“Perhaps the most important book published in the UK so far this year.”
—George Monbiot, The Guardian
“Treasure Islands has prised the lid off an important and terrifying can of worms.”
—Literary Review
“Shaxson shows us that the global financial machine is broken and that very few of us have noticed.”
—New Statesman
“In this riveting, well-written exposé, Shaxson goes deep into the largely unexamined realm of offshore money. In the process, he reveals that this shadow world is no mere sideshow, but is troublingly central to modern finance, with the US and the UK as leaders. The resulting abuses are widespread, ranging from tax revenue stripping from African nations to individuals and corporations escaping enforcement and accountability. A must read for anyone who wants to understand the hidden reasons why financial services firms have become so powerful and impossible to reform.”
—Yves Smith, creator of Naked Capitalism
and author of ECONned
“Treasure Islands shines the light on some very dark places. It reads like a thriller. The shocking thing is it’s 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 policymaking 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 Continent?
“Far more than an exposé, Treasure Islands is a brilliantly illuminating, forensic analysis of where economic power really lies, and the shockingly corrupt way in which it behaves. If you’re wondering how ordinary people ended up paying for a crisis caused by the reckless greed of the banking industry, this compellingly readable book provides the answers.”
—David Wearing, School of Public Policy, UCL,
London’s Global University
“An absolute gem that deserves to be read by anyone interested in the way contemporary globalization is undermining social justice. Give it to your sons, daughters, families, favorite legislators, and anyone else needing stimulation of their thought buds. This masterpiece illuminates the dark places and shows the visible hand of governments, corporations, banks, accountants, lawyers, and other pirates in creating fictitious offshore transactions and structures and picking our pockets. This financial engineering has enabled companies and the wealthy elites to dodge taxes. The result is poverty, erosion of social infrastructure and hard-won welfare rights, and higher taxes for ordinary people. Tax will be the decisive battleground of the twenty-first century as no democracy can function without it or provide people with adequate educations, healthcare, security, housing, transport, or pensions. Nicholas Shaxson has done a wonderful job in lifting the lid off the inbuilt corruption that has become so naturalized in the western world.”
—Prem Sikka, Professor of Accounting, University of Essex, UK
TREASURE ISLANDS
Uncovering the Damage of
Offshore Banking and Tax Havens
NICHOLAS SHAXSON
TREASURE ISLANDS
Copyright © Nicholas Shaxson, 2011.
All rights reserved.
First published in 2011 by PALGRAVE MACMILLAN® in the United States–a division of St. Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010.
Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS.
Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries.
ISBN 978-0-230-10501-0
Library of Congress Cataloging-in-Publication
Shaxson, Nicholas.
Treasure islands : uncovering the damage of offshore banking and tax havens / Nicholas Shaxson.
p. cm.
Includes index.
ISBN 978-0-230-10501-0
1. Tax evasion—United States. 2. Tax havens. 3. Banks and banking, Foreign. I. Title.
HV6344.U6S53 2011
364.1’338—dc22
2010035424
A catalogue record of the book is available from the British Library.
Design by Letra Libre, Inc.
First edition: April 2011
10 9 8 7 6 5 4 3 2 1
Printed in the United States of America.
CONTENTS
Acknowledgments
PROLOGUE An Offshore Awakening
CHAPTER 1 Welcome to Nowhere: An Introduction to Offshore
CHAPTER 2 Technically Abroad: The Vestey Brothers, the American Beef Trust, and the Rise of Multinational Corporations
CHAPTER 3 The Opposite of Offshore: John Maynard Keynes and the Struggle against Financial Capital
CHAPTER 4 The Great Escape: How Wall Street Regained Its Powers by Going Offshore to London
CHAPTER 5 Construction of a Spiderweb: How Britain Built a New Overseas Empire
CHAPTER 6 The Fall of America: How the United States Learned to Stop Worrying and Love the Offshore World
CHAPTER 7 The Drain: How Tax Havens Harm Poor Countries
CHAPTER 8 Resistance: In Combat with the Ideological Warriors of Offshore
CHAPTER 9 The Life Offshore: The Human Side of Secrecy Jurisdictions
CHAPTER 10 Ratchet: How Secrecy Jurisdictions Helped Cause the Latest Financial Crisis
CONCLUSION Reclaiming Our Culture
Notes
Index
ACKNOWLEDGMENTS
THIS BOOK COULD NOT HAVE BEEN WRITTEN without the help of a great many people around the world. First I must thank John Christensen, who has worked tirelessly with me on this book, and who deserves much of the credit. (Any mistakes, though, are mine.) Alongside him stand several leaders in this field, each of whom has provided remarkable help and insights, and each of whom has contributed in a range of ways. This group, in alphabetical order, includes Jack Blum, Ray Baker, Richard Murphy, Ronen Palan, Sol Picciotto and David Spencer. Special mention must also go to Paul Sagar and Ken Silverstein for their terrific cont
ributions on the history of the British spiderweb and on Delaware, respectively.
