Treasure Islands - Nicholas Shaxson [16]
Jason Sharman, an Australian academic, checked how easy it was to set up secrecy structures, using the Internet and those seedy offshore advertisements that infest the back pages of business publications and airline magazines. In his report published in 2009 he records making forty-five bids for secret front companies. Money laundering controls seem to be in operation patchily, but of those 45 bids, 17 companies agreed to set them up without even checking his identity. Only four of these were in the “classic” havens like Cayman or Jersey, while the other 13 were in countries from the wealthy Organisation for Economic Cooperation and Development (OECD), including seven in Britain and four in the United States.
What Sharman was encountering, The Economist magazine noted, was not traditional Swiss banking secrecy, where discreet men in plush offices promised to take their clients’ names to the grave. “This is a more insidious form of secrecy, in which authorities and bankers do not bother to ask for names…. For shady clients, this is a far better proposition: what their bankers do not know, they can never be forced to reveal. And their method is disarmingly simple. Instead of opening bank accounts in their own names, fraudsters and money launderers form anonymous companies, with which they can then open bank accounts and move assets.”37 The United States, Sharman noted, was offering nonresident foreigners all the elements of a tax haven, notably no taxes and secrecy. As he put it, “The United States, Great Britain and other OECD states have chosen not to comply with the international standards which they have been largely responsible for putting in place.”
Rich OECD nations have worked hard to persuade their publics that there has been a major crackdown on the secrecy jurisdictions. “The old model of relying on secrecy is gone,” said Jeffrey Owens, head of tax at the OECD. “This is a new world, with better transparency and better cooperation.”38 Many people believed him. French president Sarkozy went further. “Tax havens and bank secrecy,” he said, “are finished.”39 Yet big OECD member states are the guardians and promoters of the offshore system. It continues to process vast tides of illicit money—yet an OECD blacklist of tax havens is effectively a whitewash, as I will explain later.40 And to the very, very limited extent that rich countries have tried to address the problem, low-income countries are being left on the sidelines as usual.
When the fox announces that it has done an excellent job of beefing up the security of the henhouse, we should be very cautious indeed.
The offshore world is an endlessly shifting ecosystem, and each jurisdiction offers one or more offshore specialties. Each attracts particular kinds of financial capital, and each develops a particular infrastructure of skilled lawyers, accountants, bankers, and corporate officers to cater to their specific needs.
Yet few people are even aware that such businesses exist. You may well have heard of the Big Four accounting firms KPMG, Deloitte, Ernst & Young, and PricewaterhouseCoopers. But have you heard of the Offshore Magic Circle? Its members are made up of highly profitable multijurisdictional law firms mostly originating in Britain or its Overseas Territories and Crown Dependencies: a smartly dressed regiment of accountants, lawyers, and bankers forming a private global infrastructure that, in league with captured legislatures in the secrecy jurisdictions, makes the whole system work.
Offshore services range from the legal to the illegal, with a huge gray area in between. In terms of tax, the illegal stuff is called tax evasion, while tax avoidance is technically legal, though, by