, and making sure that suckers like you and

me pay for its operators’ opulent lifestyles.”–Misha Glenny, author of

McMafia: A Journey through the Global Criminal Underworld


“Trade and investments can play a profoundly productive role on the

world economy. But so much of the capital flows that we see are

associated with money laundering, tax evasion, and the wholesale larsony

(sic) of assets often of very poor countries. These thefts are greatly

facilitated by special tax and accounting rules or designed to “attract

capital” and embodying obscure and opaque mechanisms. Shaxson does an

outstanding and socially valuable job in penetrating the impenetrable

and finds a deeply shocking world.”—Nicholas Stern, former Chief

Economist for The World Bank


“The real challenge to America’s economy comes not from China – but from

the Caymans, the Bahamas, and a whole hot-money archipelago loosely

under the control of the City of London. If only as a civics lesson,

read this astonishing book to find out the true political constitution

of the world.”– Thomas Geoghegan, author of Were You Born on the Wrong



About the Author


Nicholas Shaxson is a journalist who has written for the Financial

Times, The Economist Group, African Energy, and the insider newsletter

Africa Confidential. He is the author of the highly acclaimed Poisoned

Wells: The Dirty Politics of African Oil and an associate fellow with

the Royal Institute of International Affairs in London.

Most Helpful Customer Reviews


56 of 61 people found the following review helpful


Brilliant exposition of an arcane topic, April 23, 2011


5.0 out of 5 stars

By Z. Cohen


Before I get into my review, I wanted to point out that for someone

without a lot of financial knowledge, this could be a very difficult

book to read. I have a college degree in accounting, did some graduate

work in tax, and worked for one of the big four accounting firms for a

year in their international tax consulting department. I quit working

for them and left the field entirely after I realized in vague

generalities what they were doing, which was one of the reasons I was so

interested in this book. The international system Shaxson describes

coincides perfectly with what I saw in the accounting firm I worked for,

and some of the specific techniques he describes correspond exactly to

the tax structures I used to see discussed in trainings and other

meetings. Given that background, I found this book incredibly engrossing

and informative, but if you have low financial literacy, you may have a

tough time with it. However, it is incredibly well written, uses a

minimum of jargon, and tries its hardest to break down complex tax and

financial concepts into lay terms.


Treasure Islands does a really incredible job in shedding light on an

arcane, complex international financial system that has evolved mainly

over the past 100 years. Like most people, when I heard the term tax

haven, I would think of a few rogue Caribbean islands who helped a few

rich people and crime lords launder money or hide it from taxation.

Shaxson turns that conception on its head. While the term tax haven

sounds like it specifically refers to taxes, Shaxon defines it more

broadly: “Tax havens can be loosely described as a jurisdiction that

seeks to attract money by offering politically stable facilities to help

people or business entities get around the laws, rules, and regulations

of jurisdictions elsewhere.”


Using that definition, Shaxson aggregates the international network of

such jurisdictions under the label “the offshore system”. In this book,

he investigates the three main components of the offshore system, which

may surprise you. While the small island states are integral

fortifications of the offshore system, the main poles are actually the

United States, London, and a grouping of states in continental Europe

(mainly Luxembourg, Switzerland, Lichtenstein, and the Netherlands).

Considering that about one half of world trade passes through tax

havens, they are integral to the current global system. Also, while

terrorists and crime lords are significant users of the offshore system,

the primary beneficiary and architect is the financial services

industry. The bankers on Wall Street and in London have constructed a

system to help them undermine democracy, drastically boost profits,

destabilize the global markets, shape international regulation to their

liking, and evade taxes, and this very same infrastructure enables the

financing of international terrorism, corrupt third world rulers, and

greatly facilitates the illegal drug trade. One key takeaway from the

book is that all of these phenomena have their roots in the same

underlying financial network, and none of them can be addressed without

confronting the offshore system.


The main services that tax havens provides are secrecy, tax evasion, and

freedom from unwanted regulation. A very important consequence of such a

system is the creation of a race to the bottom in terms of regulatory

environments. Shaxson examines this process both in the United States

and internationally. While the US is an international tax haven

(offering secrecy to foreign donors, allowing banks to accept proceeds

from criminal activities as long as they were committed abroad, offering

tax breaks to foreign investors), there is also a tax haven network at

the state level. States such as South Dakota and Delaware, in an effort

to attract corporations to incorporate in their states, abolished

interest rate caps, giving birth to the credit card industry in the 80s.

