17.Daniel J. Mitchell, The Moral Case for Tax Havens, video, Center for Freedom & Prosperity, October 2008.
18.This history is explored in more detail in the UK edition of this book, in chapter 3 on Switzerland. See also Sébastien Guex, “The Origins of the Swiss Banking Secrecy Loans and Its Repercussions for Swiss Federal Policy,” Business History Review, Summer 2000, the President and Fellows of Harvard College, pp. 237–266.
19.“The Moral Case for Tax Havens,” Center for Freedom and Prosperity Foundation video, http://www.youtube.com/watch?v=Xf14lkyH2dM; and “Tax Justice Network Sides with Europe’s Tax Collectors, Ignores Critical Role of Low-Tax Jurisdiction in Protecting Human Rights and Promoting Pro-Growth Policy,” Center for Freedom and Prosperity, April 7, 2005.
20.Joel Bakan, The Corporation (London: Constable & Robinson Ltd., 2005), p. 154.
21.“Why Do I Have to Deal with People Like Dan Mitchell?” J. Bradford DeLong, February 12, 2009, delong.typepad.com.
22.When the tax writer David Cay Johnston challenged Norquist, noting that his views were at odds with those of most economists, and taxes were needed to pay for civilization, Norquist responded that “we are not the successor of, we are not a continuation of, western civilisation. We are a unique and different civilisation.” From David Cay Johnston, Perfectly Legal: The Covert Campaign to Rig our Tax System to Benefit the Super Rich—and Cheat Everybody Else (New York: Penguin, 2003), p. 3.
23.See, for example, “Historical Top Tax Rates,” Tax Policy Center, October 26, 2009, http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213.
24.Jason Sharman, Havens in a Storm: The Struggle for Global Tax Regulation (Ithaca, NY: Cornell University Press, 2006), p. 85.
25.“The Moral Case for Tax Havens,” Center for Freedom and Prosperity Foundation video, http://www.youtube.com/watch?v=Xf14lkyH2dM.
26.David Cay Johnston, “Treasury Chief: Tax Evasion Is on the Rise,” New York Times, July 19, 2001, http://www.nytimes.com/2001/07/19/business/treasury-chief-tax-evasion-ison-the-rise.html?pagewanted=1.
27.“OECD Tax Haven Crackdown Is Out of Line, O’Neill Says,” Center for Freedom and Prosperity news summary, May 11, 2010, http://www.freedomandprosperity.org/Articles/sum05–11–01/sum05–11–01.shtml.
28.Martin A. Sullivan, “Lessons From the Last War on Tax Havens,” Tax Notes International, July 30, 2007.
29.David Cay Johnston, “Treasury Chief: Tax Evasion Is on the Rise,” New York Times, July 19, 2001.
30.Sharman, Havens in a Storm.
31.Johnston, Perfectly Legal, p. 2. A new study in October 2008 based on unpublished IRS data found that the rich hide much more of their income than the poor do. Taxpayers earning true income between $500,000 and $1 million a year understated their adjusted gross incomes by 21 percent overall in 2001, compared to just 8 percent for those earning $50,000 to $100,000. For poorer people, cheating was even lower. See “Rich Cheat More on Taxes, New Study Shows,” Forbes, October 21, 2008, http://www.forbes.com/2008/10/21/taxes-irs-wealth-biz-beltway-cz_jn_1021beltway.html.
32.Martin Wolf, Why Globalization Works (New Haven, CT: Yale University Press, 2005), p. 283.
33.For useful explorations of this topic, see Monique Morrissey and Dean Baker, “When Rivers Flow Upstream: International Capital Movements in the Era of Globalization,” Center for Economic and Policy Research, March 22, 2003; or Dani Rodrik and Arvind Subramanian, “Why Did Financial Globalization Disappoint?” IMF staff papers, vol. 56, no. 1, 2009, pp. 112–138.
34.Ryszard Kapuscinski, Shah of Shahs (New York: Vintage Books, 1992).
35.Caymanian Compass, July 8, 1991.
36.“Framing Cayman,” The Lawyer, March 29, 2004, http://www.thelawyer.com/framing-cayman/109308.article.
37.Anthony Travers, “An Open Letter to President Obama from the Cayman Islands Financial Services Association,” OBE, May 5, 2009.
38.“Tax Havens Batten Down as the Hurricane Looms,” The Observer, March 29, 2009.
39.The G20 declared this on April 2, 2009; the blacklist was empty by April 7. See “The Empty OECD Black List: Where Did All Tax Havens Go?” Eurodad press release, April 16, 2009; Richard Murphy, “The TIEA Programme Is Failing,” Tax Research blog, November 27, 2009; and “A Progress Report on the Jurisdictions Surveyed by the OECD Global Forum in Implementing the Internationally Agreed Tax Standard,” OECD, May 10, 2010, http://www.oecd.org/dataoecd/50/0/43606256.pdf.
