Treasure Islands - Nicholas Shaxson [17]
Illegal offshore services and structures include tax-evading private banking or asset management, sham trusts, corporate secrecy, illegal reinvoicing, regulatory evasion, fraud concealment, and many, many other nefarious possibilities. These are often hidden behind soothing bromides like “tax optimization” or “asset protection” or “efficient corporate structure.”
On the tax side, one important matter concerns something known as double taxation. Say a U.S. multinational invests in a manufacturing plant in Brazil and earns income there. If both countries taxed the same income, without giving credits for the other country’s taxes, the multinational would get taxed twice. Tax havens do help companies eliminate this double taxation—though you don’t need tax havens for this: It can be ironed out with appropriate treaties and tax credits between countries. But when tax havens eliminate double taxation, something else happens too: double nontaxation. In other words, not only does the corporation avoid being taxed twice on the same income. It also avoids being taxed at all. I will explore this strange and complex area in a little more detail later.
Each jurisdiction tolerates different levels of dirt. Terrorists or Colombian drug smugglers would probably use Panama, not Jersey—though Jersey’s trust company sector in particular, handling several hundreds of billions of dollars’ worth of assets, continue to make the island a sink for nefarious activity and illicit, tax-evading loot, notwithstanding Jersey’s routine claims to be a “transparent, well-regulated and cooperative jurisdiction.” Bermuda is a magnet for offshore insurance and reinsurance, frequently for the purpose of avoiding tax; the Caymans are favored locations for hedge funds, frequently for the purposes of escaping tax, legally or illegally, but more often to get around certain kinds of financial regulation. In securitization, the practice of packaging up mortgage loans and other assets to sell on to investors—a major contributor to the latest financial crisis—Wall Street has long favored locating its Special Purpose Vehicles (SPVs) in the Caymans and Delaware; in Europe the preferred locations for SPVs are Jersey, Ireland, Luxembourg, and the City of London. All are, as this book will show, major secrecy jurisdictions.
Tax havens often target specific other large economies, usually nearby. Switzerland’s wealth managers focus quite heavily on getting business from tax-evading rich Germans, French, and Italians—corresponding to Switzerland’s immediate neighbors and to Switzerland’s three main language groups—though they are open to all comers from around the world. Monaco caters especially to French elites, while some wealthy French and Spaniards use Andorra, sandwiched in the eastern Pyrenees between the two larger countries. Rich Australians often use Pacific havens like Vanuatu; a lot of illicit North African money finds itself routed through Malta, another former British outpost in the Mediterranean Sea. U.S. and Latin American corporations and wealthy individuals use Panama and the Caribbean havens for a lot of their business, while wealthy Chinese tend to use Hong Kong, Singapore, and Macau.
Some jurisdictions specialize as conduit havens: way stations offering services that transform the identity or character of assets in