Delaware also has a long history of offering the most permissive rules

of corporate governance, giving maximum power to corporate managers.

Barack Obama criticized the Caymans, where he alleged that there was a

building where 12,000 corporations supposedly had business offices.

Well, there is an office building in Delaware with about 219,000.


Internationally, the offshore system allows banks to exercise this

deregulatory leverage at the national level. The city of London, which

has long maintained an extremely lax regulatory environment for

fascinating historical reasons detailed in the book, began attracting

massive amounts of business from US banks chafing under the Bretton

Woods system of capital controls and Glass Steagall regulations

separating commercial and investment banking. London had no such

controls, so US banks were able to begin doing business there and use

the threat to relocate to London to eventually force the US to

deregulate in the late 90s and 2000s. As we know, this was a crucial

development in setting the stage for the financial crisis of 2008. In

addition, the unregulated markets that were based in London allowed

banks to set up investment vehicles that were free of reserve

requirements, allowing them to issue massive amounts of debt.


A final theme discussed in the book is the devastating effects of the

offshore system on poor countries. For every one dollar of foreign aid

that has flowed into developing countries over the past 30 or so years,

TEN dollars have left the country and into the offshore system, building

the portfolios and secret accounts of corrupt ruling elites. The

offshore system creates a neocolonial dynamic where western countries

back corrupt leaders and their allies, and provide the international

financial infrastructure for these corrupt elites to steal their

country’s wealth and hide it abroad, free of tax. As pernicious as that

is, the real consequence to that is that poor populations are saddled

with the debt (the proceeds of which the rulers stole), which then of

course requires the IMF to come in and radically undermine democracy by

imposing harsh structual adjustment programs that mainly benefit rich

investor countries and cause great pain to average people.


In summary, this book details the most important aspect of the global

economy that you probably never knew existed. If you are interested in

understanding poverty, inequality, development economics, international

terrorism and the drug trade, and how corporations have amassed such

great political power, you are missing a huge piece of the puzzle if you

don’t read Shaxson’s epic work.


5 of 5 people found the following review helpful


Important and Disturbing, August 10, 2011


5.0 out of 5 stars

By Justmine


This book is both important and disturbing. Important because it clearly

and frankly describes the reality of “offshore” banking and it’s effect

on society at large. Disturbing because of the dimensions of the system

revealed and the unbridled greed of the economic elite that exploits it.

Destroys the myth that tax havens are simply wealth protection for the

few and reveals them as a massive drain on the economies of nations

large and small, rich and poor.


A must read for anyone interested in social justice or, for that matter,

their own future welfare.


7 of 8 people found the following review helpful


The full information, June 30, 2011


5.0 out of 5 stars

By A. Johnson (Fleetwood UK)


Having spent the past 30 years in campaigns against the Debt, I thought

I was pretty well informed on the machinations of international finance.

The book proved how little I really kneow. It is an absolute must read

for anybody who wishes to understand and oppose the pauperization of the

world’s people


(4) Treasure Islands reviewed for LRB: many tax havens are former

British imperial outposts


Treasure Islands: Tax Havens and the Men who Stole the World


by Nicholas Shaxson


reviewed for London Review of Books by David Runciman


Bodley Head, 329 pp, £14.99, January 2011, ISBN 978 1 84792 110 9


Simon and Schuster, 368 pp, £11.50, March 2011, ISBN 978 1 4165 8870 2


[…] The essence of offshore is the need to keep up a solid appearance

of respectability, while allowing money in and out with as little fuss

as possible. Tax avoidance (unlike tax evasion) is not a clandestine

activity, and tax havens don’t exist just to enable people to squirrel

their money away from the authorities. The money needs to be accessible,

and it needs to be liquid. For that reason, people prefer tax havens

where they can conduct their business relatively openly, and the most

successful offshore jurisdictions are the ones that ask no questions but

also tell no lies. Shaxson’s memorable phrase for this is ‘theatre of

probity’. The Swiss have always been the masters, with their formal

manners and careful paperwork. But it turns out that the other champions

of this way of doing business are the British. Shaxson’s book explains

how and why London became the centre of what he calls a ‘spider’s web’

of offshore activities (and in the process such a comfortable home for

the likes of Saif Gaddafi). It is because offshore is the offshoot of an

empire in decline. It perfectly suited a country with the appearance of

grandeur and traditionally high standards, but underneath it all a reek

of desperation and the pressing need for more cash.