40.Michael J. McIntyre, “How to End the Charade of Information Exchange,” Tax Notes International, October 26, 2009.
CHAPTER 9 THE LIFE OFFSHORE
1.Now known as the Big Four, following the demise of Arthur Andersen.
2.Michael Bronner, “Telling Swiss Secrets: 222 Billionaires,” Global Post, August 5, 2010.
3.Michael Bronner, “Telling Swiss Secrets: The Golden Goose,” Global Post, August 5, 2010.
4.“Doom-mongers Huddle over Island under Threat,” Financial Times, November 11, 1998.
5.Patrick Muirhead, “Jersey’s Culture of Concealment,” The Times, April 24, 2008.
6.Author’s interview with Syvret, 2009.
7.Stuart Syvret’s blog, “Jersey’s Media and Its Role in the Culture of Concealment,” July 29, 2010, http://stuartsyvret.blogspot.com/2010_07_01_archive.html.
8.Austin Mitchell, Prem Sikka, John Christensen, Philip Morris, and Steven Filling, “No Accounting for Tax Havens,” Association for Accountancy and Business Affairs (2002).
9.“Economics and Development in the Twenty-First Century,” remarks by Kenneth Galbraith on the occasion of his receipt of the Leontief Prize at Tufts University, March 27, 2000.
10.Companies can, if they prefer, set their own rates of tax, with a minimum of 2 percent, if they want to climb over the bar of a minimum rate specified in their country of origin. At the time of writing, Jersey is considering changes to its tax system.
11.Author’s interview with Elmer, 2009.
CHAPTER 10 RATCHET
1.The main research for this was undertaken by myself and Ken Silverstein of Harper’s magazine in 2009.
2.Some interviewees said May 1980, but Henry Beckler’s resume says June 11, 1980, http://www.wtcde.com/HenryBeckler.pdf.
3.According to the New York Times, “Others who might have raised questions about the bill, including other state officials, the press and the public, were intentionally kept in the dark, according to bankers and state officials” (“New York Banks Urged Delaware to Lure Bankers,” New York Times, March 17, 1981, http://www.nytimes.com/1981/03/17/business/19810317BANK.html?&pagewanted=1).
4.Biondi is a former president of the Delaware State Bar Association, a Democrat who served as an adviser to both Republican and Democrat governors, and an attorney for business interests, the Teamsters union, and many others. Delaware Grapevine, a local political website, called him “a tough-minded political operative capable of delivering corporate contributions or muscling up votes.” Celia Cohen, “I Heard You Picket Newspapers,” Delaware Grapevine, July 13, 2005, http://www.delawaregrapevine.com/7–05sheeran.asp.
5.Interview with Hayward and Hayward’s comments in Larry Nagengast, Pierre S. Du Pont IV, Governor of Delaware, 1977–1985 (Delaware: Delaware Heritage Press, April 2007), p. 109.
6.“Birth of a Banking Bonanza,” Delaware Lawyer (Fall 1982): 38.
7.David S. Swayze and Christine P. Schiltz, “Keeping the First State First: The Alternative Bank Franchise Tax as an Economic Development Tool,” Delaware Banker (Fall 2006), http://www.pgslegal.com/CM/FirmNews/Fall%202006%20Delaware%20Banker%20Article.pdf.
8.Adrian Kinnane, Durable Legacy: A History of Morris, Nichols, Arsht & Tunnell (Morris, Nichols, Arsht & Tunnell, 2005), http://www.mnat.com/assets/attachments/MNAT_Book__Web_Version.pdf.
9.“New York Banks Urged Delaware to Lure Bankers,” New York Times, March 17, 1981, http://www.nytimes.com/1981/03/17/business/19810317BANK.html?&pagewanted=1.
10.Nagengast, Pierre S. Du Pont IV, Governor of Delaware, 1
977–1985, p. 113.
11.In 2010 the so-called Whitehouse Interstate Lending Amendment was introduced in the U.S. Senate, cosponsored by Senators Cochran, Merkley, Durbin, Sanders, Levin, Burris, Franken, Brown, Menendez, Leahy, Webb, Casey, Wyden, Reed, Udall, and Begich, aiming to restore to the states the ability to enforce interest rate caps against out-of-state lenders. At the time of writing, it had made no progress.
12.Nagengast, Pierre S. Du Pont IV, Governor of Delaware, 1977–1985, p. 114.
13.A description of the Bank Franchise Tax, Delaware Department of Finance, http://finance.delaware.gov/publications/fiscal_notebook_09/Section07/bank_franchise.pdf.
14.“New York Banks Urged Delaware to Lure Bankers,” New York Times, March 17, 1981, http://www.nytimes.com/1981/03/17/business/19810317BANK.html?&pagewanted=1.