A number of others deserve great thanks too, for their time and their help in specific areas. They are Jason Beattie, Rich Benson, Richard Brooks, Michèle, Elliot and Nicolas Christensen, Andrew Dittmer, Sven Giegold, Maurice Glasman, Bruno Gurtner, Mark Hampton, Jim Henry, Dev Kar, Pat Lucas and her merry team, Mike McIntyre and his brother Bob, Andreas Missbach, Matti Kohonen, Markus Meinzer, Prem Sikka, Father William Taylor, and Geoff Tily.
I couldn’t have got this far without Karolina Sutton at Curtis Brown, and I would also like to give special thanks to the staff at Palgrave Macmillan, at Random House, and to Dan Hind. Second last, but by no means least, a particular thank you to the Joseph Rowntree Charitable Trust, and the Tax Justice Network, which made all this possible. And finally, I would like to offer my thanks, appreciation and respect to all those in the tax havens who have spoken out against the consensus, sometimes at great personal risk.
PROLOGUE
An Offshore Awakening
ONE NIGHT IN SEPTEMBER 1997 I RETURNED home to my flat in North London to find that a man with a French accent had left a message on my answering machine. Mr. Autogue, as he called himself, had heard from an editor at the Financial Times (whom I was writing for) that I was to visit the oil-rich country of Gabon on Africa’s western coastline, and he said he wanted to help me during my visit. He left a number in Paris. Curious as hell, I rang back the next morning.
This was supposed to be a routine journalist’s trip to a small African country: I wasn’t expecting to find too much to write about in this sparsely populated former French colony, but the fact that English-speaking journalists almost never ventured there meant I would have the place all to myself. When I arrived, I discovered to my surprise and alarm that Mr. Autogue had flown out to the capital of Libreville with an assistant on first-class Air France tickets and they had booked themselves into the city’s most expensive hotel for a week—and their sole project, he cheerfully admitted, was to help me.
I had spent years watching, living in, and writing about the curve of oil-soaked African Atlantic coastline that ranges from Nigeria, in North Africa, through Gabon and down to Angola, farther south. Today this region supplies almost a sixth of U.S. oil imports1 and about the same share of China’s; and beneath a veneer of great wealth in each place lies terrible poverty, inequality, and conflict.
Journalists are supposed to start on the trail of a great story somewhere dramatic and dangerous. I found my story here unexpectedly, in a series of polite if unsettling meetings in Libreville. Lunch with the finance minister? No problem: Monsieur Autogue arranged it with a phone call. I drank a cocktail in a hotel lobby with the powerful half-Chinese foreign minister Jean Ping, who later became president of the U.N. General Assembly; the estimable Mr. Ping gave me as much of his time as I needed for my interview and asked graciously about my family. Later, the oil minister clasped me by the shoulder and jokingly offered me an oil field—then withdrew his hand, saying, “No: these things are only for les grands—the people who matter.”
Never more than five hundred yards from foul African poverty on the streets of Libreville, I spent a week wandering about in a bubble. Mr. Autogue’s attempts to keep my diary full made me determined to find out what it was that he might be wanting to hide. My new best friend had opened for me a zone of air-conditioned splendor: I was ushered to the front of queues to meet with powerful people, who were always delighted to see me. This parallel, charmed world, underpinned by the unspoken threat of force against anyone inside or outside the bubble who would disrupt it, is easy to miss in the affluent and easy West. In Africa the jolt was enough to begin to shake me from my sleep.
I had stumbled into what later became more widely known through a scandal in Paris as the so-called Elf affair.
The scandal began in 1994 when U.S.-based Fairchild Corp. opened a commercial dispute with a French industrialist, triggering a stock exchange inquiry. Unlike in more adversarial Anglo-Saxon legal systems, where the prosecution jousts with the defense to produce a resolution, the investigating magistrate in France is more like an impartial detective inserted between the two sides. He or she is supposed to investigate the matter until the end, when the truth is uncovered. In this case Eva Joly, the Norwegian-born investigating magistrate, found that every time she investigated something new leads would emerge. Her probes just kept going deeper. She began receiving death threats: A miniature coffin was sent to her in the post, and on a raid of one business she found a Smith & Wesson revolver, fully loaded and pointed at the entrance. But she persisted: Other magistrates became involved, and as the extraordinary revelations began to accumulate, they began to discern the outlines of a gigantic system of corruption that connected the French state-owned oil company Elf Aquitaine with the French political, commercial, and intelligence establishments, via Gabon’s deeply corrupt ruler Omar Bongo.