As Shaxson shows, many of the world’s most successful tax havens are

former or current British imperial outposts. These include Hong Kong,

the Channel Islands and remaining overseas territories like the Cayman

Islands. What such places offer are limited or non-existent tax regimes,

extremely lax regulation, weak local politics, but plenty of the

trappings of respectability and democratic accountability. Depositors

are happiest putting their money in locations that have the feel of a

major jurisdiction like Britain without actually being subject to

British rules and regulations (or British tax rates). The Caymans, or

Jersey, make full use of their British connections to reassure people

that their money is safe (the Cayman national anthem is still ‘God Save

the Queen’), but when anyone complains to the authorities back in London

that these places are being used by criminals and dictators to launder

their assets, they are told that it is no longer Britain’s role to tell

its dependencies how to run their own affairs. It was a function Hong

Kong fulfilled before its handover to China in 1997: it could be

presented to the outside world as somewhere with British values but

without its unfortunate tendency to raise either taxes or regulatory

standards in response to political pressure. Strikingly, it plays the

same role for China today. After 1997 China preserved Hong Kong as a

‘special administrative zone’ autonomous of the mainland in all matters

except foreign relations and defence. As Shaxson puts it, ‘The

resemblance with the ambiguous Britain-Jersey link, or the

Britain-Cayman arrangement, is no coincidence. Chinese elites want their

own offshore centre, complete with political control and judicial

separation.’ So offshore suits empires on the rise as well.


The other thing most of these places have in common is that they are

islands. Islands make good tax havens, and not simply because they can

cut themselves off from the demands of mainland politics. It is also

because they are often tight-knit communities, in which everyone knows

what’s going on but no one wants to speak out for fear of ostracism.

These ‘goldfish bowls’, as Shaxson calls them, suit the offshore

mindset, because they are seemingly transparent: you can see all the way

through – it’s just that when you look there’s nothing there. Jersey is

the template: a nice, genteel place, with a strong sense of civic

responsibility and plenty of opportunities for public participation,

including elections to all manner of public offices (senators, deputies,

parish constables), but weak political parties, staggered ‘general’

elections, and never a meaningful change of government. ‘If you don’t

like it, you can leave’ is the basic refrain of Jersey politics. Dissent

is not obviously suppressed, as it might be under a dictatorship (which

is why dictatorships make bad tax havens: you never know when the whole

thing is going to blow up). Instead, dissent is simply allowed to wither

away. The same thing happens on the Cayman Islands, with its tiny

population (around 55,000), its elected legislature and its

governor-general appointed from London, who takes all the difficult

decisions but allows the locals to have their say. As one former

governor-general put it, ‘I think we are in the world of semantics here.

The more Caymanians we can put in positions of power, the better; they

will act as lightning conductors for political dissent.’


This is the web, but where is the spider? At the heart of Shaxson’s

story lies the City of London, itself a kind of island within the

British state. Again, the rise of the City as the favourite place for

foreigners to park their money, no matter who they were or where it came

from, is related to imperial decline. After the Second World War,

sterling still financed much of global trade, but the British economy

was no longer able to sustain the value of the pound against the dollar.

In the aftermath of Suez, which caused a run on the pound, the

government attempted to impose curbs on the overseas lending of London’s

merchant banks. The response of the banks, with the connivance of the

Bank of England, was to shift their international lending into dollars.

The result was the creation of the so-called ‘Eurodollar market’ – which

was effectively an offshore haven. Because the trade was happening in

dollars, the British saw no need to tax or regulate it; because it was

happening in London, the Americans had no means to tax or regulate it.

Among the first people to spot the advantages of this new system were

the Soviets, who wanted a secure place outside the US to hold their

dollars so that the Americans could not seize them if relations between

the countries deteriorated. They were soon followed by the Americans

themselves – that is, American banks and wealthy individuals – who saw

the London market as somewhere to do business free from the grasping

hand of the US authorities. The money started to pile in.