15.Nagengast, Pierre S. Du Pont IV, Governor of Delaware, 1977–1985, p. 110.
16.Author’s interview with Swayze, Delaware, November 24, 2009.
17.See “Consumers Turn to Plastic as Home Loans Slow,” Reuters, September 11, 2007. Credit card debt stood at $907 billion, and this would rise to $975 billion by December 2008. From “US Credit Card ABS: 2006 Outlook,” Barclays Capital, January 26, 2006; and Mark Furletti, “An Overview of Credit Card Asset-Backed Securities,” Philadelphia Federal Reserve, December 2002; and “Fed Report: Consumer Credit Card Balances Keep Plummeting,” http://www.creditcards.com/credit-card-news/federal-reserve-g19-consumer-credit-december–09–1276.php.
18.This research was undertaken by myself and Ken Silverstein of Harper’s magazine in Delaware in 2009. As far as I know, nobody has ever deeply explored this Delaware episode and linked it to its wider impacts, apart from the early New York Times article cited in this chapter. For Geogheghan quote see Thomas Geoghegan, “Infinite Debt: How Unlimited Interest Rates Destroyed the Economy,” Harper’s, April 2009.
19.Paul Tucker, “Shadow Banking, Financing Markets and Financial Stability,” remarks by Mr Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, at a Bernie Gerald Cantor (BGC) Partners Seminar, London, January 21, 2010, http://www.bis.org/review/r100126d.pdf.
20.From Biondi interview and David S. Swayze and Christine P. Schiltz, “Keeping the First State First: The Alternative Bank Franchise Tax as an Economic Development Tool,” Delaware Banker (Fall 2006), http://www.pgslegal.com/CM/FirmNews/Fall%202006%20Delaware%20Banker%20Article.pdf.
21.See, for example, JP Morgan CDO Handbook, May 29, 2001, p. 31; and Scott E. Waxman, “Delaware Statutory Trusts,” Potter Anderson & Corroon LLP, 2010, http://www.potteranderson.com/news-publications–0–127.html. Biondi did not say he was involved in the Delaware Statutory Trust Act.
22.Scott E. Waxman, Nicholas I. Froio, Eric N. Feldman, and Ross Antonacci, “Delaware: The Jurisdiction of Choice in Securitisation,” Potter Anderson & Corroon LLP, May 19, 2004, http://library.findlaw.com/2004/May/19/133435.html.
23.David S. Swayze and Christine P. Schlitz, “The Evolution of Banking in Delaware,” published by Parkowski, Guerki & Swayze, http://www.pgslegal.com/CM/FirmNews/evolution-of-banking-in-delaware.asp.
24.See John Dunn and Prem Sikka, “Keeping the Auditors in the Dark,” Association for Accountancy & Business Affairs, 1999, http://visar.csustan.edu/aaba/dunn&sikka.pdf.
25.The UK Companies Act of 1948, for example, required this.
26.Author’s interview with Konrad Hummler, November 4, 2009.
27.Jim Cousins, Austin Mitchell, and Prem Sikka, “Race to the Bottom: The Case of the Accountancy Firms,” Association for Accountancy & Business Affairs, 2004.
28.David Cay Johnston, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich—and Cheat Everybody Else (New York: Penguin, 2003), p. 15.
29.From the UK Companies Act of 1989.
30.From author’s interview with Southern, March 13, 2009.
31.“Voter Turnout,” International Institute for Democracy and Electoral Assistance, 2010, http://www.idea.int/vt/survey/voter_turnout_pop2.cfm.
32.“Offshore Hazard: Isle of Jersey Proves Less Than a Haven to Currency Investors,” Wall St. Journal, September 17, 1996.
33.A letter in October 1996 from Colin Powell, Jersey’s Chief Adviser, to Pierre Horsfall, President of Jersey’s Finance and Economics Committee, suggests the uncertain official position at the time. “Some might hold the view that there is nothing wrong with States members being directors of local companies,” the letter read. “Indeed, for as long as States members are not full-time and salaried it is almost inevitable.” The answer that had been put forward, Powell said, was to set up a Jersey Financial Services Commission to supervise the finance industry—though that, he conceded, may not be very different. “The Commission will include those who have a direct interest in the finance industry.” The answer, Powell said, was to make sure that those in the future commission would not be involved in particular areas where they had a conflict of interest, and that the matter should be debated further. (Letter from Colin Powell, O.B.E, Chief Adviser to the States, to Senator P.F. Horsfall, President, Finance and Economics Committee, October 25, 1996.)
34.“Finance: Damage Might Be Done to Jersey’s Reputation,” Jersey Evening Post, February 15, 1996.
35.Accountancy Age, March 29, 2001, p. 22.
36.Prem Sikka and Hugh Willmott, “All Offshore—The Sprat, The Mackerel, Accounting Firms and the State in Globalization,” Essex Business School Working Paper No. WP 09/05, February 2009.