Bongo’s story is a miniature tale of what happened when France formally relinquished its colonies. As countries in Africa and elsewhere gained independence, the old beneficiaries of the French empire set up new ways to stay in control behind the scenes. Gabon became independent in 1960, just as it was starting to emerge as a promising new African oil frontier, and France paid it particular attention. France needed to install the right president: an authentic African leader who would be charismatic, strong, cunning, and, when it mattered, utterly pro-French. In Omar Bongo they found the perfect candidate: He was from a tiny minority ethnic group and had no natural domestic support base, so he would have to rely on France to protect him. In 1967, aged just 32, Bongo became the world’s youngest president, and for good measure France placed several hundred paratroopers in a barracks in Libreville, connected to one of his palaces by underground tunnels. This intimidating deterrent against coup plots proved so effective that by the time Bongo died in 2009, he was the world’s longest-serving leader.
In exchange for France’s backing Bongo gave two things. First, he gave French companies almost exclusive access to his country’s minerals, on highly preferential terms that were deeply unfair to the people of Gabon. The country became known as French companies’ chasse gardée—their private hunting ground. But the second thing Bongo provided was more interesting. He allowed his country, through its oil industry, to become the African linchpin of the gigantic, secret Elf system—a vast, spooky web of global corruption secretly connecting the oil industries of former French African colonies with mainstream politics in metropolitan France, via Switzerland, Luxembourg, and other tax havens. Parts of Gabon’s oil industry, Joly discovered as she dug deeper and deeper in Paris, had been serving as a giant slush fund: a pot of secret money outside the reach of French judicial authorities in which hundreds of millions of dollars were made available for the use of French elites. An African oil cargo would be sold, and the proceeds would split up into a range of bewildering accounts in tax havens, where they could be used to supply bribes and baubles for whatever the unaccountable elites who controlled the system deemed fit.
Out of this pot, money flowed secretly to finance French political parties, the intelligence services, and other well-connected parts of French high society. Elf’s secret money greased the wheels of French political and commercial diplomacy around the globe: France’s biggest corporations were allowed to use this West African oil pot as a source of easy bribe money to support their bids for giant contracts ranging from Venezuela to Germany to Jersey to Taiwan—and the out-of-sight Gabon connection meant that the money trails did not lead to them. (One man told me how he once carried a suitcase of cash provided by Omar Bongo to pay off a top rebel separatist in the Angolan oil enclave of Cabinda, where Elf had a lucrative contract.)
President Bongo, for his part, was one of the smartest political operators of his generation and tapped into French Freemasonry networks and African secret societies to become one of the most important power brokers in France itself. He was the key to French leaders’ abi
lity to bind les grands—opinion-formers and politicians from across Africa and beyond—into France’s postcolonial foreign policy. This immensely powerful, corrupt subterranean system helped France punch above its weight in global economic and political affairs and remain significantly in control after independence, behind the scenes. A local journalist summed the relationship up for me most effectively. “The French went out of the front door,” he said, “and came back in through a side window.”
The system emerged gradually, but by the 1970s it was already serving as a major secret financing mechanism for the main French right-wing party, the Rally for the Republic (RPR).2 When a Socialist, François Mitterrand, became French president in 1981, he sought to break into this right-wing Franco-African offshore cash machine and installed his man Loïk le Floch-Prigent at the head of Elf to do the job. But the latter was wise enough not to cut out his rivals in the RPR. “Le Floch knew that if he cut the financing networks to the RPR and the secret services, it would be war,” explained the French authors Valerie Lecasble and Airy Routier in an authoritative book on the affair.3 “It was explained that, instead, the leaders of the RPR—Jacques Chirac and Charles Pasqua—did not mind the Socialists taking part of the cake, if it were enlarged.” So the Elf system grew. It became more baroque, complex, and layered, and it began to branch out into international corruption so grand that Mitterrand’s man le Floch-Prigent was moved to describe France’s intelligence services, which dipped freely into the slush, as “a great brothel, where nobody knows any more who is doing what.”4
The system was a kind of open secret: A few well-connected French insiders knew all about it, and a fair number of educated outsiders in France knew something important was afoot but didn’t know the details and largely ignored it. Yet almost nobody could see the whole thing in overview. Everything was connected through tax havens. The paper trails, as the magistrates were discovering during my Libreville trip, were typically sliced among Gabon, Switzerland, Liechtenstein, Jersey, and beyond. Joly admitted that even though she probed deeply she only ever saw fragments of the whole picture. “Endless leads were lost in the shifting sands of the tax havens. The personal accounts of monarchs, elected presidents-for-life, and dictators were being protected from the curiosity of the magistrates.”5
Treasure Islands: Dirty Money, Tax Havens and the Men Who Stole Your Cash Page 1