The Bank of England was happy: London was once again a lynchpin of

international finance. The American authorities, unsurprisingly, were

not so happy: they feared a balance of payments crisis. But when in 1963

President Kennedy tried to stem currency outflows by taxing the interest

on foreign securities, in an effort to reduce the incentive to export

dollars to more lucrative overseas markets, it had the opposite effect,

and produced what Shaxson calls ‘a stampede for the unregulated London

offshore market, free of tax and regulations’. US policy-makers were now

in a dilemma. They could try to face down the threat of offshore, either

with higher domestic interest rates, or with tighter controls on

currency outflows and a tougher regulatory regime requiring US banks to

share information about their overseas activities. Or they could copy

London by creating an offshore world of their own closer to home: in

other words, if you can’t beat them, join them. The second was the path

of least resistance – among other things it was a useful way of

reinforcing the dollar’s position as the global reserve currency – and

over time it was the one they took. Slowly in the later 1960s and 1970s,

and then much more rapidly in the 1980s and 1990s, America deregulated

its financial controls and allowed money to move in and out with fewer

if any questions asked, in the hope that more of it would stick to the



Once this process began, it also unleashed a new wave of competition

between individual American states to offer the most hospitable, least

intrusive regulatory environment for outside companies to work in.

Leading the way was little Delaware, which had always tried to

compensate for its lack of size by being open for any business. Since

the 1980s more and more corporations have moved to Delaware to take

advantage of the state’s extreme laissez-faire attitude to the rights of

shareholders and employees against company managements. If you took your

business to Delaware (and this was often just a question of establishing

a shell office and filling in some forms), it would be much harder for

anyone to prove anything against you, because the Delaware courts did

not think that much of what you did was any of their concern. Again,

other states faced a choice: they could try to isolate Delaware by

tightening up their own standards or they could try to compete for a

share of the spoils. Enough of them decided to compete to start a race

to the bottom. Offshore had moved onshore.


When officials from Delaware toured the globe in the late 1980s

advertising their services (and hoping, among other things, to provide a

haven for all the hot money that was expected to flow out of Hong Kong

in the run-up to the handover to China), they did so under the slogan

‘Delaware can protect you from politics.’ Shaxson defines a tax haven as

‘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’. But this is the crux: where is

the politics? Why aren’t these moves more politically unstable, or at

least politically contentious? In the case of Delaware, as with other

goldfish bowl communities, size probably tells (for a long time Delaware

politics was shaped by the influence of the Du Pont family, whose vast

chemical operations dominated the local economy). What, though, about

Washington, where the shift to an offshore mindset at the national level

might be expected to run up against some serious political opposition?

What happened to the representatives of all those people who don’t have

lots of money to move around, who can’t relocate even if they wanted to,

and who have an interest in a fair, open and broadly progressive tax

system? Didn’t they notice what was going on?


This is the question that Jacob Hacker and Paul Pierson tackle in

Winner-Take-All Politics. They don’t spend much time talking about

offshore, but the story they tell has striking parallels with the one

laid out by Shaxson. One of the ways you can identify an offshore

environment, according to Shaxson, is that local politics gets captured

by financial services. In that sense, Washington has gone offshore: its

politics has been captured by the interests of a narrow group of very

wealthy individuals, many of whom work in finance. For Hacker and

Pierson this, more than anything else, explains why the rich have got so

much richer over the last 30 years or so. And by the rich they don’t

mean simply the generally wealthy; they mean the super-rich. The real

beneficiaries of the explosion in income for top earners since the 1970s

has been not the top 1 per cent but the top 0.1 per cent of the general

population. Since 1974, the share of national income of the top 0.1 per

cent of Americans has grown from 2.7 to 12.3 per cent of the total, a

truly mind-boggling level of redistribution from the have-nots to the

haves. Who are these people? As Hacker and Pierson note, they are ‘not,

for the most part, superstars and celebrities in the arts, entertainment

and sports. Nor are they rentiers, living off their accumulated wealth,

as was true in the early part of the last century. A substantial

majority are company executives and managers, and a growing share of

these are financial company executives and managers.’


Hacker and Pierson believe that politics is responsible for this. It

happened because law-makers and public officials allowed it to happen,

not because international markets, or globalisation, or differentials in

education or life-chances made it inevitable. It was a choice, driven by

the pressure of lobbyists and other organisations to create an

environment much more hospitable to the needs of the very rich. It was

even so a particular kind of politics and a particular kind of choice.