37.Luca Errico and Alberto Musalem, “Offshore Banking: An Analysis of Micro- and Macro-Prudential Issues,” IMF, January 1999. Also: “Favourable regulatory treatment in OFCs increases the operational leeway of offshore banks for balance sheet management,” the IMF said: “exemptions from reserve requirements on deposits; liquidity requirements; liability and asset concentration restrictions; capital adequacy thresholds; and stringent foreign exchange position limits, allow offshore banks to more freely manage their balance sheets.”
38.For example, in When Genius Failed, Roger Lowenstein’s otherwise excellent analysis of the episode, the offshore structure is almost ignored. Roger Lowenstein, When Genius Failed (New York: 4th Estate, 2002).
39.See, for example, “Report on Special Purpose Entities,” the Bank for International Settlements, September 2009.
40.As the BIS report puts it: “The onshore (Delaware) versus offshore (Cayman) decision will generally be driven by factors outlined in the previous section (on tax considerations of SPEs), while other (non-taxation related) considerations (such as clarity of legal regime, ease of incorporation, etc) will generally be similar to those outlined for European SPEs immediately above.” Note that “clarity of legal regime” and “ease of incorporation” stem specifically from these jurisdictions’ offshore status, as defined in this book.
41.See Jim Stewart, “Shadow Regulation and the Shadow Banking System: The Role of the Dublin International Financial Services Centre,” Tax Justice Focus 4, no. 2 (July 18, 2008); and Jim Stewart, “Low Tax Financial Centres and the Subprime Crisis: The IFSC in Ireland,” presentation, Tax Justice/AABA research workshop, University of Essex, July 3–4, 2008. Also, draft version of Jim Stewart, “Low Tax Financial Centres and the Financial Crisis: The Case of the IFSC in Ireland,” May 15, 2010.
42.Dublin’s lures for the shadow banks were not especially its low-tax regime—though that helped—but other features: Ireland’s wide array of tax treaties, and the fact that it ticks certain boxes that fund regulators require in their home countries, including the fact that certain EU directives apply. Being within the Euro currency zone is also crucial.
43.See Goldman Sachs, “Abacus Prospectus and Abacus Indicative Terms,” February 26, 2007, http://www.scribd.com/doc/30054003/Abacus–2007-AC1-INDICATIVE-TERMS.
44.Goldman’s offshore deals deepened global financial crisis: “Goldman’s Offshore Deals Deepened Global Financial Crisis,” McClatchy’s, December 30, 2009.
45.Author’s
interviews with Elmer, 2010.
46.“Debt Bias and Other Distortions: Crisis-Related Issues in Tax Policy,” IMF Fiscal Affairs Department, June 12, 2009.
47.2003–2007 data from the IMF and from “Private Equity Fund Raising up in 2007: Report,” Reuters, January 8, 2008.
48.Julie Cresswell, “Profits for Buyout Firms as Company Debt Soared,” New York Times, October 4, 2009.
49.Andrew G. Haldane, “Small Lessons from a Big Crisis,” Bank of England, May 8, 2009. Haldane is executive director, financial stability. For some excellent examples of this, see Gretchen Morgenson, “Private Equity’s Trojan Horse of Debt,” New York Times, March 12, 2010; and Julie Cresswell, “Profits for Buyout Firms as Company Debt Soared,” New York Times, October 4, 2009.
50.The GFI studies present a range of estimates, with net flows into deficit countries worth hundreds of billions of dollars. See chart 7 in Dev Kar and Devon Cartwright Smith, “Illicit Financial Flows from Developing Countries 2002–2006,” Global Financial Integrity, Washington, D.C., 2008, http://www.gfip.org/storage/gfip/economist%20-%20final%20version%201–2–09.pdf.
51.See Rebecca Smith, “Monty’s £10,000 Credit Limit,” July 28, 2003, http://www.wilmslowexpress.co.uk/news/s/63/63903_montys_10000_credit_limit.html.
CONCLUSION
1.The IASB issues International Financial Reporting Standards, which are currently in a process of “convergence” with U.S. accounting standards under the U.S. Financial Accounting Standards Board (FASB), which has a complex, private-led ownership structure but also does not require country-by-country reporting.
2.The World Bank says it “meets the cost/benefit test”; see the World Bank submission to the IASB, June 28, 2010, http://www.ifrs.org/NR/rdonlyres/7FAC2D52-A064–41BD–8BA8–445245232E0B/0/CL55.pdf.
3.Currently the most comprehensive source of updated information available on the topic of information exchange is a section entitled “On Exchange of Information for Tax Purposes” on the website of the Tax Justice Network, http://www.taxjustice.net/cms/front_content.php?idcat=140.
Treasure Islands: Dirty Money, Tax Havens and the Men Who Stole Your Cash Page 35