It wasn’t a conspiracy, because it happened in the open. But nor was it

an explicit political movement, characterised by rallies, speeches and

electoral triumphs. It relied in large part on what Hacker and Pierson

call a process of drift: ‘systematic, prolonged failures of government

to respond to the shifting realities of a dynamic economy’. More often

than not the politicians were persuaded to do nothing, to let up on

enforcement, to look the other way, as money moved around the globe and

up to the very top of the financial chain. This chimes with what Shaxson

says about the way the offshore system was allowed to develop over the

last four decades. Here too there was no real conspiracy, because there

was no real need. Instead, it happened because ‘nobody was paying



One of Hacker and Pierson’s complaints about the way we usually regard

politics is that we miss what’s really going on by focusing on the show

of elections and the competition between parties. This is the theatre of

electoral politics, to set alongside the theatre of probity. Too often,

they say, we reduce politics to the level of sport: ‘This is no doubt

why politics as electoral spectacle is so appealing to the media: it’s

exciting and it’s simple. Aficionados can memorise the stats of their

favourite players or become experts on the great games of the past.

Everyone, however, can enjoy the gripping spectacle of two highly

motivated teams slugging it out.’


I have to plead guilty here. I have often wondered whether I am

interested in politics because I am interested in sport, and sometimes I

have felt vaguely guilty about this, suspecting it means I don’t

actually understand what’s happening. Elections are seductive, and these

days the build-up is so protracted that they can drown out the real

business of politics: the way organised groups use pressure – money,

lobbying, threats – to squeeze whichever politicians happen to be in

power, in order to influence the shaping of policy. Elections also

suggest false historical turning points. It is easy to assume that if

the rich have been winning in recent decades, the process must have

started with the election of the pro-big business, anti-big government

Ronald Reagan in 1980 (and concomitantly, Margaret Thatcher in Britain

in 1979). But Hacker and Pierson argue that the real turning point came

in 1978, during the presidency of Jimmy Carter. This was the year the

lobbyists and other organised groups who were pushing hard to relax the

burden of tax and regulation on wealthy individuals and corporate

interests discovered that no one was pushing back all that hard. Despite

Democratic control of the White House and both Houses of Congress, 1978

saw the defeat of attempts to introduce progressive tax reform and to

improve the legal position of trade unions. Instead, legislation was

passed that reduced the tax burden on corporations and increased the

burden on their employees (through a hike in the payroll tax, a

regressive measure). All this happened because the politicians followed

the path of least resistance – as elected politicians invariably do –

and the better organised and better-funded resistance came from the

representatives of big business, not organised labour.


What took place in the 1980s was therefore an extension of the Carter

years, not a reversal of them. The process of deregulation and

redistribution up the chain accelerated under Reagan, who was broadly

sympathetic to these goals. Yet it happened not because he was

sympathetic to them, but because his sympathies were allowed free rein

in a political environment where the opposition was muted and the

expected coalition of interests opposed to the changes never

materialised. After all, as Hacker and Pierson point out, Richard Nixon,

who might have been expected to share some of Reagan’s sympathies, had

gone the other way in his actual policies a decade earlier, shoring up

the legislative framework of the welfare state and maintaining a broadly

progressive tax system. (Something similar happened in Britain under

Edward Heath.) He acted like this because he felt he had little choice:

the organised pressure ready to resist change appeared much too strong.

It was only during the Carter years – and to some extent the Callaghan

years in Britain – that this pressure turned out to be weaker than

anyone thought. The politicians of the Reagan/ Thatcher revolution did

what they did not because they were committed ideologues, determined to

stick to their principles. They did it because they found they could get

away with it.


So where did the resistance go? This is the real puzzle, and Hacker and

Pierson take it seriously because they take democracy seriously, despite

its unhealthy fixation on elections. Democracies are meant to favour the

interests of the many over those of the few. As Hacker and Pierson put

it, ‘Democracy may not be good at a lot of things. But one thing it is

supposed to be good at is responding to problems that affect broad

majorities.’ Did the majority not actually mind that they were losing

out for the sake of the super-rich elite? In the American case, one

common view is that the voters allowed it to happen because they minded

more about other things: religion, culture, abortion, guns etc. The

assumption is that many ordinary Americans have signed a kind of

Faustian pact with the Republican Party, in which the rich get the money

and the poor get support for the cultural values they care about. Hacker

and Pierson reject this view, and not just because they don’t think the

process they describe depends on there being a Republican in the White

House: they see strong evidence that the American public do still want a

fairer tax system and do still see it as the job of politicians to

protect their interests against the interests of high finance. The

problem is that the public simply don’t know what the politicians are up

to. They are not properly informed about how the rules have been

steadily changed to their disadvantage. ‘Americans are no less

egalitarian when it comes to their vision of an ideal world,’ Hacker and

Pierson write. ‘But they are much less accurate when it comes to their

vision of the real world.’


Why is no one paying attention? Perhaps it’s the fault of the internet,

which is making it increasingly hard for anyone to focus on anything for

long. Yet it is striking that Hacker and Pierson’s argument is really a

return to a much longer-standing critique of democracy, one that

flourished during the 1920s and 1930s but was supplanted in the postwar

period by expectations of rational behaviour on the part of voters. This

traditional critique does not see the weakness of democracy as a matter

of the voters wanting the wrong things, or not really knowing what they

want. They know what they want but they don’t know how to get it. It’s

because they don’t understand the world they live in that democracy

isn’t working. People aren’t stupid, but when it comes to politics they

are ignorant, lazy and easily satisfied with pat answers to difficult

questions. Hacker and Pierson recognise that it has become bad manners

to point this out even in serious political discourse. But it remains

the truth. ‘Most citizens pay very little attention to politics, and it

shows. To call their knowledge of even the most elementary facts about

the political system shaky would be generous.’ The traditional solution

to this problem was to supplement the ignorance of the voters with

guidance from experts, who would reform the system in the voters’ best

interests. The difficulty is that the more the experts take charge, the

less incentive there is for the voters to inform themselves about what’s

going on. This is what Hacker and Pierson call the catch-22 of

democratic politics: in order to combat what’s taking place under the

voters’ radar it’s necessary to continue the fight under the voters’

radar. The best hope is that eventually the public might wake up to what

is going on and join in. But that will take time. As Hacker and Pierson

admit, ‘Political reformers will need to mobilise for the long haul.’


Yet time may be one of the things that the reformers do not have on

their side. As Shaxson points out in his account of the rise of the tax

havens, one of the reasons for the drift towards deregulation is that

politics has been too slow to resist it. This, again, is one of the

traditional critiques of democracy: while decent-minded democrats are

organising themselves to make the world a better place, the world has

moved on. In a fast-moving financial environment, it is usually easier

to assemble a coalition of interests in favour of relaxing the rules

than one in favour of tightening them. Similarly, it’s easier not to

enforce the rules you have than to enforce them: non-enforcement is the

work of a moment – all you have to do is turn a blind eye – whereas

enforcement is a slow and laborious process. Shaxson, like everyone

else, is torn. On the one hand, he thinks the key to resisting the rise

of offshore is a more transparent system, based on what he calls

‘automatic information exchange on a multilateral basis’. This is the

equivalent of putting the experts in charge. On the other hand, he wants

national governments to be more active, dynamic, responsive to the

interests of their citizens. But a speeded-up national politics may go

against the international co-ordination needed for a fully transparent

system. If you reawaken democratic politics at the national level, it

will by definition be harder to co-ordinate it at the international

level. This is the catch-22 of globalisation.


Shaxson illustrates the problem at the end of his book, where he lists

his proposals for changing the culture of offshore. One example he gives

of how it can be done comes from the United States, where in 2001

Congress finally passed stronger anti-money laundering legislation and

clamped down on the spread of offshore shell banks, which hide behind

nominees and trustees so no one knows who their real owners are. But the

date is important: these measures were included in the Patriot Act, and

the reason they were passed was that national politics had been woken up

by 9/11. Yet no one could argue that the ultimate consequences either of

that act or the vitality of American politics in the aftermath of 9/11

was a better integrated, more transparent world. Another of Shaxson’s

demands is that governments do more to keep money onshore. One of the

drivers of the offshore world is what he calls the ‘tides of looted or

tainted oil money [that] sluice into the offshore system, distorting the

global economy in the process’. One radical solution is to get a

country’s mineral windfalls out of the hands of a few super-wealthy

individuals and into the hands of ordinary citizens, by redistributing

the money directly to every inhabitant. This may sound unrealistic but

such schemes have been implemented in a few places, including Alaska.

However, Shaxson doesn’t see fit to tell us the name of the politician

who spread the wealth there: it was Sarah Palin. So yes, dynamic,

quick-thinking democratic politicians can make a difference, but no, it

doesn’t follow that greater understanding between nations will be the

result. These two brilliant books are right to suggest that politics is

the answer. Still, politics is also, as always, part of the problem. or

rights and issues enquiries.


(5) Buy Treasure Islands from Amazon USA, Amazon UK, or Abebooks


Norte that the US & UK editions have different names.


UK edition:

Treasure Islands: Tax Havens and the Men who Stole the World [Paperback]:


US edition:

Treasure Islands: Uncovering the Damage of Offshore Banking and Tax

Havens [Hardcover]:


Buy via Abebooks:

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